CHINAwatch

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. 

 

 

Freudian slip over Hong Kong's "national" status on designer T-shirts?

TV interview with RT on 12 August, 2019

China connects the world: Creation of a Sino-centric or more inclusive world order?

PowerPoint presentation to the British Business Association of Macao (BBAM) at Hotel St. Regis, Macao on 6th June, 2019.

Download China connects the world - Creation of a Sino-centric or more inclusive world order 

US pushback against China intensifies on more fronts

Live interview with RT on 1 June, 2019

US trade talk takes aim at "Made in China 2025"

Quoting the New York Times, W.H. Lo of Bastillepost.com, an online Chinese newspaper in Hong Kong, outlines in an article of 24 May, 2019 the following Eight Demands of the Unites States in trade talks with China: 

(a) China to reduce $100 billion trade deficit with the US within one year, and another $100 billion the following year;

(b) Stop subsidising the advanced technologies outlined in "Made in China 2025";

(c) Accept US restrictions against "Made in China 2025" potential imports;

(d) Implement direct and verifiable anti-cyberespionage measures against intrusions into US commercial assets;

(e) Reinforce Intellectual Property protection;

(f) Accept US restrictions on investments in "sensitive" technologies and waive any right for retaliatory measures;

(g) Lower average Chinese tariffs of 10% to 3.5% in line with US average tariffs;

(h) Open up the services and agriculture sectors.

Part of US tariffs are to remain subject to quarterly joint assessments of implementation. 

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As the article rightly points out, these demands are primarily geared to retarding China's technological advances, with particular reference to "Made in China 2025". The latter is a flagship strategy underpinning the China Dream of becoming a strong world power. These demands coincide with a pletora of US measures in recent weeks targeting Huawei, China's tech giant, other Chinese tech firms, admissions of Chinese students to US elite universities, and even exchanges in academic research. 

As US anti-China coercion mounts across the board, it is not surprising why President Xi balked at signing off something reminiscent of China's past "unequal treaties" during the nation's "Century of Humiliation". It's also instructive that President Xi calls for a New Long March to prepare for a protracted war on all fronts in a fraught trajectory towards realizing the China Dream. 

Further reading and references 

For more on the trade war, please visit Why the US-China trade war broke down and what's behind it all? and Op-ed in the South China Morning Post. 

The Economist (Printed Edition 18 May, 2019) runs a Special Report "China v America: A New Kind of Cold War offering further details and perspectives on this epochal confrontation.

Its subsequent edition (25 May) features a leader Big tech and the trade war highlighting the threat to investors, consumers and American interests. However, it doesn't focus on how the war over 5G may pan out. For this, you may wish to read the collection of references in How the US chooses to lose the race on 5G and the South China Morning Post article of 26 May on the US iron curtain against China's tech advances.

Trade, People, and Money: Understanding China's Unique Capabilities

Stephen Olson, Hong Kong-based research fellow of the Hinrich Foundation, in an article of 24 October, 2018 in The American Prospect, a liberal magazine based in Washington D.C., suggests that the West, (particularly the United States), needs to  negotiate a modus vivendi with China's very different economic system and unique global capabilities in trade, peoples and money, "to pursue national objectives and shape it relations—economic, trade, strategic, and diplomatic—with other countries and multilateral institutions." This may well be pivotal in helping to shape a looming Chinese Century

How may China respond to a full US trade war?

The United States has imposed life-threatening sanctions against ZTE, one of China's leading telecom conglomerates. There is speculation that Huawei, China's high-tech crown jewel, could be the next target. On the cards is an all-out tariff list impacting on $100 billion worth of Chinese goods. Additionally, a new Taiwan Travel Act threatens the One China Policy. A loose Indo-Pacific "QUAD" alliance, partnering with Japan, Australia and India, pushes back against China's growing regional influence. A rally with the European Union is in the offing, questioning China's Belt and Road Initiative.

Treasury Secretary Mnuchin's proposed visit to Beijing notwithstanding, it begs the question whether the United States is hell-bent on checking China's Rise, instead of a mere trade war.

Leaving aside the question whether China's Rise can be arrested, there is no doubt that a trade war is likely to be mutually destructive. While its initial response against American tariffs has been fairly restrained, China has far more potent ammunition up its sleeve.

First, China's massive orders from America's Boeing could be diverted to Europe's Airbus.

Second, retaliatory measures could be taken on American giant enterprises in China, including Walmart and Apple.

Third, business prospects of the Trump family in China could be curbed.

Fourth, a large dangling carrot can be held out to America's powerful oil and gas conglomerates, Trump's main financial backers, that China is ready to buy huge quantities of shale gas from the United States, given a more friendly relationship. (Naturally, China doesn't need to give up its insurance policy of Belt and Road energy supply lines).

Fifth, subject to controllable risks, China could, over time, significantly reduce the purchase of US Treasury bills, thereby driving up US interest rates, dampening America's economic growth and Trump's prospects for a second term as President.

Sixth, China could invest savings from reduced holding of US treasuries in turbo-charging development of China's fifth generation computer chips based on artificial intelligence and quantum computing, on which China has already had a head start.

Seventh, China would open up its markets vigorously, offering very attractive opportunities to the world's best talents, barring those in the United States.

Eighth, encouraging and supporting visits to China of the hundred-odd American trade and business organizations which have petitioned against any trade war with China. They would be shown China's significant improvements in market access and better equipped to fight protectionism back home.

Ninth, China would invest heavily in those states less hostile to China so that they could exert a moderating influence on Washington.

Tenth, China would redouble measures to safeguard protection of foreign intellectual property. It should play a proactive role in international forums and institutions, upholding trade liberalization and curbing protectionist tendencies.

In any case, in what promises to be an Asian Country, China should keep its eyes on the ball, taking natural anti-China tendencies in its stride. Action always speaks louder than words. 

 

 

 

With the rise of protectionism, would the economy be in trouble in China and rest of Asia in 2018?

A PowerPoint presentation to the Executives' Global Network (EGN) on 27 March, 2018. 

Download With the rise of protectionism would the economy be in trouble in China and rest of Asia in 2018

What can we expect in China in 2018?

An in-depth, across-the-board Mckinsey report dated December 2017 by director emeritus and senior external adviser Gordon Orr offers the following insights - 

International expansion 

• Focus on Manufacturing 2025 sectors and Internet-enabled strategic businesses, such as artificial intelligence (AI) and the Internet of Things, including computers, aviation, and automotive to wealth management, healthcare, tourism, education, gaming.
• With political push-back in the United States, Brazil, Japan, UK, Israel and Scandinavia show signs of increasing interests. 
• Belt and Road projects -  more scrutiny, potential delays but also more projects under way. Focus more on what business opportunities would result than on gaining a slice of the construction work.
• China to grow global soft-power by investing more in Confucius Institutes at universities, in international media projection on traditional TV and online,  and through overseas development-aid (e.g. largest recipient Cuba). 

Domestic centralisation & control

• From punishment of irregularities to much clearer and complete set of regulations on wealth management, insurance and online financial services, minimising regulatory arbitrage. 
• All online payments now have to pass through a central government clearing house,to monitor who is passing money to whom.
• Data-protection and cybersecurity laws to become clearer.
• A National Supervision Commission will oversee inspections of all government departments, institutions, and SOEs, including traditional heavy industries such as coal, steel, and chemicals. 
• Popular online payments to render cash obsolete in China by 2020. Smart cities using AI on government, business, and individual data already at scale.  Requiring real-name usage of the Internet allows oversight of online behaviour. 
• Facial-recognition technology has progressed to the level that Tencent can work with public security bureaus to identify children stolen from their families, even years after the event, by projecting how facial characteristics will evolve and picking them out on CCTV in public areas or online. 

Domestic industry tipping point

• China has out-performed France, US, and Japan in both supply and demand of Electric and Near Electric Vehicles. Regulation focuses on share of new-energy vehicles versus traditional combustion-engine vehicles. Shortfall requires carbon credits. Another focuses on fuel efficiency of cars sold. 
• All part of government’s ambition to dominate the global electric-vehicle (EV) market by 2030. 
• More than $50 billion subsidies for the industry by 2020.  Power-grid companies have installed nearly 200,000 charging stations. 
• BYD and CATL aggressively hiring talent from South Korea and the United States.Volkswagen has committed to a $10 billion-plus program to develop EVs in China. 

Pharmaceuticals 

• China Food and Drug Administration has streamlined drug approvals. More than 35 major new launches (mostly MNCs) in 2017 (only five in 2016). More than 300 drugs added to the National Reimbursement Drug List. 
• Billions of dollars of private-equity and venture-capital funding supplemented by innovation by Chinese companies such as Baidu, Ping An, and Tencent, using AI and big data–based innovations, working with local government and hospitals. MNCs e.g. Bristol-Myers Squibb, launched China’s first outcomes-based insurance program for hepatitis C in partnership with Shanghai Pharma and Huatai.

Steel, Cement and Coal

• More effective regulation of output volumes, of days of production, of pollution output, and of capital investment will genuinely reduce output. State-owned enterprises to be further consolidated, their surplus capital given as dividends to the state pension funds (which hold 10% of their shares). 
• Remaining, hopefully large-scale higher-quality companies could see a virtuous cycle of less capacity, fewer competitors, a more orderly market, higher prices, higher profits, higher dividends, and happier owners. Exports will still be used as a release valve, causing disruption in markets that remain open to Chinese steel imports.

Pensions and Asset Management 

• Establishment of  Financial Stability and Development Committee in 2017 will see shadow banking, wealth-management products, and online microlending curtailed. 
• Consolidation and reconcentration of assets is possible.
• Trillions of dollars of assets will be looking for return in new areas, potentially rapidly expanding the $1.7 trillion public mutual-fund market. China’s fund-management sector already doing extremely well; first half of 2017, net margins greater than 30%. 

E-sports, not soccer

• Soccer entrepreneurs are realizing that it is much easier to buy a soccer team than to run it successfully. In contrast, China’s e-sports players are driving the global industry. With more than 1,000 professional e-sports players in China, top 20 each earned more than $1 million in competition prize money. Sponsorships add much more. Revenues rising well over 25% annually. 

In-bound investment

• Invitations issued to current and potential foreign investors, urging them to come with lists of bottlenecks that could be removed to speed up new investment. Opening-up announcements led by the financial sector allow foreign companies to undertake new activities in free-trade zones.

Greater Bay Area

• Comprising Guangzhou, Shenzhen, and Hong Kong—along with other cities— a total population of 70 million, with GDP per capita of more than $20,000
• Headquarters of many of China’s most innovative start-ups and scale enterprises. A world-leading combination of hardware and software capabilities, and great depth of international financial resources. High demand for high-skilled blue- and white-collar workers. Shift into more value added, more automated manufacturing sectors.
• The region’s population grew faster in 2000 to 2010 than any single province.  Median age five years below the northeast, giving it almost ten workers per pensioner. Local governments working hard to retain migrants permanently, making it easier for their children to register in local schools and to join local social insurance schemes.

Consumer wealth

• Inflation rising slightly and real disposable incomes rising 8 percent nationwide. Consumer spending continue to grow in high single digits, backed by very strong levels of consumer confidence (with wide regional variations).
• Spending will grow on health-related areas such as healthier foods, exercise activities, and medical expenses (for themselves and for elderly relatives).
• Increasingly, consumption growth will be driven by generation born in the 1990s with no experience of recession  and more balanced aspirations between achievement and enjoyment. 
• Property not as attractive in 2017, with only single-digit price rises nationwide. Divergence across regions becoming ever wider. With  government restricting access to mortgages and pushing the development of the rental market, more stable prices may become the norm.
• Individuals picking their own stocks to buy, and investing in active fund managers. Outbound investment through official channels into international stocks and bond markets. More funds flowing to private equity and venture capital. 

Social priorities

• Pollution - More than 30 cities, mainly across northern China, have committed to reduce particulate matter (PM) 2.5 density by 15 to 40 % over the winter. Heavy polluters are being closed for the season, some given money to upgrade their pollution-reduction equipment.Older vehicles are being restricted from cities, and alternate-day license-plate limits imposed. Natural-gas supplies are being extended into surrounding rural areas to substitute for coal burning. A good start, at least in Beijing, with PM 2.5 down 30 percent for October and November.
• Anti-poverty - As part of becoming a “moderately prosperous country” by 2020, the government is seeking to eliminate all areas of absolute poverty. In part, through transfers from the center. More will come from directing businesses, both state owned and private to establish operations locally to employ people from the poorest areas.

Conclusion

• A year of slightly slower growth, with wider variations across provinces and cities than ever, driven by increased consumer spending skewed to wealthier cities and higher government social spending. This will be weighed back by lower property and infrastructure spending. Net exports remain the largest uncertainty. Subject to United States vagaries, a year of very positive developments in many sectors, framed by an environment of tighter and more centralized regulation and control.

Download Mckinsey - China 2018  

China's Belt and Road Initiative: Opportunities for the Aegean Region

My PowerPoint presentation at the international Aegean Economic Forum on 26 October, 2017.

At the Forum, I highlighted key messages of President Xi's 30,000-word Speech at the 19th Party Congress, the nation's existential threats and epochal opportunities, the makings of the Belt and Road Initiative, and ways to leverage it for the benefit of the Aegean Region.

Download OBOR Economic Opportunities for Aegean Region

Download AEGEAN FORUM invitation

Download Aegean Forum Program

The Aegean Forum is a new conference series organized by the Özgencil Organization. For over 16 years, they organize the prestigious annual Forum Istanbul which are supported by the highest levels of the Turkish government, including Deputy Prime Minister. I was a sponsored Speaker at the Forum Istanbul for five years in a roll. See my last Forum Istanbul PowerPoint presentation in 2015 on Turkish-China Relations: New Silk Road in a Changing World.