Trade War

Newsletter 72 - June 12, 2021

Welcome to the 72nd edition of Trade War.

At the G7, the U.S., Europe and Japan debate how hawkish to be on China. And the U.S. Senate passes a $250 billion technology competitiveness bill aimed at Beijing.

China rushes out a new law to retaliate against sanctions on its companies and officials. And plans to merge schools in China spark rare student protests amidst a difficult job situation and the rise of the “Lying Flat” phenomenon.

Who are the China hawks at the G7?

As G7 leaders meet in Cornwall, England this weekend, the big issue is how strongly to respond to China’s push for global influence as well as its dismal human rights record including in Xinjiang, reports Bloomberg News.

While Joe Biden, Boris Johnson, Canada’s Justin Trudeau, and Japan's Yoshihide Suga all are pushing for a more hawkish approach, Angela Merkel, Emmanuel Macron, and Italy’s Mario Draghi are worried about the grouping being seen as anti-China.

Still, the degree to which all countries appear willing to take a tougher stance towards China marks this meeting from earlier ones, one European official told Bloomberg.

“The leaders agree on working together to respond to what they consider to be non-market economic practices by China, as well as speaking out on human rights abuses and forced labor in supply chains, including in Xinjiang, [a U.S.] official said.”

China winning in overseas presidential trips

Biden’s first trip overseas as president is being heralded as a step towards restoring U.S. diplomatic relations battered under the Trump administration. Still, a single overseas jaunt won’t match China’s barrage of presidential visits.

Data shows that over the last decade China overtook the U.S. in the quantity, duration, and breadth of presidential diplomacy, writes Eurasia Group’s Neil Thomas in a twitter thread.

While U.S. presidents previously traveled overseas far more than their Chinese counterparts, that changed after the 2009 global financial crisis.

“Travel by China’s president rose steadily and Xi Jinping averaged more foreign visits annually (14.3) than Obama (13.9) or Trump (12.3),” tweets Thomas.

$250 billion bill beefs up US tech, threatens China

The U.S. Senate has approved a sweeping $250 billion bill that aims to maintain American technological competitiveness in the face of a rising China, reports Reuters.

The bill that passed the Senate with bipartisan support, calls for major investments into U.S. technology including semiconductors. The bill that now goes to the House also threatens mandatory sanctions on Chinese entities involved in U.S. cyberattacks and intellectual property theft from American companies, and creates a review for export controls on products that facilitate human rights abuses.

“Assuming the House follows suit, this is the most consequential statement by Congress on China policy since its votes granting permanent MFN [Most-Favored-Nation trading status] for China in 2000 in advance of China joining the WTO in 2001,” writes CSIS’ Senior Advisor Scott Kennedy in a tweet thread.

“Although motivated by opposite views of China, both steps made sense in their historical contexts. In 2000, an integration strategy toward a much weaker China led by reformers made sense [and] the US benefitted immensely.”

“In 2021, [with] a much stronger China led by hardline ideologues intent on undermining the liberal [international] order, strengthening the US on defense [and] offense is the right move.”

‘Paranoid delusion of wanting to be the only winner’

Beijing has responded by accusing Washington of “defaming” China with a bill showing “paranoid delusion” reports the official China Daily.

“The Foreign Affairs Committee of the National People's Congress, China's top legislature, expressed in a statement "strong dissatisfaction and resolute opposition" to the U.S. Innovation and Competition Act of 2021, urging Washington to stop advancing it,” writes the English language paper.

The bill shows a "paranoid delusion of wanting to be the only winner, and distorted the original intention of innovation and competition," the NPC statement said.

‘Sacrificial pawns in a game of political chess’

Beijing has rushed through a new law that calls for counter sanctions to punish foreign individuals and entities that put “discriminatory restrictions” on China, reports the Wall Street Journal.

The law follows the U.S. and other countries aiming numerous economic and political sanctions at China over everything from human rights abuses in Xinjiang and Hong Kong to its military expansion in the South China Sea.

“The countermeasures include denying and revoking visas or expulsion, seizing and freezing assets within China, blocking transactions and cooperation with Chinese individuals and entities, as well as other unspecified “necessary measures,”” reports the Journal. Chinese can also file lawsuits in Chinese courts for compensation for damages due to foreign sanctions.

“European companies in China are alarmed by the lack of transparency in this process—the first reading was never announced, and there is no draft to examine,” Joerg Wuttke, president of the European Union Chamber of Commerce in China, told the business paper, speaking before the law was passed. “Such action is not conducive to attracting foreign investment or reassuring companies that increasingly feel that they will be used as sacrificial pawns in a game of political chess.”

Plan to merge schools sparks rare student protests

As China prepares for a record nine million students to graduate from university, a rare campus protest by students was meet with tear gas and batons, reports AFP reporter Laurie Chen.

“Undergraduates at Nanjing Normal University's Zhongbei College, in eastern Jiangsu province, were enraged by a plan to merge the school with a vocational college, fearing it would devalue their qualifications as they prepare for China's intensely competitive job market,” the French news service reported.

China’s education authorities aim to expand the use of vocational colleges nationwide and the planned merger was part of that larger effort.

Students held the school’s dean hostage for over 30 hours as they called for a halt to the merger plans; on Monday, Jiangsu officials announced they were suspending the merger, which would have affected five local universities.

42.5% of grads choose state firms; only 19% private

More data shows China’s recent graduate are choosing jobs at China’s state-owned enterprises over private companies, reports CNBC.

“Chinese recruitment site Zhaopin found that 42.5% of graduating students said state-owned enterprises were their top choice for a job – up from 36% last year,” reports CNBC. “In contrast, the percentage choosing the private sector fell to 19% from 25.1%.”

One 24-year-old woman who has taken a job with a state-owned bank, told CNBC that in the aftermath of the pandemic, small and private-owned companies don’t seem as stable as government firms.

“Students were less inclined to enter the workforce overall – the study found an 18.9 percentage point drop in graduates taking traditional jobs. Instead, more decided to freelance, take a gap year or pursue higher academic degrees,” reported CNBC.

‘Lying Flat’: Chinese youth reject rat race

Meanwhile, in the face of shrinking economic prospects, the “Lying Flat” or tangping phenomenon, where Chinese youth opt out of the rat race is taking off, reports the Washington Post’s Lily Kuo.

“Don't fall in love, don't get married, don't buy a house, don't work extra. We wrote about 'lying flat' 躺平, a form of rebellion among young Chinese that has been censored online and criticized by state media,” tweets Kuo. “People realize there is no upward mobility.”

“Experts say tangping is also a rejection of the attitude and behaviors—working and consuming—promoted by the government to keep the Chinese economy running. When Chinese officials announced loosened family-size limits to allow all couples to have up to three children, one commentator quipped, “We are all thinking about how best to lie down while they are pushing us to reproduce,” wrote Kuo.

Low social mobility, unemployed youth and China’s future

“The Chinese subculture of dispirited youth called bereavement culture sangwenhua 丧文化” is now being manifested by the latest tangping trend, writes David Cowhig, a retired U.S. diplomat, in his blog.

“In a case of unplanned parallelism, income inequality has been growing and social mobility has been declining in both the United States and China over the past four decades. While I am no seer, I have wondered at how the economic crisis of 2008 in the United States spawned both right (Tea Party) and left (Occupy) populist movement,” writes Cowhig.

“That U.S. econquake may have led to some of the political quakes seen in the years since. So I wonder about the implications of declining social mobility, especially in urban areas, among unemployed educated youth for China’s future.”

China’s “floating population” still growing

While earlier studies suggested migration inside China was tapering off, the latest census instead shows the “floating population” has actually grown, reports Sixth Tone.

The census found 493 million people - about one-third of China’s total population - live outside where they are officially registered, 55 million more than was the case during the last census in 2010.

That makes the necessity of reforming the provision of social services even more important, as well as moving away from the present system which allocates them according to one’s hukuo, or where one is officially registered, argues Sixth Tone.

“Even if people settle in a particular city, they do not necessarily live in the town, village, or subdistrict where they are registered. According to the 2020 census, China has 117 million urban residents living in their home cities but at different residences from what’s listed in their household registration files, not to mention the 376 million people who have migrated to other cities altogether,” writes Sixth Tone.

“This shows how difficult it is to solve the real needs of the floating population based on household registration data, and should push the government to rethink its allocation strategy.”

Pension debt to strain China’s shrinking budget resources

China faces the prospect of rapidly rising pension debt and strained budget resources as its population ages, writes Bert Hofman, a professor at the East Asian Institute at the National University of Singapore.

“The rural pension system is only in its infancy — more than half of rural retirees rely on modest pensions that average less than 10 per cent of the average urban pension. The pension debt that will accrue when these systems become more equal is huge,” writes Hofman who also is the former director of the World Bank in China.

“These fiscal pressures come at a time when China’s budget resources as a share of GDP are declining,” writes Hofman. “The conversion to a consumption-based value-added tax in 2016 and tax relief measures in the wake of COVID-19 mean that China’s tax revenues are now barely 19 per cent of GDP, down from 22 per cent in 2015, just more than half of the 34 per cent of GDP that OECD countries raise.”

Notable/In depth

Here is a valuable resource which maps the overseas operations of China’s biggest tech companies; from the Australian Strategic Policy Institute International Cyber Centre.

Despite claims to the contrary by top officials, “China has not eradicated poverty - even extreme poverty,” argues the Financial Times, citing a recent study by Bill Bikales, former senior economist for the UN in China.

Beijing plans to centralize the collection of revenues associated with land transfers, a move that may hurt the finances of local governments, reports Caixin.

China’s still patriarchal political regime means woman are woefully underrepresented in the government and now face new pressures to have and raise children as birth rates drop, reports Merics’ analyst Valarie Tan.

Important new book - China’s Civilian Army - now on sale

China’s Civilian Army: The Making of Wolf Warrior Diplomacy, a new book written by Bloomberg reporter Peter Martin is now on sale. I highly recommend getting a copy and reading this fascinating book.

《低端中国》and China’s unequal system

I talk about the unequal system that treats China’s migrant workers as second class citizens as presented in my book 《低端中国》, in this interview with VOA’s Vanessa Bao.

Montana’s big skies

And some pictures featuring Montana’s big skies from a recent walk.

Trade War

Newsletter 71 - June 4, 2021

Welcome to the 71st edition of Trade War.

China moves to a “three children” policy as birth rates continue to fall. Chinese factories facing rising labor and commodity costs start exporting inflation to trading partners, including to the U.S.

Xi Jinping calls for China to be ‘trustworthy, lovable, and respectable’ while also telling Chinese scientists to prepare for unprecedented global competition. And Biden signs an order banning U.S. companies from investing in dozens of Chinese companies operating in the military and surveillance industries.

Remembering Tiananmen

On the 32nd anniversary of the 1989 Tiananmen Square Massacre, here is a historical thread of video clips showing the student activism of the preceding years through to the protests which ended tragically with hundreds if not thousands killed by the People’s Liberation Army on June 3rd and June 4th. All video is from the US documentary 'China: A Century of Revolution.'

Three child policy: ‘Only in your dreams’

After China reported its slowest population growth in decades, officials have announced they will now allow couples to have three children, loosening the country’s longtime family planning policy, reports the Financial Times’ Yuan Yang.

The new “three-child policy” aims to “actively address the aging population, and maintain China’s natural advantage in human resources”, according to the Chinese Communist Party’s politburo, made up of China’s 25 most senior officials, reported the official Xinhua News Agency.

Already many Chinese are facing a so-called “4-2-1 family structure,” where one income supports four grandparents and two parents. The UN has estimated that China’s old-age dependency ratio will double to over 40 percent by 2040, pressuring the pension system and economic growth.

“So many of us were the only child in our generation. Back then [the government] fined us. Now they want us to raise four aging parents plus three children . . . only in your dreams,” wrote one person responding to the Xinhua announcement on Weibo, China’s microblogging site.

TL;DR (too long; doesn’t recover) TFR

With China’s total fertility rate (TFR) having fallen to 1.3 births per woman, one of the world’s lowest, it is unlikely to ever recover, according to the experience of most other countries around the world.

“There are not many countries coming back from low fertility. The main exceptions are former Soviet Republics, which all went through a deep transition recession,” tweets the former head of the World Bank for China. “Of those whose TFR fell below 2.1, only Kazakhstan, Mongolia, Tunisia and the Seychelles bounced back to above 2.1.”

China workforce shrinks by a EU+Japan each year

“China's workforce shrinks each year by more than the EU and Japan put together, and it's only going to accelerate,” tweets Bloomberg Opinion’s David Fickling in a thread looking at the economic and social implications of China’s demographic crisis.

Read through the thread for graphs and links to informative articles including this one by Bloomberg’s Clara Ferreira Marques, on the prospect of a future where women and rural people face even greater inequality.

China’s anti-immigration problem

While delaying retirement, expanding education, and using robots will help deal with the challenges of a rapidly aging population, Chinese officials so far has been unwilling to allow people from other countries to emigrate to China, putting the country at a huge disadvantage compared to the U.S., tweets CSIS’ Scott Kennedy.

While 13.7 percent of the U.S. population are immigrants, the comparable figure in China is a minuscule 0.1 percent.

China inflation >> U.S. consumer inflation

As China’s factories continue to face rising commodity and labor costs, many are delaying orders; that trend likely will contribute to further global inflation, writes the Wall Street Journal’s Stella Yifan Xie.

Surging raw-material prices and a shortage of workers have pinched smaller Chinese manufacturers, including many that sell their products to the U.S. and other Western markets. While many have passed their higher costs on to overseas buyers, the pain is so severe at some manufacturers that they are finding it hard to raise prices enough to make up the difference,” Xie writes.

“If input cost pressure persists, more manufacturers in China will either be forced to halt production, or pass it on to consumers at home and abroad,” Shuang Ding, an economist at Standard Chartered told the Journal.

“Our research indicates that there’s a strong correlation between inflation in China and consumer inflation in the U.S.,” Ding said. In April, the consumer-price index in the U.S. went up by the most since 2008, the business paper notes.

Xi: China will be ‘trustworthy, lovable, and respectable’

Has China’s “wolf warrior” approach to diplomacy gotten out of hand? That may be what Xi Jinping is suggesting with his recent call for China to now work at being “trustworthy, lovable and respectable,” reports Bloomberg News.

Speaking to senior party leaders, Xi said the country must “make friends extensively, unite the majority and continuously expand its circle of friends with those who understand and are friendly to China,” according to the official Xinhua News Agency.

“Xi may be rethinking his communication strategy on the global stage as President Joe Biden works to bolster U.S. relationships weakened under his predecessor’s “America First” policies,” reports the financial news service. “Xi has cast aside the party’s decades-old “hide-and-bide” strategy of keeping a low international profile in favor of a “big country diplomacy.””

Xi Jinping rallies scientists for ‘unprecedented’ competition

Xi Jinping has called for China’s scientists to be prepared for “unprecedented” technological competition, the “the main battleground” of global power rivalry, reports the South China Morning Post’s Coco Feng.

Faced with protectionism, shifting global supply chains and uncertainty after the pandemic, China must work quickly to confront “technological bottlenecks and make breakthroughs in key areas such as artificial intelligence, semiconductors, quantum technology, life science and energy,” Xi said in a speech to China’s top scientists.

And Biden sanctions 59 Chinese companies

Biden has signed an executive order banning U.S. companies from investing in dozens of Chinese companies with ties to the military or surveillance industries, reports Singapore’s Business Times.

“The Treasury Department will enforce and update on a "rolling basis" the new list of about 59 companies, which bars buying or selling publicly traded securities in target companies, and replaces an earlier list,” reports the Singapore paper.

“Major Chinese firms included on the previous Defense Department list were also placed on the updated list, including Aviation Industry Corp of China (AVIC), China Mobile Communications Group, China National Offshore Oil Corp (CNOOC), Hangzhou Hikvision Digital Technology Co Ltd, Huawei Technologies and Semiconductor Manufacturing International Corp (SMIC).”

“The inclusion of Chinese surveillance technology companies expanded the scope of the Trump administration's initial order last year, which the White House argues was carelessly drafted, leaving it open to court challenges,” reports the Business Times.

No US investment in the PRC military-industrial complex

The new executive order aims to “solidify and strengthen” the earlier executive order and “prohibit U.S. investments in the military-industrial complex of the People’s Republic of China,“ says a White House fact sheet.

“It signals that the Administration will not hesitate to prevent U.S. capital from flowing into the PRC’s defense and related materiel sector” or into “Chinese companies that develop or use Chinese surveillance technology to facilitate repression or serious human rights abuse.”

Trade War be damned: Apple sources more from China

Trade War be damned: Apple is sourcing more from China and Hong Kong companies, and less from those headquartered in Japan and the U.S., reports The Information’s Wayne Ma.

“Apple has disclosed the list of its top 200 suppliers for the first time in two years, revealing an increased reliance on Chinese companies—even as some of them have expanded production to Vietnam and India to avoid U.S. tariffs and export controls,” writes Ma.

Forty-eight of Apple’s top 200 suppliers as of 2020 were China or Hong Kong companies, up from 43 in 2018. Meanwhile, 27 of Apple’s top suppliers had factories in India or Vietnam in 2020, up from 19 in 2018.

Notable/In Depth

Here is an interesting piece on China’s biggest and most powerful Internet company Tencent, and how it at least so far, has stayed in the good graces of Beijing, from New York Times reporter Li Yuan.

“Now I think it’s important for us to understand even more about what the government is concerned about, what the society is concerned about, and be even more compliant,” said Tencent’s president, Martin Lau earlier this year in an earnings call.

Is China’s authoritarian system superior to a liberal democracy in terms of crisis management? Council on Foreign Relations senior fellow Yanzhong Huang asks this question by looking at China’s pandemic response, in this piece in China Leadership Monitor.

The often overlooked, but central role that workers played in the 1989 Tiananmen protests is the theme of this fascinating piece by Yueran Zhang, a PhD student in sociology at UC Berkeley.

The hukou system is contributing to an ever worsening education divide in China, reports the Economist’ Sue-Lin Wong.

Foreign correspondents on expulsion from China

Tune in to hear from three foreign correspondents effectively expelled China, at this June 15 event organized by the Overseas Press Club.

Media coverage of 《低端中國》

Taiwan's NOWnews 今日新聞 reviews《低端中國》the Chinese edition of my book "The Myth of Chinese Capitalism." Watch the video here. (Chinese)

Montana creeks are getting high

We are close to reaching the peak runoff of the spring here in the Montana Rocky Mountains.

Trade War

Newsletter 70 - May 29, 2021

Welcome to the 70th edition of Trade War.

Biden’s top Asia official Kurt Campbell proclaims the end of the "engagement” policy with China. And trade czars from both countries have a “candid” telephone call.

A survey shows most of Europe expects China to surpass the U.S. as a global power within a decade. And “science and technology diplomats” are helping Chinese companies source key technology from around the world. Meanwhile, Beijing makes strides in the global scientific research output contest.

Kurt Campbell: no more ‘engagement’ policy with China

“The period that was broadly described as engagement has come to an end,” Biden’s top Asia czar Kurt Campbell said at Stanford University, reports Bloomberg News’ Peter Martin.

“The dominant paradigm is going to be competition,” said Campbell who serves in the National Security Council as U.S. coordinator for Indo-Pacific Affairs.

The change has much to do with the Xi Jinping-led shift to a more assertive global policy, Campbell said, citing border clashes with India, an ”economic campaign” against Australia and the rise of “wolf warrior” diplomacy.

“Beijing’s behavior was emblematic of a shift toward “harsh power, or hard power,” which “signals that China is determined to play a more assertive role,” Campbell said, writes Martin.

Xi: deeply ideological, not overly sentimental about US

“Kurt Campbell's impression of Xi: Deeply ideological, & not terribly sentimental about [the] US,” in contrast to previous leaders president Hu Jintao and premier Wen Jiabao, writes Jacob Stokes, fellow at the Center for New American Security, in this tweet thread on Campbell’s Stanford speech.

Xi “depicted himself as virile, tough, not aging. [Xi] has basically disassembled PRC collective leadership mechanism,” Stokes continues in his recap of Campbell’s comments.

Give China 10 years and it will surpass the US, says Europe

Majorities in eleven European countries believe China will surpass the U.S. as the leading power within a decade, shows a survey by the think tank European Council on Foreign Relations from earlier this year. (The respondents knew Biden would be the president when the survey was done.)

Great Britain, France and Germany all agreed the prospect of China replacing the U.S. was either probable or definite, while Spain, Italy, and Portugal were most certain, with over 70 percent saying it was likely.

Where does China get its technology overseas?

Chinese diplomats from China’s Ministry of Science and Technology play a key role in identifying and sourcing key technologies targeted in Beijing’s development goals, from countries around the world according to this report by Georgetown’s Center for Security and Emerging Technology.

“At home, MOST personnel interface with Chinese firms and track the scientific bottlenecks holding back China’s development. Abroad, they coordinate with overseas scientists, professional associations, diaspora guilds, and elements of the United Front Work Department in the countries where they are stationed, to identify opportunities where Chinese firms can grow relationships and invest.”

“Science and Technology diplomats” stationed in embassies and consulates in 52 countries encourage Chinese companies to take stakes in “supply chains relevant to the Chinese Communist Party’s (CCP) stated development objectives,” with one half of the projects assessed in biotechnology or artificial intelligence.

Almost one half of all technology projects recommended by the S&T diplomats came from Russia, the U.S., United Kingdom, and Japan. And before it was closed last July, China’s consulate in Houston referred more projects than any other Chinese diplomatic post worldwide.

China tech co’s go big in priority areas for the CCP

China’s largest tech companies are spending big in new areas such as cloud computing, autonomous driving and artificial intelligence, "not coincidentally priority areas for the Communist Party."reports Bloomberg News’ Coco Liu.

“Internet giants with immense data and advanced algorithms should shoulder greater responsibility, aim higher and do more in tech innovation,” the People’s Daily wrote in a December commentary, reports Bloomberg.

“The Chinese government expects domestic internet giants to play a bigger role in helping the country achieve tech self-sufficiency,” Shen Meng, a director at a Beijing-based boutique investment bank, said to Bloomberg. “After all, advancing fundamental technologies require massive capital and manpower. In a country which still lacks a mature venture investment ecosystem, deep-pocketed big tech is in a better position than startups to lead that breakthrough.”

Charting China’s research rise

China’s research output in science is growing rapidly. It has already surpassed the U.S. in chemistry research output and is approaching the U.S. in earth and environmental sciences and physical sciences show the charts in this article by Nature.

Meanwhile, China falls in the middle for efficiency for its return on investment for every U.S. billion dollars spent - behind Japan, the U.S., France, and Germany (with Japan getting the best return, then the U.S.), but ahead of the United Kingdom.

Now Tencent in regulator crosshairs

Following the crackdown on Ant Group, Tencent, best known for its WeChat app, has been told by regulators to put its finance business into a new company where they can be better supervised, reports Caixin Global.

“The move signals a widening crackdown on the aggressive expansion by tech groups into financial services fueled by concerns over potential systemic risks to financial stability and their outsized market power after years of relatively unchecked expansion.”

China and U.S. trade czars have ‘candid’ call

USTR Katherine Tai and top China trade czar Liu He had a
”candid” conversation in their first phone call, reports Bloomberg News.

In a statement China’s Ministry of Commerce called the discussion “candid, pragmatic and constructive” while in a separate statement, the USTR said Ambassador Tai raised “the guiding principles of the Biden-Harris administration’s worker-centered trade policy and her ongoing review of the U.S.-China trade relationship.”​

The phone call is one of the very few top-level meetings between Xi and Biden’s teams to date; “in contrast with much of the rest of the bilateral relationship, trade has been one of the less contentious issues recently,” reports Bloomberg.

Phase One deal less than 3/4 of year-to-date target

Meanwhile, progress is slow on meeting commitments on the U.S.-China trade deal: through April, China's purchases under the Phase One deal are less that three-quarters of the way to year-to-date targets, reports the Peterson Institute for International Economics.

What needed 16 workers now only needs 4

Faced with the demographic challenge of a shrinking workforce, Chineses companies like Midea are rapidly adding automation, reports the South China Morning Post.

“What used to require 16 people now only needs four, said Xu Nian’en, a director at this Midea plant. The company has, over the last six years, invested 4 billion yuan (US$622 million) to transform itself, raising efficiency by 62 per cent and reducing its workforce by 50,000,” reports the Hong Kong paper.

“While the demographic crunch may be met with a smaller, more skilled workforce in China in future, it could be a negative for those workers who are unwilling or unable to adapt fast enough to more advanced workplace technologies.”

Notable/In Depth

While western analysts refer to “stalled” reforms in China, the reality is reforms continue apace, they are just not liberal reforms, write scholars Rana Mitter and Elisabeth Johnson.

China’s state capitalist model might not ultimately succeed but still could "swamp the world with subsidized products," writes journalist Michael Schuman.

"This manifest slimming down of government offices presents a facade of government transparency despite the latent fact that Xiong’an represents a massive reassertion of state control over economy and society," writes Andrew Stokols.

Here is an interesting thread on what the 2020 census shows about Western China, from Tibet development expert Andrew Fischer.

‘International friends’ or ‘hostile foreign forces’?

I spoke to Radio Free Asia about the Chinese government's longtime use of "international friends" or "hostile foreign forces" dual labels in dealing with those from abroad, including officials, businesspeople and journalists.

Montana views and a bear

Beautiful views and a bear - pictures taken from a recent run to get some Japanese sushi takeout.

Trade War

Newsletter 69 - May 22, 2021

Welcome to the 69th edition of Trade War.

Chinese predictions of American decline are being tested by successes in the early days of the Biden administration. A new survey of countries show widespread growth in positive sentiments towards the U.S., with the notable exception of China.

China pushes to join the trade group successor to the Trans-Pacific Partnership while continuing Trump-era tariffs hurt U.S. consumers. Meanwhile, Chinese tech tycoons resign and more party cells open in private companies.

China’s declarations of America’s decline premature?

China’s declarations of America’s decline may be premature, says Brookings Institution China scholar Ryan Haas in a conversation with Stanford University political scientist Oriana Skylar Mastro.

“The first few months of the Biden Administration have challenged the preferred narrative of the Chinese that the U.S. is in terminal decline,” says Haas. “The U.S. economy is poised to be the leading growth engine of the world economy this year. The United States is making progress repairing its alliance relationships.”

Playing the China Card

Here is Haas’ latest piece, Playing The China Card, where the Brookings scholar argues “any effort to lean on the external threat of China as a basis for overcoming domestic divisions at home is unlikely to succeed and likely to harm U.S. interests at home and abroad.”

Collaborative Biden approach pays off in global sentiment...

Since Biden took office, a new survey shows that global sentiments towards the U.S. have improved in countries around the world with the glaring exception of China, reports global data company Morning Consult.

In the 14 countries surveyed, including Germany, France, Canada, Brazil, Japan and Russia, positive views of the U.S. have gone up by an an average of nine percentage points since Biden became president.

“People in many nations around the world are, I think, hopeful, that the election of Joe Biden marks a rejection of Trump’s ‘America First’ bullying and go-it-alone international policies and a return to a more collaborative, pro-democracy approach to international affairs,” David Farber, a University of Kansas professor, told Morning Consult.

But 3/4 Chinese negative towards U.S., up 9 points

The big outlier: China. “Nearly 3 in 4 Chinese adults hold unfavorable views of the United States, up 9 points since Biden’s inauguration. The figure is driven by 47 percent of Chinese adults who hold “very unfavorable views,” up 7 points over the same time period.”

China pushes to join TPP trade agreement successor

China is making a big push to join the successor trade agreement to the Trans-Pacific Partnership, originally promoted by the U.S. to balance China’s growing power in the Asia-Pacific region, reports Bloomberg News.

“Then-President Barack Obama [said] in 2016 that the U.S., not China, should write the regional rules of trade. His successor Donald Trump pulled out of the deal in 2017, with Japan leading the revised and renamed pact to a successful conclusion the following year,” the financial news service reports.

The new trade agreement, called the Comprehensive and Progressive Trans-Pacific Partnership, groups countries including Japan, Australia, Canada, Mexico and Vietnam.

“If it does join, China would become the largest economy in the partnership and further cement its position at the center of trade and investment in the region. Beijing already helped lead a separate regional trade deal known as RCEP to a successful conclusion last year,” Bloomberg writes.

Trump tariffs on China punish American consumers

The costs of Trump-imposed tariffs, which cover about half of all bilateral trade with China, is overwhelmingly being picked up by the U.S., a new Moody’s Investors report shows, writes The Hill.

“For Chinese products that saw tariff rates rise to 20 percent, about 95 percent of the cost ended up being paid by U.S. consumers. But when China imposed retaliatory tariffs on U.S. exports, a significant portion of the cost fell on American businesses,” The Hill writes.

“The reason for the disparity has to do with the kinds of goods that were targeted by each side in the trade war, and how some are easier than others to source elsewhere.”

Another China tech tycoon resignation…

Facing growing government scrutiny, the founder of TikTok parent company ByteDance is the latest tech tycoon CEO to announce his resignation, reports Wall Street Journal reporter Liza Lin.

The decision to step down by the 38-year old founder Zhang Yiming, the largest shareholder in the $180 billion company, follows earlier resignations by the top executives at Ant Group and e-commerce company Pinduoduo.

“Once seen as powerful and untouchable for their contribution to innovation and economic growth, China’s largest internet companies have increasingly come under intense scrutiny by authorities, with regulators coming down since late last year hard on areas such as anti-monopolistic practices and data privacy,” writes Lin.

And Bytedance warned on improper data collection

And lo and behold, barely a day after the Bytedance founder steps down, his company has been warned by China’s cyberspace authorities for improperly collecting data, tweets the Journal’s Lin.

Almost half of private companies have party branches

The proportion of private enterprises in China with party branches rose from 27% in 2002 to 48% in 2018,.reports Sixth Tone.

“As a unit of organization, grassroots party cells are rooted in the battles fought by the Communists for control of China in the 1920s and 1930s, which convinced Mao Zedong that it was necessary to “establish branches of the CPC at the level of companies” in the army to better secure its obedience to the CPC,” writes He Xuan, an economist at Guangdong University of Foreign Studies.

Today the effort to expand the CPC inside companies “reflects how the party continues to see grassroots branches as an effective way of growing its governing resources and consolidating its ruling status,” economist He writes.

“Yet the CPC also views the branches as a win-win proposition for private firms, a belief often shared by private entrepreneurs themselves. Setting up party branches integrates private enterprises into China’s political system— often in mutually advantageous ways — and party organizations are seen in some corners as a potential solution to widespread problems like weak corporate cultures, backward corporate governance mechanisms, poor business confidence, and labor conflicts.”

Notable/In Depth

Does China’s hyper industrial policy actually work or is it a mistake for the U.S. to try to imitate it, is the question considered in this piece by journalist and author Michael Schuman in the Atlantic.

A smiling photo of Xi Jinping and Biden from nine years ago is a reminder of just how drastically the U.S.-China relationship has changed.

Even as Beijing faces a demographic time bomb, it is wary of ending all birth restrictions, fearful that it could lead to poverty and unemployment in rural China, reports Reuters.

An illuminating thread by a top China energy analyst on how Beijing has responded to the pandemic by stimulating its economy by supporting polluting heavy industry and construction, rather than household incomes.

Chinese edition book review

Thanks to Hong Kong's independent Citizen News for reviewing《低端中國》the Chinese edition of "The Myth of Chinese Capitalism” (Chinese).

Trade War

Newsletter 68 - May 15, 2021

Welcome to the 68th edition of Trade War.

China has released its latest population census numbers; they show an alarming drop in births and a fast aging population sure to bring new challenges to its economy.

Civil service jobs are growing in popularity amongst young Chinese as geopolitical tensions make foreign firms less attractive. Meanwhile, U.S. companies report they face discrimination from local government officials in China. And industrial policy keeps growing in both China and the U.S., as well as around the world.

China’s got 1.41 billion people but too few young ones

China’s latest population census is finally out and the numbers are sobering, reports New York Times reporter Sui-Lee Wee. (Here is the official release from the National Bureau of Statistics.)

China’s population is now 1.41 billion, up by 72 million since the previous census, in 2010. And while the increase in people is larger than the total population of Britain or France, the average annual growth rate over the decade was only 0.53 percent, down from 0.57 percent from 2000 to 2010 and the smallest increase since China’s first census in 1953.

That of course has everything to do with China’s lackluster birth rate. With only 12 million babies born last year, the country registered its fourth consecutive year of falling births, and the lowest number since China’s great famine in 1961.

Meanwhile, China’s people keep getting older. The census reveals that 13.5 percent of Chinese are now over the age of 65, up from 8.9 percent in 2010. “As the population gets older, it will also impose tremendous pressure on the country’s overwhelmed hospitals and underfunded pension system,” Wee writes.

“China is facing a unique demographic challenge that is the most urgent and severe in the world,” Liang Jianzhang, a research professor of applied economics at Peking University and a demography expert told the New York Times. “This is a long-term time bomb.”

China’s social welfare costs could exceed tax take

Faced with the likelihood of a population peak in the next few years, China must quickly shift to a new growth model to keep the economy from slowing too rapidly, reports Bloomberg News.

“Beijing will need to undertake a challenging shift in its growth model, rapidly increasing spending on pensions and health care while maintaining a high-level of corporate and state investment in order to upgrade its vast industrial sector,” the financial new service reports.

It certainly won’t be easy. The cost of China increasing pension, health care and education to the level reached by developed countries a decade ago, will run to 20 percent of GDP by 2030, estimates Wang Feng, a demographer at the University of California Irvine. That’s more than the 17 percent of GDP the government currently takes in through taxes, writes Bloomberg.

“A successful transition would mean China becomes the world’s largest economy, continuing to propel global demand for commodities in the coming decades, while its gray consumers become a vast market for multinationals,” according to Bloomberg. “A failed response could mean China never eclipses the U.S., or does so only fleetingly.”

Outmigration from China’s ‘son of the revolution’ Northeast

While the census shows the challenge nationally of a slowing population growth rate, not surprisingly the impact is not spread evenly. China’s northeast has been hit particularly hard, writes Gavekal Dragonomics research director Andrew Batson.

The three northeastern provinces of Liaoning, Jilin, and Heilongjiang have seen their combined population fall by 11 million people, or roughly 10%, since 2010. And everything from its long, cold winters to its history as a key industrial base have contributed to the outmigration.

“The Northeast has always been the most socialist part of the country–officials still call it “the eldest son of the revolution”–and some of its problems are a payback for the distortions of socialism. The disastrously low birth rate as a result of the authoritarian intervention in families’ childbearing plans is one example,” Batson writes.

“So is the scale of the out-migration, which is large (sic) partly because too much of China’s population was located in the Northeast to begin with. Socialist China located a lot of industry in remote places for strategic and ideological reasons, much as the Soviet Union did with developing Siberia.”

Just 700 million in China in 2100?

With a total fertility rate of just 1.3, China falls at the bottom of the range for its level of per capita income, writes Bert Hofman, the former head of the World Bank in China, in a tweet thread. (That’s well below the replacement rate of 2.1)

China's fertility rate “implies a population of less than 700 million by 2100,” according to a UN projection, Hofman writes, well below the one billion population projection for that year that would have accompanied a 1.7 fertility rate.

Chinese want gov’t jobs or to shang an - “land ashore”

Geopolitical tensions have made securing a job with a foreign business less attractive for China’s young people. And growing concerns about rising inequality have led to a burst of propaganda against unrestrained capitalism. The result: more Chinese are now vying for government jobs, reports the Economist’s David Rennie.

Last year 1.6 million people passed background checks for the national civil-service exams, 140,000 more than in 2019. About a million people eventually took the exam, vying for just 25,700 jobs. Many others took tests to become local officials.

“Aware of public anger about inequality, Chinese propaganda has taken a populist turn, presenting the party as an ally against rapacious capitalism," writes Rennie.

Some young people now view a government job - in contrast to one in the private sector - as an idealistic choice for employment. And despite much lower salaries, the lure of subsidized housing, health insurance and a pension, makes civil service positions attractive.

US firms hurt at local level in China

U.S. businesses are suffering discriminatory treatment by officials from local governments, according to the American Chamber of Commerce in China, reports Bloomberg News.

“We feel that local officials are reacting to the levels of tension in the relationship and just taking the safer path, which is to offer preference to domestic industry,” AmCham China Chairman Greg Gilligan said at a briefing launching an annual white paper.

“We never target any company or country or make restrictions on them unlike some countries that take a protectionist approach,” Foreign Ministry spokeswoman Hua Chunying said in Beijing, adding that the Chinese government does all procurement according to law. (What about Australia, the Philippines, Norway, and South Korea, tweets CSIS scholar Scott Kennedy.)

Industrial policy and the logic of an arms race

Industrial policy is back in fashion around the world, with the U.S.-China rivalry putting market economics on the back burner, writes the Financial Times Gideon Rachman.

“Governments all over the world, from Washington to Beijing and New Delhi to London, are rediscovering the joy of subsidies and singing the praises of economic self-reliance and “strategic” investment,” writes Rachman.

The new trend has everything to do with geopolitics. After the cold war with global tensions at a low, governments aimed to “attract investment rather than to dominate territory.”

Not any more - just look at Washington and Beijing: “As trust declines between the US and China, so each has begun to see reliance on the other for any vital commodity — whether semiconductors or rare-earth minerals — as a dangerous vulnerability. Domestic production and security of supply are the new watchwords.”

“The logic of an arms race is setting in, as each side justifies its moves towards protectionism as a response to actions by the other side,” Rachman writes.

The war on historical nihilism

China’s internet regulator says more than 2 million posts containing “harmful” discussion of history have been deleted online, as China prepares to celebrate the centenary of the founding of the Chinese Communist Party on July 1st, reports the South China Morning Post.

“For a while, some people have disseminated harmful information with historical nihilism on the internet, under the guise of reflection and declassification,” a division director at the Cybersecurity Administration of China said during a press conference in Beijing.

Historical nihilism, now a frequently used term by the Chinese government, refers to any “discussion or research that challenges its official version of history,” explains the Hong Kong paper.

Notable/In Depth

China’s rising property aren’t just a financial risk but also “catalyst for a slew of development and social issues such as the lack of entrepreneurs, negative attitudes to work, and even falling birth rates,” writes Guangzhou-based scholar Han Heyuan.

Outspoken Chinese entrepreneur Sun Dawu could face 25 years in prison if convicted on multiple charges including provoking trouble and disturbing public order, encroaching on state farmland, and illegal mining, reports the South China Morning Post.

There are now 248 Chinese companies listed on major U.S. stock exchanges with a total market capitalization of $2.1 trillion, according to the U.S.-China Economic and Security Review Commission.

China’s government has embarked on a propaganda push to show it is concerned about poor working conditions even while it continues its crackdown on grassroots labor organizers, reports The Christian Science Monitor.

Book review

Thanks to Wang Dan for his kind review of the Chinese edition of my book: "The Myth of Chinese Capitalism" /王丹热邮:好书推介:《低端中国》

Bear territory

And look who showed up while I was trying to write the other day.

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