Trade War
Newsletter 116 - May 28, 2022
Welcome to the 116th edition of Trade War.
US secretary of State Antony Blinken calls China a threat to the international order in a major address. And Beijing accuses Washington of playing up the “so-called China threat” and smearing its domestic and foreign policy.
Premier Li Keqiang warns in speech broadcast to tens of thousands of officials of dire state of economy. China GDP may miss official target. And Beijing continues its unending campaign to erase Taiwan’s international presence.
And a bonus section: some extended thoughts from this newsletter’s author on the longer term strategy behind Xi Jinping’s Belt and Road Initiative.
Blinken: China repressive at home; aggressive abroad
U.S. Secretary of State Antony Blinken has called China a central challenge for the U.S. and the world, report the South China Morning Post’s Kinling Lo and Robert Delaney.
“Under President Xi, the ruling Chinese Communist Party has become more repressive at home and more aggressive abroad,” Blinken said in an address given at George Washington University that was delayed for several weeks after the top U.S. diplomat tested positive for Covid-19.
“China’s transformation … [was] made possible by the stability and opportunity that the international order provides,” Blinken said. “Arguably no country on Earth has benefited more from that than China.”
“But rather than using its power to reinforce and revitalize the laws, agreements, principles and institutions that enabled its success so other countries can benefit from them too, Beijing is undermining it,” he said.
Blinken also put out olive branches to Beijing, saying the U.S. and China should work together on issues including climate change and the Covid-19 pandemic, and reiterated that Washington does not support Taiwan independence. That followed a comment by Biden on Monday, later retracted, that the U.S. would use military force to defend Taiwan if it were attacked by China.
Blinken said that the Biden administration would work to “shape the strategic environment around Beijing to advance our vision for an open and inclusive international system.”
“In the past two weeks, Biden has hosted Association of Southeast Asian Nations (Asean) leaders in Washington, travelled to Seoul and Tokyo for bilateral meetings and took part in the second Quadrilateral Security Dialogue (the Quad) leaders’ meeting,” reports the Hong Kong-based paper.
Earlier this week in Tokyo Biden officially announced the creation of the Indo-Pacific Economic Framework, a partnership to strengthen economic and security links between participating countries in response to Beijing’s rise. The IPEF now has just over a dozen members, including Japan, India, Indonesia, Australia, New Zealand, Thailand, Vietnam and the U.S., who together encompass 40 percent of global GDP.
‘Invest, align, compete’
The Biden administration has come up with a new catchphrase to describe its approach to China.
“Our strategy is ‘invest, align, compete.’ We will invest in our nation’s competitiveness, innovation, and democracy, we will align our efforts with allies and partners, and we will compete with China to defend our interests and build our vision for the future,” Blinken said. (link to full speech)
‘Sole purpose is to…maintain US hegemony’
“In his verbose speech, Secretary Blinken went to great length to spread disinformation, play up the so-called ‘China threat,’ interfere in China’s internal affairs and smear China’s domestic and foreign policy,” said Chinese foreign ministry spokesperson Wang Wenbin in a regular press conference on Friday.
“The sole purpose is to contain and suppress China’s development and maintain the US hegemony. China deplores and rejects this.”
“We are not looking for conflict or a new Cold War. To the contrary, we’re determined to avoid both,” Blinken said a day earlier in his speech.
“We don’t seek to block China from its role as a major power, nor to stop China — or any other country for that matter — from growing their economy or advancing the interests of their people.”
Li Keqiang’s dire warning on economy
Premier Li Keqiang has warned that China’s economy risks falling into negative territory in the second quarter, report the Financial Times’ Sun Yu, Cheng Leng, and Tom Mitchell.
“The comments by Li Keqiang, to tens of thousands of officials on an internal video cast on Wednesday, underscore the difficulties President Xi Jinping’s administration will have in reaching its annual growth target of 5.5 per cent while also battling Omicron outbreaks,” reports the financial paper.
“We will try to make sure the economy grows in the second quarter,” said Li, according to an unofficial transcript of Li’s speech that circulated widely on the Internet. “This is not a high target and a far cry from our 5.5 per cent goal. But we have to do so.”
While pointing to soaring unemployment for young people and migrant workers as signs of serious economic malaise, Li also warned that enterprises are struggling, in particular private small and medium-sized ones, with overall corporate liquidations up 23 percent, year on year, in April.
During his speech, Li called on the senior officials in attendance, including vice premiers Liu He and Han Zheng, as well as central bank governor Yi Gang, to help companies restart operations.
“Progress is not satisfactory,” the premier said. “Some provinces are reporting that only 30 per cent of businesses have reopened . . . The ratio must be raised to 80 per cent within a short period of time.”
‘Danger of slipping out of the reasonable range’
Li also warned that China's economy is “in danger of slipping out of the reasonable range” and that once that happens, it would be very difficult to recover without “paying a huge price,” writes journalist Hongqiao Liu in a tweet thread.
“The unofficial meeting minute is circulated on the Chinese internet, but not yet published on [the] State Council's website,” writes Liu.
“In his speech, Li showed deep concern about the record-low GDP growth rate and record-high unemployment rate. "We cannot accept [GDP growth] below 3%", [premier Li] said.”
Here is a translation of the unofficial version of Li’s speech by retired U.S. diplomat David Cowhig.
Hongqiao Liu @LHongqiao
Li reveals in the meeting: - Significant decline in economic indexes, many hitting record low - Economic (downturn) has hit the govt budget (negative growth in both national & local budgets) - Weak trend in recovery since May: must work very hard to reverse the negative growth https://t.co/IZdWDZRfvR https://t.co/uc77Hwcw8ZGreat Leap meeting echo?
“A historical echo of sort. At the end of the Great Leap, which killed millions, Mao approved a meeting which convened 7000 party secretaries from county level and up. Existing Great Leap policies were repudiated. Some even directly criticized Mao,” writes UC San Diego political scientist Victor Shih in a short tweet thread.
“Of course, Li wouldn’t dare to criticize Xi but convening the meeting, even [with] just county heads rather than secretaries, may be a historical reminder . . . and therefore a kind of a criticism.”
Bill Bishop @niubi
More on the national meeting on economy. Maybe this meeting will turn things around, but is a sign of panic at the state of things. Two best things for the economy would be a change from dynamic zero-Covid craziness and new leadership. Odds those changes happen don’t seem high https://t.co/xdPaKArMKXChina to miss GDP target?
“China’s commitment to Covid Zero means it’s all but certain to miss its economic growth target by a large margin for the first time ever,” writes Bloomberg News’ Tom Hancock.
China’s official target for GDP growth of about 5.5 percent is a full percentage point above the median forecast of economists today, reports the financial news service.
“Beijing has admitted to missing the goal just once since first setting it three decades ago -- by a mere 0.2 percentage point in 1998,” writes Hancock. “It didn’t set a target in 2020, when the coronavirus pandemic first hit.”
While Beijing may decide to quietly downplay its GDP target while instead focusing on the other key priority of creating enough jobs to stem the growth of unemployment, it also could “fudge the numbers,” reports Bloomberg.
“Based on past experience, statistical smoothing could add 1 percentage point to China’s growth rate this year, economists at Goldman Sachs Group Inc. wrote in a recent note. However, official data for April showing a sharp contraction across the economy suggest “the negative Covid shock is too large to smooth,” they added.”
But there is a political concern: “If the economy slows too dramatically, it could be outpaced by the U.S. for the first time since 1976 -- a development Washington would be likely to seize on as part of a competition over economic models,” writes Hancock.
“As a result, Beijing could see US GDP growth, which the International Monetary Fund forecasts at 3.7 percent this year, as a baseline.”
China’s endless campaign to ‘erase Taiwan’
Beijing’s campaign to limit positive international attention on Taiwan has now affected an annual list of Asia’s best restaurants, reports journalist Ron Gluckman for Discourse Magazine.
“Taiwan savored a delicious moment of triumph on the world’s culinary stage in March. The annual list of Asia’s 50 Best Restaurants . . . included two Taiwan restaurants,” writes Gluckman. “But the joy was short-lived: The next day, 50 Best took Taiwan’s name off the list,” apparently in response to pressure from China.
“This was another reminder of Beijing’s relentless campaign to minimize the existence of what it regards as just a disgruntled part of the People’s Republic of China,” notes Discourse.
“‘I remember writing cover stories about how economics would bind them, and eventually the differences might start to be ironed out,’ says Dexter Roberts, longtime Beijing bureau chief for BusinessWeek magazine and author of The Myth of Chinese Capitalism. He noted the huge Taiwanese investment in China and the start of flights between the countries as signs that the adversaries were on a path to re-integration,” reports Discourse.
“Instead, the two sides drifted apart, he says, citing studies that show younger generations in Taiwan are increasingly independence minded. “I think the realization in Beijing is that the old plan, of the economy leading to political integration, has failed,” Roberts told Gluckman.
********************************************************
BRI: key part of China’s strategy to become a great power
I was asked by a researcher and think tanker from Eastern Europe about Xi’s ambitious Belt and Road Initiative, even as it has been slowed in the short term by the global pandemic. Follows are my answers:
What is the BRI?
DR: The BRI is an ambitious, sometimes very real, sometimes aspirational effort supported by China’s top leaders and in particular Xi Jinping, that has economic as well as geopolitical goals.
What is the aim of the BRI?
DR: The BRI has multiple economic and geopolitical goals. On the economic side, they include finding new markets for Chinese products and services, including as a means in some industries to deal with overcapacity at home and establishing closer, more reliable sources of the raw products China needs for its development.
As for the geopolitical goal, BRI aims to stitch countries throughout the global South and parts of Europe into a Chinese-created and run global market and global supply chain, as a means to both counter U.S. influence, including with China’s neighbors in the Indo-Pacific, and to build up China’s role as a preeminent global power.
Is the BRI a well-planned pillar of China’s strategy to become a great power or an improvised idea that evolved into something larger?
DR: The BRI began as a conscious plan to help boost China’s strategy of becoming a great power and continues to have that overarching goal. At the same time, BRI has become a tremendous opportunity for Chinese companies and regions that have used it for their own economic gain. As that has happened, projects that may not fit at all well with the plan’s larger geopolitical goals have been proposed and sometimes accepted as falling with the BRI’s rubric, and have taken advantage of government preferential policies for financing and guaranteed markets.
Why do you think that Western powers, such as the U.S. and the EU, see BRI as threatening?
DR: Beijing has a conscious strategy to replace the U.S. starting in the Indo-Pacific and the BRI is a key element of that ambitious strategy. This will shake up established geopolitical relations, affecting many other countries including those in Europe. China too has shown its tendency to use its economic and business sway to punish countries when it believes they are taking actions that go against China’s interest, as it has in recent years cutting off Australia products access to the desirable and important China market.
Do you believe that the BRI is threatening towards the international order?
DR: Because the BRI is part of a much larger strategy by Beijing to replace the U.S. as a preeminent power and shake up existing economic and trade relations, and because the economics sphere is extremely important in establishing influential relations between countries, the international order should view China’s grand development plan as one that if successful is likely to be deeply destabilizing and in some ways a threat to the existing system.
For that reason, the U.S. and other countries should expend far more effort to build up and strengthen economic relations particularly in Global South countries and regions that Beijing is busily expanding in. The announcement by the Biden administration to invest in Southeast Asia is the kind of effort needed but unfortunately was too small in scale.
Notable/In depth
“Even using a conservative methodology, China’s industrial policy spending is enormous, totaling at least 1.73 percent of GDP in 2019,” write CSIS’ scholars Gerard DiPippo, Ilaria Mazzocco, Scott Kennedy, and Matthew P. Goodman in “Red Ink: Estimating Chinese Industrial Policy Spending in Comparative Perspective.” (pdf)
“As a share of GDP, China spends over twice as much as South Korea, which is the second-largest relative spender in the sample. In dollar terms, China spends more than twice as much as the United States.”
China’s indigenous passenger aircraft the C919, now nearing completion, is deeply reliant on foreign key components, tweets Doug Fuller, author of Paper Tigers, Hidden Dragons: Firms and the Political Economy of China's Technological Development.
“A new watershed moment for the Uyghur crisis & accountability has emerged. The most significant leak putting human faces into statistics, the Xinjiang papers provided to Adrian Zenz, offer a horrifying account of how Uyghurs are wounded up in prison camps,” tweets Atlantic Council senior fellow and human rights lawyer Rayhan E. Asat.
“Thousands of photographs from the heart of China’s highly secretive system of mass incarceration in Xinjiang, as well as a shoot-to-kill policy for those who try to escape, are among a huge cache of data hacked from police computer servers in the region,” reports the BBC’s John Sudsworth.
“In a news conference following her landmark visit to China this week, Michele Bachelet, the United Nations High Commissioner for Human Rights, spoke at length on the issue of discrimination and racism and the importance of protecting fundamental rights – in the United States,” writes The Globe and Mail’s James Griffiths.
“Ms. Bachelet appeared to confirm many of her critics’ worst fears about her China trip: that it would be hijacked by a propaganda network ready to use it to whitewash the country’s record on human rights, particularly regarding the issue of Xinjiang.”
The US-China Indo-Pacific rivalry
I was on Asharq News discussing U.S. -China competition in the Indo-Pacific (link to program with Arabic voiceover.)
Montana picture
Some shots of Rattlesnake Creek running through Missoula, Montana.
"At the end of the Great Leap, which killed millions, Mao approved a meeting which convened 7000 party secretaries from county level and up. Existing Great Leap policies were repudiated. Some even directly criticized Mao,”
The Great Leap killed nobody, and nobody starved to death during the Three Difficult Years. Mao had spent 20 years feeding million-man armies on the march, under fire, and he ensured that everyone got something to eat every day.
The entire story was concocted by a German professor (and Chiang Kaishek fan) who was paid $2 million by the US and UK Governments for his efforts.
But there are no–zero–contemporary accounts of starvation in China, whether by the CIA (tasked with monitoring the success of America's Grain Embargo) or by the dozens of journalists then roaming the countryside.