Welcome to the 89th edition of Trade War.
Beijing considers a long delayed property tax but resistance is still strong. And officials may once again start pumping money into the economy, as growth slows.
U.S. official says will safeguard five key technologies from Beijing. And American government and business diverge in their approach to China.
Nominee for U.S. ambassador to China Nicholas Burns criticizes Beijing over “aggressive” actions in the Indo-Pacific. And Biden comment on defending Taiwan sparks policy shift speculation.
Property tax: a potential social-stability issue
Xi’s plan to rollout a property tax , a move that would help rein in real estate speculation, is facing resistance, writes the Wall Street Journal’s Lingling Wei.
Pushback has come from officials with multiple apartments, as well as urbanites who fear it would hurt the value of their homes; China’s local governments’ that rely on land sales for about a third of their revenues also would be hit by a tax, expected to bring down prices.
“More than 90% of urban Chinese families own their homes, and property-related industries account for nearly a third of the country’s output. Meanwhile, up to 80% of China’s household wealth is tied up in real estate; a drop in property values could make homeowners feel poorer and less willing to spend,” she writes.
“So many people, including party members, own more than one property,” a person familiar with the government debate told the Journal. “The tax proposal is becoming a potential social-stability issue,” writes Wei.
Longtime obstacle is People’s Congress itself
“To get an idea of how long China has been mulling - and putting off - implementing a property tax, here’s a story I wrote about it back in 2011!” tweets the New York Times’ Michael Forsythe.
“The biggest problem to passage of the property tax is the People’s Congress,” said Lee Kuan Yew Center for Public Policy professor Huang Jing told Forsythe in 2011. “How can you expect those rich people to represent the interests of people who need help?”
Beijing began discussing a property tax more than a decade ago but has seen extremely limited progress beyond two small trials in the cities of Chongqing and Shanghai. On October 23, China’ official news agency Xinhua announced it would expand trials to more cities without specifying how many or which ones.
Xi isn’t changing how the cake is divided
Xi’s ‘Common Prosperity’ drive has focused on crackdowns and campaigns, with few substantive policy steps that would reduce inequality, points out University of Michigan political science professor Mary Gallagher, in a tweet thread.
“Xi has accomplished high-profile populist interventions in tech and education, further reduced abject poverty, and is in the process of weaning the Chinese economy off real estate. However, his pursuit of Common Prosperity has been mainly through crackdowns and campaigns,” writes Gallagher.
“Despite his image as China’s strongest leader since Mao, Xi has not implemented new social welfare reforms or laws that significantly change how the “cake” is divided. Property tax plans have been curtailed [and] hukou reform thwarted by resistance of city officials and residents.”
Economic growth concerns could force Beijing to ease up
As China’s economy continues to slow, with 4.9 percent growth in the third quarter falling below expectations, Beijing may move back to a more supportive policy and ease up on its ambitious crackdowns, including on the debt-laden property sector, writes the Wall Street Journal’s Stella Yifan Xie.
“With a critical meeting of China’s Communist Party leadership slated to take place next year and leader Xi Jinping likely to seek a third term, shorter-term economic growth concerns will likely come back to the fore,” writes Xie.
“Unlike this year, Chinese policy makers will again shift their focus back to maintaining growth next year,” Larry Hu, chief China economist at Macquarie Group, told the Journal.
“If downward pressure on the economy rises more quickly than policy makers expect, economists say it could force Beijing to ease fiscal and monetary policy and loosen restrictions on the housing market—including lowering mortgage rates—to cushion the blow,” writes Xie.
“There is less evidence that Beijing is willing to reverse course on its longer-term efforts to more tightly regulate real estate, internet companies and private tutoring services. Officials blame soaring housing and education costs for burdening China’s middle class and deterring couples from having more children. Internet giants have been fined for engaging in monopolistic behavior and exploiting rank-and-file workers,” reports the business paper.
U.S. will safeguard five key technologies from China
“The U.S. top counterintelligence official said he’s narrowing his focus to safeguarding five key technologies,” writes the Wall Street Journal’s Kate O’Keeffe.
National Counterintelligence and Security Center acting director Michael Orlando said the focus aims to “conduct an effective outreach campaign to educate businesses and academia about the expansive efforts by China and Russia to collect cutting-edge research.”
“The five technologies identified by Mr. Orlando include artificial intelligence, quantum computing and autonomous systems such as undersea drones and robots that can perform surgeries. The sectors are often depicted by scientists and researchers as future drivers of economic growth and military dominance,” writes O’Keeffe.
America’s public and private elites diverge on China
Meanwhile, there is a growing split between the political and business elites in the U.S. when dealing with China, explains a recent commentary in the Financial Times.
“America’s public and private elites are no longer as one on China, if they ever were,” says the Financial Times. “In Washington, vigilance to Beijing is the nearest thing there is to a bipartisan verity” while in “in Wall Street and beyond, though, commercial imperatives are reasserting themselves.”
People’s Republic of China not an Olympian power
Nicholas Burns, Biden’s choice for U.S. ambassador to China, has called out Beijing for its “aggressive” actions in the Indo-Pacific, report Bloomberg News’ Daniel Flatley and Peter Martin.
Burns cited as particularly objectionable China’s flights into Taiwan’s air defense inspection zone, saying it is obvious “they intend to take back Taiwan” and that U.S. “responsibility is to make Taiwan a tough nut to crack.”
“Beijing proclaims that the East is rising and the West is in decline,” Burns said. “I’m confident in our own country,” and the U.S. military, diplomatic, and educational strengths, compared to China. “The People’s Republic of China is not an Olympian power.”
No shift from ‘Strategic Ambiguity’ to ‘Strategic Clarity’
Biden’s surprise comment to a CNN town hall that the U.S. would aid Taiwan if it were attacked by China has many asking whether America’s longtime policy of “strategic ambiguity” had finally been abandoned.
Not so fast, writes Brookings Institution scholar Ryan Hass, in a tweet thread analysis.
Biden was not signaling a change to "strategic clarity" and “within minutes, a White House spokesperson clarified that Biden did not intend to signal any change in US policy,” writes Hass.
“Beijing likely will understand the context of the comments, i.e., off-the-cuff in a town hall. They recognize that Biden is not known for rhetorical precision. They also know he is not prone to uninformed impulse-driven decision-making. This administration is deliberative,” explains Hass.
And regardless, “Beijing already must prepare for US intervention in any type of cross-Strait conflict scenario. They cannot afford not to do so. US involvement has to be baked into their planning assumptions for any conflict scenario.”
Notable/In Depth
I was pleased to take part in this survey of a broad pool of experts answering a key question: Is U.S. Foreign Policy Too Hostile to China? Via Foreign Affairs.
This profile of Evergrande’s guanxi king Xu Jiayin is perhaps the best published to date. From The Wire China.
Is there a method to China’s sweeping crackdown on tech companies? asks MacroPolo in a recent analysis.
Of 500 companies examined, MacroPolo found that about 25 percent of companies were reprimanded, overwhelmingly the larger ones, and that they “fell into the “bits” (software) category rather than “atoms” (hardware).”
Recent seminar in India on ‘Leveraging China’s Economy’
I enjoyed chairing a panel on ‘Decoupling from China: Myth or Reality’ with Barclays’ economist Rahul Bajoria and Krea University’s V Anantha Nageswaran, at the “Leveraging China’s Economy” seminar, organized by India’s Ministry of External Affairs Centre for Contemporary China Studies and Mumbai think tank Gateway House: Indian Council on Global Relations.
Montana fall
A fall afternoon walk along the Clark Fork river.