Newsletter 54 - February 6, 2021
Welcome to the 54th edition of Trade War. Beijing warns the U.S. not to cross its “red lines” (what did I tell you last week) and the possibility of warmer U.S.-China relations fades, following tough comments by president Joe Biden and new Secretary of State Antony Blinken.
The U.K. bans China’s top broadcaster and news comes out it expelled three Chinese journalists it says were spying, while German companies double down on China. Expect China’s GDP to soar even while excessive debt challenges its local governments.
China: “red lines which must not be crossed”
As I pointed out last week in reference to The Longer Telegram’s call for setting “red lines” with China, what some suggested would be provocative, well maybe, but that’s what Beijing has been doing all along with the U.S. and many other countries. Now China’s top diplomat Yang Jiechi has done it again, reports the Wall Street Journal’s James Areddy.
Speaking in a video address on Tuesday (US time) to the National Committee on U.S.-China Relations, Yang noted room for cooperation on climate, public health, and trade, but also warned the U.S. not to cross a “red line,” on issues including human rights, the coronavirus response, and interference in Taiwan, Hong Kong, Tibet and Xinjiang.
“These issues concern China’s core interests, national dignity, as well as the sensitivities of its 1.4 billion people,” Mr. Yang said. “They constitute a red line which must not be crossed.”
So much for a ‘reset’ (and Chinese ‘red lines’)
Any hopes that the new administration in Washington would go for a “reset” towards better U.S.-China relations were torpedoed by Secretary of State Antony Blinken’s tough call with China’s Yang later in the week, in which he mentioned U.S. concern about pretty much every Chinese “red line” there is.
Blinken told Yang on Friday the US will “stand up for human rights and democratic values, including in Xinjiang, Tibet, and Hong Kong and … will work together with its allies and partners in defense of our shared values and interests to hold the PRC accountable for its efforts to threaten stability in the Indo-Pacific, including across the Taiwan Strait, and its undermining of the rules-based international system.”
Stuart Lau @StuartKLauhttps://t.co/XHLSX5Kd8s
No doubt China most significant challenge
Earlier in the week Blinken said in an interview with MSNBC’s Andrea Mitchell that there is “no doubt that China poses the most significant challenge to us of any other country,” but qualified that by saying there are “adversarial aspects” to the relationship, but also “some cooperative ones.”
President Biden: China ‘our most serious competitor’
Also this week President Biden had more tough words for China, calling it “our most serious competitor” in an address at the U.S. Department of State headquarters.
“We’ll confront China’s economic abuses; counter its aggressive, coercive action; to push back on China’s attack on human rights, intellectual property, and global governance,” Biden said, adding that “we are ready to work with Beijing when it’s in America’s interest to do so.”
Biden also again signaled his intention to coordinate much more closely with other nations, a reversal from Trump’s failed go-it-alone approach, saying the U.S. will “[work] with our allies and partners, renewing our role in international institutions, and reclaiming our credibility and moral authority, much of which has been lost.”
No call for Xi for a while
Biden is not planning to call Xi Jinping until after speaking with the leaders of India, South Korea, and other Asian “partners,” tweets the Wall Street Journal’s Bob Davis. “The pointed message: the US is seeking allies to deal with China.”
‘Tell China’s stories well’ but not in UK
Meanwhile, relations between China and the U.K. have taken a sudden downturn, following a regulator’s decision to ban China’s top international news channel, reports the Wall Street Journal.
“China’s primary international news channel, CGTN, was ordered off the air in the U.K., after a regulator decided there that it isn’t sufficiently independent of control from the government in Beijing.”
After Xi Jinping ordered state news outlets in 2016 “to tell China’s stories well, make the voice of China heard,” China “has spent billions of dollars expanding its media presence around the world,” which included CGTN setting up a huge base in the U.K., the Journal reports.
Chinese journalists ‘working as spies’ expelled from U.K.
The U.K. last year also expelled three Chinese journalists that were “working as spies,” The BBC reports. “Their departure, first reported by the Daily Telegraph, came because they had arrived under journalism visas but were believed to be working for the Ministry of State Security, part of China's intelligence apparatus.”
While German companies double down on China
Even as China’s relations with the U.S. and U.K. sour, German companies are doubling down on their business in China, according to a new survey.
The vast majority of German firms (96 percent) have no plans to leave China soon, 72 percent are planning to invest more, and more than three-quarters expect the China market to develop better than others around the world.
Jack Ma stiffed by state news
A Shanghai Securities News front-page commentary praising China’s top technology entrepreneurs has conspicuously left out Alibaba’s Jack Ma, reports Bloomberg News.
While Jack Ma went unmentioned, “the official Chinese paper held up archrival Pony Ma as “rewriting the mobile age” with Tencent Holdings” and also lauded BYD ‘s Chairman Wang Chuanfu, Xiaomi’s co-founder Lei Jun and Huawei’s Ren Zhengfei.
“A generation of Chinese entrepreneurs emerged from the rigid structures of our old economic system with the desire to escape poverty and passion to achieve business ambitions,” the Shanghai newspaper, which is backed by Xinhua News, wrote. “They have breathed new life into China’s economic reforms.”
18% quarterly GDP growth?
Expect China to report some very high, “record-smashing” economic numbers in coming months, writes Bloomberg News’ Tom Hancock.
“The world’s second-largest economy was the first to go into lockdown to control virus outbreaks in 2020, leading to an historic contraction in gross domestic product in the first quarter of last year. That means year-on-year comparisons for the main indicators watched by most economists will show surging growth over the next few months.“
“The big one to watch will be first-quarter GDP, which is scheduled for release on April 16. It could hit a record 18.1% compared with a year ago, according to a Bloomberg survey [of] economists,” Hancock writes.
Debt-fueled growth to test China’s local governments
China’s rapid economic recovery, however, will face strains as its heavy reliance on debt hurts local government finances, says a new report cited in the South China Morning Post.
“China’s underdeveloped western areas, particularly the heavily indebted province of Guizhou, are set to face increasing pressure over the next five years due to rising debt levels that could potentially trigger risks in the state-dominated banking system,“ reports the Hong Kong-based paper. Guizhou’s total debt amounted to 7.24 times its revenues in 2019, giving it the dubious distinction of most leveraged province, according to GF Securities.
The weaker the economy, the greater the debt pressure
“The weaker the economy is, the greater the debt repayment pressure will be. In the next five years, the debt repayment pressure will be the highest in the western underdeveloped areas, followed by the central and moderately developed areas, and the lowest in the eastern developed areas, and the gap between the regions will be larger and larger,” said the report by the National Institution for Finance & Development (NIFD).
The report also found that last year the central government’s transfer payments to local governments was 8.39 trillion yuan (US$1.2 trillion), up 12.8 percent, the fastest growth in recent years. An additional 2 trillion yuan went to cities and counties as special transfer payment funds.
20.2% rise in LGFV bonds and debt
The NIFD also estimated that outstanding local government bonds and debt on local government finance vehicles (LGFVs) reached 25.5 trillion yuan and 10.7 trillion yuan, respectively, together a 20.2 percent rise compared with 2019.
Mao responsible for most of China’s poverty
Even as China touts its success in ending absolute poverty, new research finds that at least two-thirds of impoverishment in 1980, on the eve of Deng Xiaoping’s reforms, can can be blamed on mistakes made in the Mao era.
“The other side of the coin to post-reform success is often pre-reform failure, and the policy lessons are found on both sides…historical data indicates that about two thirds of China’s poverty in 1980 is attributed to the impact of the Maoist path since 1950,” says a new research paper by Martin Ravallion, a professor of economics at Georgetown University. (pdf)
“It took 10-20 years for China’s post-reform economy to make up the lost ground. The impact of the Maoist path had begun to fade in the 1970s, and half or more of the catch-up was in period up to 1990, under Deng’s rule.”
Yes, China’s growth has achieved much, but at what cost? Economist Branko Milanovic and I discuss.
PLA flights forcing Taiwan's air force to scramble its jets is one example. Now the latest in gray-zone warfare: Chinese dredgers surrounding the Matsu Islands and "scooping up vast amounts of sand from the ocean bed for construction projects,"reports Reuters in this graphics-rich article.
Even as trade and economic tensions grow, cross-border capital flows into China are going up, says this chart by Peterson Institute.
R&D spending growing in China, slowing in the U.S., chart and report by CSIS show.
Wolf warrior diplomacy is the topic of a soon-to-be-published book by Bloomberg’s Peter Martin. Martin talks to CSIS’ Bonnie Glaser in this podcast about China’s diplomats.
Wall Street Journal reporter Te-Ping Chen talks about her new collection of short stories set in China “Land of Big Numbers” on Morning Edition.
Montana morning dog walk
Picture from a recent morning dog walk by Trade War author.