Welcome to the 55th edition of Trade War and apologies for the delay. The Lunar New Year holiday intruded into my writing plans. Here is the a run-down of the week’s events - and Happy Year of the Ox!
Presidents Biden and Xi finally had their first phone call and the readouts from each side suggest the challenges ahead. The brief phenomenon of Chinese from around the world having unfettered political conversations has ended with the banning of China Clubhouse.
Meanwhile, Xi gets stood up by Eastern Europe while Japanese firms say no to decoupling. And the challenges inequality poses to China’s future are highlighted in notable pieces in Foreign Policy and Foreign Affairs.
Biden’s ‘fundamental concerns’ & Xi’s ‘internal affairs’
President Biden and General Secretary Xi spoke in a call that lasted for two hours with each side presenting different visions of how it went.
While noting the shared concerns of “global health security, climate change, and preventing weapons proliferation,” the short U.S. readout stated that Biden “underscored his fundamental concerns about Beijing’s coercive and unfair economic practices, crackdown in Hong Kong, human rights abuses in Xinjiang, and increasingly assertive actions in the region, including toward Taiwan.”
The Chinese summary published by Xinhua for its part, quoted Xi as telling Biden that Beijing hopes “the possibilities will now point toward an improvement of China-U.S. relations," while also noting that “confrontation between the two countries, however, will definitely be disastrous for both countries and the world.”
“The Taiwan question and issues relating to Hong Kong, Xinjiang, etc. are China's internal affairs and concern China's sovereignty and territorial integrity, and the U.S. side should respect China's core interests and act prudently, Xi stressed,” Xinhua reported.
Rare cross border China dialogue blocked
In a “rare moment of cross-border dialogue” Chinese on the mainland, in Hong Kong, Taiwan, and in the U.S. “found an open forum on the social media app, Clubhouse, to discuss contentious topics, free from the usual constraints of the country’s tightly controlled internet,” report the New York Times’ Amy Chang Chien and Amy Qin.
That was not to last.
“By Monday evening, the inevitable happened: The Chinese censors moved in. Many mainland users reported receiving error messages when they tried to use the platform. Some said they could only access the app by tunneling through the digital border using a VPN, or virtual private network.”
No Chinese ‘debt trap’ say researchers
The much discussed “debt trap” facing countries who borrow from China to develop infrastructure, then lose control of the projects when unable to make loan payments, is a myth, write professors Deborah Brautigam and Meg Rithmire in the Atlantic.
“Seen this way, China’s internationalization—as laid out in programs such as the Belt and Road Initiative—is not simply a pursuit of geopolitical influence but also, in some tellings, a weapon. Once a country is weighed down by Chinese loans, like a hapless gambler who borrows from the Mafia, it is Beijing’s puppet and in danger of losing a limb.”
The reality is instead very different: “our research shows that Chinese banks are willing to restructure the terms of existing loans and have never actually seized an asset from any country,” the authors write.
Stinging diplomatic setback for Xi in Eastern Europe
China’s efforts to build influence have been dealt a blow with Xi stood up in a meeting of the so-called "17+1" platform created by Beijing in 2012, to build ties with 17 Central and Eastern European countries, reports Politico.
“Half of the 12 EU national leaders invited to the club failed to show up to pay homage to Chinese President Xi Jinping,” says Politico, noting that countries like Poland were "dissatisfied" with the slow speed of promised access to the Chinese market.
“It's a stinging diplomatic setback for Xi, who had a first class “divide and rule” card to play by offering to double China’s food imports from Eastern Europe over the next five years.”
Call it decoupling kabuki
By contrast, Japanese companies are showing no intention to break ties with China, reports Asia Times. According to a survey last September by the Japan External Trade Organization (JETRO), only 7.2% of Japanese companies have considered moving production out of China, down from 9.2% in 2019.
“China’s scale makes it a non-negotiable production site that Japan will simply have to learn how to navigate. Call it “decoupling kabuki,” says economist Scott Kennedy at the Center for Strategic and International Studies, a Washington think tank.”
Xi’s much harsher authoritarianism
The recent arrest of an outspoken Chinese businessman shows growing authoritarianism in Xi’s China, writes Li Yuan of the New York Times.
“China was, and remains, an authoritarian country under Communist Party rule. But the nature of its authoritarianism has become much harsher under Xi Jinping, the party’s top leader since late 2012,” writes Li.
“Mr. Sun’s case exemplifies the country’s drastic turn from a nation striving for economic and social, if not political, liberalization to one increasingly operating in an ideological straitjacket.”
China’s unskilled laborers an existential threat
China’s huge numbers of unskilled workers pose a threat to the country’s economic future, write Martin Chorzempa and Tianlei Huang of the Peterson Institute in Foreign Policy.
“No country with less than 50 percent high-school attainment has been able to escape the middle-income trap; the average rate for countries that successfully made the transition is 76 percent,” Chorzempa and Huang write, citing a new book by Stanford University researchers Scott Rozelle and Natalie Hell called Invisible China: How the Urban-Rural Divide Threatens China’s Rise,
“China is nowhere near either of those numbers: Only 30 percent of China’s labor force has completed high school, placing the country dead last among the world’s middle-income countries.”
Hybrid politico-economic elite difficult to dislodge
Regional disparities and political corruption by the Chinese Communist Party are becoming increasingly entrenched in China, writes Branko Milanovic in Foreign Affairs.
“Political and economic power are merging to create a hybrid politico-economic elite that will be difficult to dislodge once it is entrenched. That elite will have little interest in limiting corruption,” writes Milanovic.
“Therein lies the contradiction within efforts to curb corruption in a single-party system. Strong development of the private sector, as in China, produces new social classes. To co-opt them, the government invites their political participation through party membership. But they then become an upper class with both political and economic power, separated from the rest of society and likewise from the bulk of CCP membership.”
Notable/In Depth
“[China’s] transition is hindered by its deeply unequal economic system which in turn is tied to lack of progress in reforming its household registration or hukou policy as well as the dual land system,” I write in the final exchange of a dialogue with Milanovic published in Pairable.
“We are like a big sheet of loose sand. We can’t unite,” a delivery driver tells the Los Angeles Times Alice Su, in her report on a recent disturbing self-immolation by a worker in the precarious courier business.
Here is a persuasive rebuttal to the recent controversial Economist piece that argued against using genocide to refer to the tragedy happening to the Uighurs and other Muslims in Xinjiang, written by law professor Donald Clarke.
People’s Bank of China “struggles to effectively speak to markets,” write Scott Kennedy and Yilin Wang of CSIS in this piece that examines how China’s central bank is still far from independent.
Happy Year of the Ox! 牛年大吉
And finally, Happy Lunar New Year!