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Trade War

Newsletter 73 - June 19, 2021

Dexter Roberts
Jun 19, 2021
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Welcome to the 73rd edition of Trade War.

Hong Kong authorities raid outspoken newspaper in a startling escalation of efforts to erode the territory’s free speech. And Xi appoints trusted advisor Liu He to head massive chips development plan.

The G7 issues its most critical statement on China since the 1989 Tiananmen massacre. Meanwhile, China’s debt challenge will be exacerbated by its demographic crisis, argues a prominent analyst of the Chinese economy.

Mr. Democracy has gone to hell

A raid by police on the newsroom of outspoken newspaper Apple Daily is a startling escalation in the crackdown on free speech in Hong Kong, report New York Times reporters Austin Ramzy and Tiffany May.

“Hundreds of police officers raided the newsroom… scrutinized journalists’ computers; arrested top editors; froze company accounts; and warned readers not to repost some of its articles online,” reports the Times; the action was the “most aggressive use yet of Hong Kong’s sweeping national security law, imposed last year by Beijing, against a media outlet, and could put the newspaper’s survival in question.”

The five executives who work at Apple Daily and parent company Next Digital were arrested on suspicion of “collusion with a foreign country or with external elements to endanger national security.”

“As difficult as the current circumstances may be, we will carry on with our jobs with the aim to publish our papers as normal tomorrow,” the Next Media Trade Union said in a statement.

“A century ago, [Chinese Communist Party co-founder] Chen Duxiu said that to modernize China needed to promote both Mr. Science & Mr. Democracy,” tweeted the Time’s Li Yuan. “Today as China sent 3 astronauts into a space station and arrested 5 Apply Daily executives, online comments said that Mr. S had gone to heaven while Mr. D had gone to hell.”

Twitter avatar for @LiYuan6
Li Yuan @LiYuan6
A century ago, Chen Duxiu said that to modernize China needed to promote both Mr. Science & Mr. Democracy. Today as China sent 3 astronauts into a space station and arrested 5 Apple Daily executives, online comments said that Mr. S had gone to heaven while Mr. D had gone to hell.
Twitter avatar for @austinramzy
Austin Ramzy @austinramzy
Five Next Media/Apple Daily executives were arrested as police raided the pro-democracy newspaper this morning. Founder Jimmy Lai is already facing national security law charges. Now the focus appears to be moving from him to his fiercely independent paper https://t.co/MvLJVcmwBl
3:20 PM ∙ Jun 17, 2021
155Likes44Retweets

“Only a tiny minority of people will be affected”

“Films will be censored, but [Hong Kong] will be a “cultural hub.” Funds frozen, but [Hong Kong] a “secure financial centre.” Editors arrested for journalism, but journalism “not affected.” My elected [Legislative Council representative] is in prison, but “only a tiny minority of people will be affected” by [the National Security Law],” one person tweeted.

Twitter avatar for @dtiffroberts
Dexter Roberts @dtiffroberts
Pretty much sums up where Hong Kong is today..
Twitter avatar for @Baakfanmouyan
伯昏無人 @Baakfanmouyan
Films will be censored, but HK will be a “cultural hub.” Funds frozen, but HK a “secure financial centre.” Editors arrested for journalism, but journalism “not affected.” My elected legco rep is in prison, but “only a tiny minority of people will be affected” by NSL https://t.co/B0iRWGsLyN
8:27 AM ∙ Jun 17, 2021
65Likes20Retweets

19th century form of ethno-nationalist imperialism

As China prepares to celebrate the 100th anniversary of the founding of the Chinese Communist Party, Xi is pushing the country into what can be seen as its fourth distinct era, writes the Financial Times’ Jamil Anderlini.

“The first three are the revolutionary period in the 1920s, 30s and 40s, the brutal Maoist era following the establishment of the People’s Republic in 1949 and the economic and political liberalization under Deng Xiaoping and his successors,” writes Anderlini.

Xi, who has “consciously set out to define a fourth era,” is pushing for a “dramatic expansion of China’s military, a far more assertive stance globally and total suppression of dissent. Economically, he has laid out a state-dominated vision of self-reliance that one former World Bank official describes as a “wartime” economic plan.”

The CCP “has morphed into a conservative reactionary party bent on preserving the power of state capitalist elites and advancing a distinctly 19th century form of ethno-nationalist imperialism,” writes Anderlini.

Twitter avatar for @jedmark888
Jeremy Mark @jedmark888
Xi Jinping’s CCP “has morphed into a conservative reactionary party bent on preserving the power of state capitalist elites and advancing a distinctly 19th century form of ethno-nationalist imperialism.”
ft.comSubscribe to read | Financial TimesNews, analysis and comment from the Financial Times, the worldʼs leading global business publication
7:29 PM ∙ Jun 17, 2021
4Likes3Retweets

Xi’s trusted advisor Liu He new chips czar

Xi Jinping is turning to a trusted advisor to head a trillion dollar national effort to boost China’s chip industry even as it faces growing U.S. sanctions, reports Bloomberg News.

“Liu He, Xi’s economic czar whose sprawling portfolio spans trade to finance and technology, has been tapped to spearhead the development of so-called third-generation chip development and capabilities and is leading the formulation of a series of financial and policy supports for the technology, according to people with knowledge of the matter,” reports the financial news agency.

China announced in its latest five year plan that a “whole nation system” would be used in the chip effort. “First introduced under Mao Zedong to help the then-fledgling Communist China industrialize, the approach was crucial to helping Beijing attain a number of top national priorities, from developing its first atomic bomb in the early 1960s to achieving Olympic sporting success. After that it was largely set aside as officials shifted to focus on economic growth.”

“For our country, technology and innovation is not just a matter of growth,” Liu told China’s top scientists in May. “It’s also a matter of survival.

Twitter avatar for @GaoYuan86
Gao Yuan @GaoYuan86
Just out. This move highlights the importance of chips to China, and Beijing’s determination to solve the bottlenecks with help of “whole nation system”. #semiconductor #China
bloomberg.comBloomberg - Are you a robot?
5:16 AM ∙ Jun 17, 2021
12Likes5Retweets

G7 ‘most comprehensively critical’ remarks ever on China

The G7 has issued a statement criticizing China for its human rights violations in Xinjiang and Hong Kong, reports the Wall Street Journal.

The 25-page joint statement released last Sunday raised everything from “pandemic recovery to the global economy, tax, trade and girls’ education,” while asking China “to respect human rights and fundamental freedoms, especially in relation to Xinjiang and those rights, freedoms and high degree of autonomy for Hong Kong.”

The statement also noted that the G7 countries would consult on issues related to China’s behavior in the global economy.

“The statement may mark the most pointed remarks to China by G-7 leaders since the 1989 killing of students and other demonstrators known as the Tiananmen Square crackdown and the “most comprehensively critical” of China since the summits began in 1975, John Kirton, director of the University of Toronto’s G7 Research Group, told the Journal.

Twitter avatar for @JChengWSJ
Jonathan Cheng @JChengWSJ
The G7's China statement marks the most pointed remarks since 1989 and the “most comprehensively critical” statement of China since the first G7 summit in 1975, says one expert. Recent G7 criticism of China has been either implied or limited. @jamestareddy
on.wsj.comBiden Tries to Rally G-7 Leaders to Challenge ChinaLeaders also vowed to donate one billion Covid-19 vaccine doses to poorer nations over the next year
12:41 AM ∙ Jun 14, 2021
6Likes6Retweets

Demography makes China’s debt challenge worse

The real challenge for China’s economy will be dealing with its excessive debt reliance, writes Peking University finance professor Michael Pettis in Fortune. Demography - or in particular China’s declining working population - will make things worse.

“If China’s future GDP growth requires the same level of credit growth as it has in the past, then China’s debt-to-GDP ratio must rise to somewhere between 400% and 500%: an unprecedented level of debt, especially for a developing country,” writes Pettis.

“Adjusting for a declining working population makes the numbers even worse. As the working population declines by 0.5% to 0.6% a year, the amount of debt per worker rises by an additional 2% to 3% of GDP every year.”

“The main effect of deteriorating demographics is to reduce the amount of time China has to address its debt, thus making an adjustment all the more urgent.”

Twitter avatar for @michaelxpettis
Michael Pettis @michaelxpettis
In my latest piece – published today in Fortune – I argue that May's disappointing census numbers don't really change anything fundamental in China. They mainly accelerate the already-difficult adjustment that China faces anyway.
fortune.comCommentary: Debt, not demographics, will determine the future of China’s economyCommentary: China’s debt was already unsustainable. Changing demographics may accelerate the coming adjustment.
9:45 AM ∙ Jun 18, 2021
66Likes16Retweets

Local debt to GDP ratio up 30 ppt since 2008

Which province has built up the most destabilizing debt load? That’s relatively poor Guizhou while Guangdong is in best shape, according to Chicago-based MacroPolo’s “China Debt Hangover” digital project.

“More than a decade after the global financial crisis, China is still reeling from the debt hangover that was largely caused by the explosion of local government financing vehicles (LGFVs),” writes MacroPolo.

Local debt to GDP ratio has grown more than 30 percentage points from the crisis in 2008. But debt growth is not a problem as long as it supports productive investments and the borrower can repay it plus interest, points out MacroPolo.

“What is troubling is the fact that many LGFVs’ debt-financed investments can no longer service that debt, indicating that LGFVs have not invested wisely. In fact, returns on LGFV investment are on average below 2%, far lower than the cost of borrowing.”

Twitter avatar for @MacroPoloChina
MacroPolo @MacroPoloChina
What's the worst and best provinces in terms of LGFV debt? Guizhou and Guangdong. This plot separates the provinces into roughly two quandrants. Full results and rankings, as well as what the indicators mean, are at our new Debt Hangover: macropolo.org/digital-projec…
Image
12:51 PM ∙ Jun 15, 2021
12Likes5Retweets

Another tech executive warned to keep low profile

Chinese officials have warned a top executive to keep a low profile, reports Bloomberg News. The move against food delivery mogul Meituan’s Wang Xing came after the executive last month posted a controversial millennium-old poem to social media.

“The Tang Dynasty poem -- describing the burning of books under China’s first emperor -- was widely seen as anti-establishment and triggered a $26 billion selloff in Meituan’s shares over two days,” reports the financial news agency. “While the CEO later issued a clarification saying his post had been targeted at the short-sightedness of his own industry, some investors drew parallels to the criticisms issued by Alibaba Group Holding Ltd. founder Jack Ma against regulators last year, which triggered an unprecedented crackdown on China’s internet sector.”

“Like Alibaba previously, Meituan is grappling with a probe by the state antitrust watchdog into alleged monopolistic behavior such as merchant exclusivity, which some analysts have estimated could result in fines of over $700 million.”

Twitter avatar for @cocojournalist
Coco Liu @cocojournalist
Beijing summoned #Meituan's Wang Xing to a meeting recently and warned him to keep a low profile, according to sources, after the billionaire founder posted a controversial poem that convulsed markets and sparked social media furor. bloomberg.com/news/articles/… w Dong on @technology
bloomberg.comBloomberg - Are you a robot?
5:45 AM ∙ Jun 18, 2021
25Likes18Retweets

Notable/In Depth

With China successfully launching a crewed space mission on June 17, here is a good report from CSIS that looks at how its space program measures up to the U.S. and Russia.

Twitter avatar for @CSIS
CSIS @CSIS
On June 17, China successfully conducted its first crewed mission since 2016. While dozens of countries have space programs, only the US, Russia, and China have independently launched humans into space. Learn more from @ChinaPowerCSIS: bit.ly/CPspace
Image
7:29 PM ∙ Jun 17, 2021
15Likes8Retweets

Noted China labor scholar Manfred Elfstrom discusses the parameters of China’s labor unrest and his new book in this podcast on the New Books Network.

Twitter avatar for @peterlorentzen
Peter Lorentzen @peterlorentzen
Are China's workers rising up? Yes and no. Listen to my interview with @Manfred_E of @ubcokanagan to find out.
newbooksnetwork.comManfred Elfstrom, “Workers and Change in China: Resistance,…Manfred Elfstrom, “Workers and Change in China: Resistance, Repression, Responsiveness” (Cambridge UP, 2021)
4:34 PM ∙ Jun 18, 2021
4Likes4Retweets

Local officials are able to negotiate how they meet targets set by higher government agencies, argues this interesting paper by Georgetown professor Ning Leng and Fudan University’s Cai Zuo.

Twitter avatar for @leng_ning
Ning Leng @leng_ning
How does the Chinese state set evaluation criteria for local officials? Can local officials negotiate on their own evaluation criteria? My latest paper with Cai Zuo in JCC shows how local officials can and do affect their own evaluation criteria making, esp. over targets…(1/5)
4:49 PM ∙ Jun 14, 2021
148Likes42Retweets

Conversation on The Myth of Chinese Capitalism

I enjoyed discussing “The Myth of Chinese Capitalism” and why China’s faltering steps on hukou reform are a problem for its economic future on Nation-State Dialogue - watch it here.

Twitter avatar for @dtiffroberts
Dexter Roberts @dtiffroberts
I enjoyed discussing “The Myth of Chinese Capitalism” and why China’s faltering steps on hukou reform are a problem for its economic future - with @KangJing on Nation-State Dialogue youtu.be/VZ82kRxGoQo via @YouTube
Image
5:10 AM ∙ Jun 18, 2021
12Likes1Retweet

Long Montana summer days

Taken at 9:30 pm - Montana summer days are long.

Twitter avatar for @dtiffroberts
Dexter Roberts @dtiffroberts
At 9:30 pm - Montana summer days are long
Image
5:38 AM ∙ Jun 19, 2021
5Likes1Retweet
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