Welcome to the 79th edition of Trade War.
Alibaba is rocked by rape allegations revealing a tech industry-wide culture of sexual harassment. A five-year plan aims to further regulate China’s economy. And Beijing looks to strengthen ties with Afghanistan as the U.S. pulls out.
Calls for a boycott for the Beijing Winter Olympics are growing. And signs emerge of China’s uneven economic recovery, with many regions struggling with weak consumption and job growth.
Alibaba rape allegations reveal ugly side to tech industry
After 6,000 Alibaba employees signed an online petition calling for an investigation into an alleged rape and the incident became international news, the embattled tech company has fired the executive involved and two managers have resigned.
The incident is prompting a wider societal reckoning with China’s tech industry culture of business drinking and widespread sexual harassment, writes Protocol’s Shen Lu. A 2018 survey carried out by an organization called 074 Legal Hotline for Professional Women showed that nearly 70% of women reported having been sexually harassed on the job.
“This [Alibaba] episode, which occurred merely a week after the A-List Chinese-Canadian pop star Kris Wu was arrested on suspicion of rape, marked the latest development in the #MeToo movement in China, with hundreds of thousands of web users — female and male — calling for an end to the toxic business drinking culture and workplace sexual harassment all too common across China,” writes Shen Lu.
“Though various laws contain provisions that prohibit workplace sexual harassment — for example, China's constitution enshrines gender equality — the rules are generally abstract and lack teeth,” writes Shen Lu. “Given that even major companies like Alibaba currently don't have mechanisms addressing workplace sexual harassment or assault, taking to social media has proven the most effective way for victims to seek justice.”
Cut business drinking & replace it with “correct values”
China’s anti-corruption agency has called for limits on business drinking and strict punishment in the Alibaba case, reports Bloomberg News.
“China should reduce business drinking and replace it with “correct values,” the Chinese Communist Party’s anti-corruption watchdog said in a commentary on a sexual assault case involving employees with Alibaba Group,” reports the financial news service.
Stocks of China’s major alcohol companies fell on the news, with Kweichow Moutai down as much as 2.1 percent, Wuliangye Yibin dropping 2.8 percent, and Shanxi Xinghuacun Fen Wine Factory down 3.2 percent, the day after the commentary’s publication.
“China has moved in recent weeks to clamp down on a host of sectors seen as contributing to societal problems the Communist Party is seeking to fix, particularly ahead of a once-in-five-year party congress next year at which President Xi Jinping is expected to secure a third term. Investors have been dumping shares in any sector that receives criticism in state media, from digital gaming and e-cigarettes to property and baby formula.”
“Common prosperity” target of new five-year plan
The party’s central committee and China’s State Council have jointly released a five-year plan that aims to further strengthen regulatory control over the economy, reports the Financial Times.
The move is part of Beijing’s push to “assert Communist party supremacy over the world’s second-largest economy,” and according to the policy document, aims to “meet people’s ever-growing demands for a good life,” reports the paper.
The document describes an “urgent need” for legislation dealing with antitrust in the technology and education industries that benefits people’s livelihoods and calls for more research to “build legal frameworks for the digital economy, internet finance, artificial intelligence, big data and cloud computing,” reports the Financial Times.
Thomas Gatley, an analyst at Beijing-based Gavekal Dragonomics told the Financial Times that future regulation would focus on two areas: control over information and “common prosperity guidelines”, or ways of “looking after middle-class people both in their role as consumers and in their role as workers.”
Social fairness and nat’l security over growth-at-all-costs
China’s masterplan for its technology industry is emerging, writes the Economist’s Don Weinland.
“As a guiding principle, the vice-premier, Liu He, recently stated that China is moving into a new phase of development that prioritizes social fairness and national security, not the growth-at-all-costs mentality of the past 30 years. The government will guide the “orderly development of capital”, he noted, the better to suit the “construction of a new development pattern”.
“Barry Naughton of the University of California, San Diego, calls this the “grand steerage”. Dexter Roberts of the Atlantic Council, a think-tank in Washington, DC, discerns an echo of Mao Zedong’s “politics-in-command” economy,” writes Weinland.
“Either way, it is a break with the old pro-growth model and the beginning of “real state capitalism”, as one investment banker puts it.”
China pushing into Afghanistan as US pulls out
Beijing is intent on using Afghanistan as a strategic corridor into central Asia, as the U.S. pulls out of the country, writes Rand Corporation analyst Derek J. Grossman.
China reportedly is already working with Kabul on the construction of roads from Peshawar to Kabul and another through the Wakhan Corridor, the strategic strip of territory that connects Xinjiang and Afghanistan. “Once completed, these new thoroughfares should enable Beijing to pursue its goals of increased trade with the region and natural resource extraction in Afghanistan,” writes Grossman.
“Beijing already has strong bilateral and multilateral relations throughout the region (not least via the Shanghai Cooperation Organization), but an improved relationship with Afghanistan will pay even larger dividends,” writes the Rand analyst.
“If the Taliban stay true to their word—a big if—then Beijing is set to benefit from Belt and Road projects transiting Afghanistan as well as what China frames as counterterrorism cooperation against Uyghur extremists in Xinjiang.”
Calls rise for boycott of Beijing Winter Olympics
Speaking shortly before China sentenced Canadian Michael Spavor to 11 years in prison on spying charges, a politician has warned that travel to the upcoming 2021 Beijing Winter Olympics may be dangerous, reports the Guardian.
“We are approaching a point where it won’t be safe for Canadians, including Olympic athletes, to travel to China,” Erin O’Toole of Canada’s Conservative opposition party said at a news conference in Ontario.
Canada must think “long and hard on whether we reward a country like that with the Games,” he said.
“O’Toole joins a chorus of voices, including more than 180 human rights groups, calling for a boycott of the games over China’s mass abuses of human rights,” reports the British paper. Most of the organizations are groups that support Hong Kong, Taiwan, and the persecuted Tibetan and Uighur communities.
But don’t expect business to boycott Beijing
Global businesses are unlikely to join the growing calls for a boycott of the 2022 Beijing winter games, reports Nikkei Asia.
"Back in 2008 [at the Beijing summer Olympics], there was hope," Human Rights Watch’s Minky Worden, said at an online press conference. There was hope then that the "Olympics could bring positive change to the country, especially for press freedom and human rights. Instead, 13 years later, China is in the midst of its worst human rights crackdowns since the Tiananmen Square massacre in 1989," she said.
In the open letter issued in February by human rights groups world leaders were asked to "commit to a diplomatic boycott" of the next Olympics and not "embolden the Chinese government's appalling rights abuses and crackdowns on dissent."
While some nations could join a diplomatic boycott, a corresponding corporate one is very unlikely. "Any company that considers a boycott doesn't have significant market presence in China," former China bureau chief and Asia news editor at Bloomberg Businessweek Dexter Roberts said. However, "the pressure on them will only become larger and larger as we get closer to the Olympics," Roberts said. "What matters, obviously, is when it starts to affect share prices and their market shares."
Corporate sponsors of the 2022 Olympics include western multinationals Airbnb, Coca-Cola, Intel, Omega, P&G and Visa, as well as Asian companies Alibaba, Mengniu, Panasonic, Samsung and Toyota Motor.
China’s uneven economic recovery shows regional divides
Even as China’s GDP growth recovers, some regions of the country are struggling to boost consumption and still suffer from weak job growth, writes the South China Morning Post’s Ji Siqi.
“Just as some people infected by the virus continue to suffer from its symptoms months after an initial infection – a phenomenon known as “long Covid” – many regional economies in China are suffering a similar fate,” writes Ji.
Provinces across China which have strong retail sales also are reporting strong overall economic growth, while those with weak sales, are among the worst performing, the Hong Kong paper reports.
Of the eight fastest growing provinces, seven of which were in southern China including the island of Hainan, six reported faster than average retail sales, with Zhejiang - where exports have powered growth - and Tibet - which has not released full figures on retail sales - being the only exceptions.
“At the same time, all five of the slowest-growing provinces reported negative growth in retail sales in the first half compared with the same period in 2019. They were pandemic-stricken Hubei, northeastern rust belt provinces Heilongjiang, Liaoning and Inner Mongolia, and the northern province Hebei.”
Meanwhile, income growth amongst poor Chinese has been well below average and significant regional differences in the job situation have emerged, both likely causes of the weak consumption.
“In the second quarter, the number of jobs available exceeded the number of applicants in eastern, central and western China, indicating an easier environment for jobseekers,” writes Ji. “But in the northeast and most other major northern cities such as Beijing and Tianjin the opposite was true,” she writes, citing a survey by the China Institute for Employment Research at Renmin University of China and job website Zhaopin.
“The pandemic inflicted a shock to the psychology of the average Chinese household,” said Nigel Chiang, an economist at Centennial Asia Advisors, reports the South China Morning Post in a separate article. “[There is a] fundamental change in spending behavior arising from a more anxious citizenry, despite the economic recovery.”
“The disconnect between China’s strong – albeit slowing– economic recovery and soft consumer confidence threatens to exacerbate structural problems in the world’s second largest economy and ultimately weigh on economic growth,” the paper reports.
Under Xi, economic power doesn’t equal political power
In China, “the correlation between provinces’ economic strength and political power shifted depending on the leadership that was in power,” write MacroPolo’s Damien Ma and Ruihan Huang.
What has been notable, is the degree to which provincial economic power has not translated into political power under Xi Jinping, a shift from the earlier era under former party secretary Hu Jintao. Instead, those provinces that today’s top leader served in - or those that have allies of Xi - now have the most power.
"When Xi took power in 2012, Hebei, Shanghai, Zhejiang, and Shaanxi—all provinces where he served political office or had considerable experience—became politically more important.”
This also stands in contrast to the correlation in the U.S., where the economically powerful states of California, New York and Texas also have substantial political power, MacroPolo notes.
“Xi’s increasing political power has had spillover effects in elevating provinces that aren’t the traditionally powerful ones. The making of a new “Guizhou gang” is one such example. The [Regional Political Power Index] ranking of Guizhou, where Li Zhanshu (PBSC member), Chen Miner (Politburo member), and Zhao Kezhi (Minister of Public Security) all worked previously, rose from last place in the 17th [Central Committee] to the top 15 in the 19th CC,” write Ma and Huang.
“The rise of Guizhou politically seems to further validate the divergence between political power and economic power in the Xi era. The province is not an exemplar when it comes to economic performance, being one of the most debt-laden provinces in China.”
Notable/In Depth
Here is a chart which shows which shows relative levels of Chinese investment in Central and Eastern European countries, suggesting which “have the most (potential) latitude to push back on China,” tweets Taiwan-based freelance writer Erin Hale.
After a decade of talk, the U.S. needs to take real action in order to “rebalance to Asia,” moving away from an “excessively China-centric” approach to the region, write American Enterprise Institute’s Zach Cooper and Indiana University international relations professor Adam P. Liff in Foreign Affairs.
China’s latest census reveals that hukou or household registration reform has stalled or even regressed, writes University of Washington geography professor Kam Wing Chan in the Jamestown Foundations’ China Brief.
More scenes from Montana
It’s getting hot before noon these Montana summer days in August.