Newsletter 93 - November 20, 2021
Welcome to the 93rd edition of Trade War.
The Xi-Biden virtual meeting is short on big announcements but restarts leadership contacts, with at least one key breakthrough: an agreement on military-to-military exchanges. Meanwhile, in Washington, a bipartisan congressional commission calls for curbs on commercial relations with China.
Worldwide concern has grown for the top Chinese tennis star who disappeared after reporting being sexually harassed by a retired senior leader.
China’s lack of social mobility tests economic sustainability. And China becomes the country with the most wealth, surpassing the U.S. Meanwhile, Xi’s poverty alleviation campaign benefitted companies more than individuals, a new report shows.
Xi-Biden virtual meeting sees few breakthroughs
In an interview with BBC World carried out while China’s Xi Jinping and U.S. president Joe Biden were still in their virtual meeting, I predicted the two would try to reestablish what has been a decent relationship between the leaders, but little in the way of major breakthroughs. That turned out pretty accurate. (Xi referred to Biden in opening remarks as “old friend.”)
Another prediction: while Biden would raise U.S. human rights concerns over Xinjiang and Hong Kong, as well as criticize Beijing’s increasingly hawkish stance towards Taiwan, Xi would respond with zero compromise, calling all those issues integral to China’s sovereignty and therefore off limits. It looks like that’s pretty much how it played out.
Gulf on Taiwan too big: play with fire, get burned
And my quick take on Taiwan: all that can be hoped for now is avoiding any conflict in the near term - the gulf between the U.S. and Chinese positions on Taiwan is just too large to reach any meaningful agreement (not to mention the yawning gap between what Beijing and Taipei want). You can watch that interview with TaiwanPlus News here.
“The intention of some Americans to use Taiwan to contain China” is “extremely dangerous, just like playing with fire. Whoever plays with fire will get burnt,” Xi reportedly told Biden.
Insurmountable obstacles on trade
The goal of the three-hour-plus virtual meeting was to ensure that competition “does not veer into conflict,” as Biden put it in his opening remarks, reports DW New’s William Yang.
“The talks failed to produce any major breakthroughs, but nevertheless provided a welcome sign that both leaders are working toward managing strained US-China relations with more transparency and stability,” writes Yang.
“On the economic front, [Dexter Roberts, senior fellow at the Asia Security Initiative at the Atlantic Council in Washington] said issues included China's mercantilist industrial policies, which create unfair economic advantages for Chinese companies, and the US's responding with policies that "aim at basically destroying some of what China perceives as its economic and business national champions like Huawei," reports the German government-funded English language news service.
"I think they could definitely ease tensions and make incremental progress on things like intellectual property rights that the US has been worried about. But, longer term, I'm afraid there are some insurmountable obstacles on trade," Roberts said. "I think those issues aren't going to go away.”
Okay, enough of your Trade War author!
One key area where there was real progress: military-to-military contacts, reports Bloomberg News.
“During their virtual summit, Biden and Xi agreed to open high-level channels of communication between the U.S. military and top officials from the PLA, including the vice chairman of the Central Military Commission,” tweets Bloomberg reporter Peter Martin.
“The White House is now defining a strategy on how to approach these engagements, including in the areas of cybersecurity, space and nuclear weapons, as well as testing and deployment issues of concern to the U.S., the person said,” Martin writes.
White House vs. Xinhua News
US commission calls for curbing commercial ties
Coming just after the Xi-Biden meeting, a congressional commission has recommended that the U.S. dial back commercial ties with China, reports the Wall Street Journal’s Kate O’Keeffe.
“The annual report from the influential U.S.-China Economic and Security Review Commission called for imposing restrictions on U.S. investment in China and limiting investors’ ability to buy U.S.-listed Chinese stocks,” writes O’Keeffe.
“Although rhetoric between Washington and Beijing has been tense, the bilateral trade imbalance is returning to levels last seen before the U.S. government imposed tariffs on Chinese imports in 2018, and U.S. capital flows to China are on the rise, the commission said in its report,” reports the Journal.
The bilateral economic relationship is of particular concern following Xi Jinping’s moves to “assert unassailable authority” over Chinese business, “blurring the lines between ostensibly private Chinese companies and those that are officially state-run by the Chinese Communist Party,” writes O’Keeffe.
“U.S. businesses and investors must recognize that their participation in the Chinese economy is conditioned by the CCP’s policy priorities and subject to its control,” the commission warned.
Disappearance of tennis star goes global
Concern is growing for the top Chinese tennis star who disappeared after reporting being sexually harassed by a retired senior leader, with athletes around the world sounding the alarm.
“I am devastated and shocked to hear about the news of my peer, Peng Shuai. I hope she is safe and found as soon as possible. This must be investigated and we must not stay silent. Sending love to her and her family during this incredibly difficult time,” tweets tennis star Serena Williams.
WTA forceful response contrasts with usual cowering
The international furor over the fate of Peng Shuai comes not long before the Winter Olympics opens in Beijing, report the New York Times Alexandra Stevenson and Steven Lee Myers.
“The Chinese government now faces a new firestorm of criticism of its behavior, which has added fuel to calls for a diplomatic and commercial boycott of the Games,” opening on Feb. 4, 2021.
“The authorities in China had hoped the apparatus of a repressive state could simply make the whole thing go away. Instead, an accusation by the tennis player Peng Shuai that she was sexually assaulted by a former vice premier, Zhang Gaoli, continues to confront the political establishment as few things have,” Stevenson and Myers write.
“The [Women’sTennis Association’s] response has been far more forceful than other organizations — or even countries — that have found themselves at odds with China’s government. Many have cowered for fear of losing access to the country’s huge markets,” the paper notes, citing how in 2019 the NBA “sought to placate the government after Daryl Morey, the general manager of the Houston Rockets, expressed support for the mass protests in Hong Kong.”
“[Peng Shuai] is definitely not the first one to be forced into silence and disappeared,” wrote New Jersey-based activist Lü Pin, founder of the banned Chinese online forum Feminist Voices, in a message. “This kind of encounter is absolutely not uncommon in China now. The authorities have too much power and no one can hold them accountable.”
China’s stalled social mobility
China’s rapid economic rise has seen little accompanying social mobility, reports the Wall Street Journal’s Stella Yifan Xie.
“Research and data show that as China’s economy matures, more of the best opportunities have been accruing to the children of wealthy and politically connected elites. Children from poorer or rural families are finding it harder to get ahead,” writes Xie.
“One influential paper by scholars from the National University of Singapore and the Chinese University of Hong Kong found that children born into families at the bottom of Chinese society in the 1980s were less likely than those born in the 1970s to move up over time—what the authors called ‘an increasing intergenerational poverty trap,’” reports the Journal.
“The phenomenon of declining relative social mobility, which risks wasting human potential and hindering economic growth in any society, is a particular problem for Beijing because it runs counter to the Communist ideal of breaking down class distinctions. Chinese leaders fear it could threaten social and political stability.”
China leads global wealth with $120 trillion
China has become the country with the most wealth, overtaking the U.S., says a new study by McKinsey & Co., reports Bloomberg News’ Rich Miller.
Global wealth tripled over the last two decades reaching $514 trillion in 2020, with China accounting for close to one-third of the increase, the report shows.
“[China’s] wealth skyrocketed to $120 trillion from a mere $7 trillion in 2000, the year before it joined the World Trade Organization,” Miller writes. By contrast, the U.S. saw its wealth double to $90 trillion over the same period.
“In both countries -- the world’s biggest economies -- more than two-thirds of the wealth is held by the richest 10% of households, and their share has been increasing,” Bloomberg reports.
“As computed by McKinsey, 68% of global net worth is stored in real estate. The balance is held in such things as infrastructure, machinery and equipment and, to a much lesser extent, so-called intangibles like intellectual property and patents.”
“The steep rise in net worth over the past two decades has outstripped the increase in global gross domestic product and has been fueled by ballooning property prices pumped up by declining interest rates,” reports Bloomberg.
Demographic challenge: ‘Just another life of inferiority’
Whereas in the past, higher fertility rates in rural China compensated for falling rates in cities, that is no longer true, reports the South China Morning Post’s He Huifeng.
“The cost of living, including education and housing, are putting a new generation of rural migrant workers off having kids,” writes He.
“Most young couples in their 20s will choose not to have a child if the choice is to do so in the countryside, with only rural household registration. It will be just another life of inferiority,” one migrant worker told the Post.
Xi’s poverty alleviation benefitted companies not people
Companies, rather than individuals, have benefitted most from China’s massive anti-poverty campaign, reports The Wire China’s Eliot Chen.
“The central government has for some time de-emphasized direct financial assistance and benefits to individuals — what Xi might call “welfarism,” which he warned against in a speech last month,” writes Chen.
“Instead, the central government’s ‘special poverty alleviation funds’ have mostly gone to infrastructure and industrial companies,” research by Camille Boullenois, a project leader at consultancy Sinolytics shows, reports The Wire China. “Projects like rural road and home construction accounted for the largest category of spending, followed by ‘industry-based poverty alleviation’ (产业扶贫), which involves providing subsidies to local industries.”
“This is the principle of trickle-down… that successful entrepreneurs can really help their communities through providing jobs, and therefore that China should be business friendly because it ultimately helps everyone,” Boullenois told The Wire China. “It’s the idea of ‘get rich first,’ which Deng Xiaoping initiated, so it’s not really new, but it’s still very much the case under Xi.”
Almost 10,000 companies in China today are registered with the words “poverty alleviation” in their title or listed in their business aim, with 90 percent set up after Xi launched the anti-poverty campaign in 2015, The Wire China found.
“Having ‘poverty alleviation’ in the name was often a trick [for companies] to get subsidies,” says Boullenois. “Most of the companies I saw were not doing active poverty alleviation work.”
Companies fined for monopoly deals
Companies including Alibaba, Baidu, JD.com, and automaker Geely have been fined by China’s market regulator for earlier deals that violated anti-monopoly rules, reports Reuters.
“Enterprises involved in the cases would be fined 500,000 yuan ($78,000) each, it said, the maximum under China's 2008 Anti-Monopoly Law,” reports the news service.
“China has been tightening its grip on internet platforms, reversing a once laissez-faire approach and citing the risk of abusing market power to stifle competition, misuse of consumers’ data and violation of consumer rights.”
A simple but illuminating chart showing the frequency that the history resolution mentions China’s leaders and their ideologies.
And here is a good thread that breaks down the resolution, from Joseph Torigian, an expert on Chinese and Russian politics.
The number of Chinese students studying in U.S. colleges fell by 14.8 percent to 317,299 in the 2020-2021 school year, shows the annual Open Doors report.
China’s crackdown reasserting control over its tech sector risks hurting entrepreneurial energy, writes Bert Hofman, director of the East Asian Institute at the National University of Singapore.
It is not clear “that a more regulated socialist market economy can deliver the needed incentives for innovation,” writes Hofman. “China needs entrepreneurs to boost productivity and strive for innovation and, indeed, finance it: Huawei, Alibaba, and Tencent, all private companies, are China’s top three spenders on R&D.”
And here is a recent stunning sunset.