Welcome to newsletter 52 of Trade War. President Joe Biden’s China team is starting to take shape and its approach to China may not be that different from the previous administration. Beijing levies retaliatory sanctions against more than two dozen former Trump officials and the one year-old “phase one” trade deal proves a failure.
China’s economy turns in an impressive 2.3% growth for last year but a closer look show growing inequality and lackluster consumption. Alibaba’s Jack Ma briefly resurfaces but does little to reassure those concerned about the wobbly status of private enterprises in China.
Biden China team emerges
“Biden’s China team is falling into place,” reports Politico’s China Watcher. Those include experts like Kurt Campbell, Laura Rosenberger, Rush Doshi, and Council on Foreign Relations Senior Fellow Julian Gewirtz, at the National Security Council, and China hand Jeffrey Prescott, as deputy to the U.S. Ambassador to the U.N. The Department of Defense is likely to tap Center for a New American Security's Ely Ratner and RAND political scientist Michael Chase.
Meanwhile, other appointees with less China experience are signaling their intention to make the country a top priority. DOD secretary nominee Lloyd Austin called for a “laser-like focus” on keeping the U.S. “competitive edge” with China, and Secretary of State nominee Tony Blinken said “there is no doubt [China] poses the most significant challenge of any nation-state to the United States.”
Hard line on China here to stay
The hard line on China, whether it is calling out massive human rights abuses in Xinjiang, (Blinken also said he agrees with his former secretary of state Mike Pompeo’s recent declaration that “genocide” is occurring there), continuing to strengthen relations with Taiwan, and maintaining tariffs on Chinese products, is “here to stay, possibly applied with more finesse by the experienced Biden team, and certainly executed in concert with U.S. friends and allies where possible,” writes Bloomberg’s Andrew Browne.
“While Biden is shredding as much of Trump’s legacy as possible on the environment, health care, immigration and much else, his administration is signaling that it intends to build on Trump’s approach to China.”
China sanctions U.S. officials ‘road for gaining money’
Meanwhile, Beijing has announced sanctions on 28 former Trump officials, including Pompeo, John Bolton, outgoing national security advisor Robert C. O’Brian and deputy Matt Pottinger, as well as former White House advisor Steve Bannon.
The sanctions which bar the former officials from visiting China, Hong Kong and Macau go a step further than those earlier imposed by the Trump administration on Chinese officials. They also bar members of the officials’ immediate families, as well as notably, ban companies that associate with the targeted officials from doing business with China, Hong Kong, and Macau.
This latter ban could have a real impact on the revolving door between government and businesses doing work related to China, including think tanks, law firms, government relations outfits and financial institutions. It also aims to warn Biden’s officials about taking a critical stance on China, reports the Global Times. The sanctions will affect "the politicians' road for gaining money," Lü Xiang, an expert at the Chinese Academy of Social Sciences, told China’s state-owned tabloid.
“With the deeply intertwined economic ties between the two countries, most major US companies, financial institutes and think tanks would unavoidably need to develop ties with China, making them reluctant to hire the sanctioned people,” the Global Times reported.
China’s fast growth masks inequality & weak consumption
China may be been the only major economy to grow last year, with GDP up 2.3%, but “wide income inequality and still weak consumer spending reflects an unbalanced recovery,” reports Bloomberg News.
With the richest 20% of Chinese having an average disposable income over 80,000 yuan ($12,000) last year, they earned 10.2 times that of the poorest one-fifth. That gap surpassed the U.S. where the multiple was about 8.4 and was far larger than the multiple of 5 in Western European countries like Germany and France.
Meanwhile, China also underperformed on consumer spending with per-capita consumption, adjusted for inflation, dropping 4% in 2020. In the U.S. it is expected to have fallen 3.8%, according to a Bloomberg survey.
“Retail sales declined 3.9% in 2020 from the previous year, a steeper fall than in developed economies such as the U.S., where government payments to workers stuck at home and unemployed supported spending on consumer goods,” writes Bloomberg.
And uneven performance across sectors…
China’s 2.3% GDP growth is “very uneven across sectors.” tweets economic analyst Alicia Garcia-Herrero, noting that while information and communications technology goods including mobile phones and laptops grew by 16.9%, financials were up 7%, and online retail sales up 10.9%, the restaurant sector suffered 16.6% decline.
As well as a growing north-south gap
There are also growing regional gaps in growth, including between China’s northern and southern provinces, as the Economist shows in this chart.
“The south’s share of GDP has risen to 65%, up from 60% five years ago and the highest on record,” writes the Economist, citing both bad luck - the north is home to China’s largest coal and oil reserves, hit since 2013 by falling commodity prices - and the legacy of a more inefficient, centrally planned economy in the north.
“The recovery was unbalanced, with factories at full throttle but consumption subdued. Things should improve after the pandemic ends, as people move around more. The north-south imbalance, by contrast, was worsening before covid-19 and is likely to outlast it,” writes the Economist.
But Crazy Rich Chinese drive luxury market
Further reflecting the unbalanced recovery, China’s richest, unable to travel overseas because of the pandemic, went on a spending spree at home, reports the South China Morning Post. Sales of luxury goods in China jumped 48% to $53.5 billion last year, with leather goods and jewelry growing by more than 70%.
China buys 58% of promised in “phase one” trade deal
“Data for year one are in. China bought 58% of what it promised [to] buy overall, 64% of agric, 60% of manufactured goods and 39% of energy,” tweets former WTO trade official Jennifer Hillman, citing the Peterson Institute for International Economics “US-China phase one tracker.”
Jack Ma video doesn’t reassure
After a nearly three month-long absence from public view, Alibaba founder Jack Ma surfaced in a brief video, an appearance that will do little to reassure those skittish about China’s ongoing assertion of party control over the private sector.
“This video may only enhance the suspicions about Jack Ma’s situation. It probably is an attempt by the PRC to quell the growing speculation. It's far from persuasive and resembles the kind of televised statements detained suspects are often forced to make to obtain more lenient treatment,” writes longtime China law expert Jerome Cohen in a tweet thread.
“Ma is almost certainly not (yet) behind bars but may well be confined in his own or the government’s comfortable quarters while extensive negotiations continue and concrete policies are forged.”
In Depth/Notable
The Economist’s David Rennie has written an illuminating piece on the Chinese Communist Party “genius for playing ideology down to foreigners while stressing the Party’s importance within China.”
Beijing likely will face a perfect storm of Olympic woes by the time the Beijing 2022 Winter Olympics rolls around, writes Howard Snyder, longtime Asia hand who worked on corporate security during the 2008 Beijing Summer Olympics.
China state capitalism? A “big misunderstanding”
Longtime proponent of economic reform and party secretary of the PBOC Guo Shuqing gives an intriguing speech pushing back against view that China’s system is “state capitalism.”
Xi has written a letter to Starbucks’ former CEO Howard Schultz, asking him to lobby for Beijing. That’s a terrible idea for U.S. business leaders, explains Isaac Stone Fish, a visiting fellow at the German Marshall Fund.
Here is a revealing chart by Hong Kong-based China Labor Bulletin showing how workers in China are facing new challenges, reflected in the falling numbers of migrant workers.
Book review
“One comes away from 'The Myth of Chinese Capitalism' with a far more subtle and detailed understanding of the current crossroads at which China stands," writes Jonathan Chatwin in the Asian Review of Books.
‘45 Best New Capitalism Books To Read In 2021’
"The Myth of Chinese Capitalism" makes it to the BookAuthority's list of ‘best new Capitalism books.’
Montana evening
(picture from a recent evening walk, credit Trade War author)
