Welcome to the 103rd edition of Trade War.
Beijing mulls support for Moscow as Ukraine crisis intensifies. In a sign of close ties, Putin and Xi have now met a total of 38 times. China’s investment in South America blows past the U.S. And Beijing signals seriousness on joining massive trade pact.
China scrambles to manage economy in Party Congress year. Small enterprises are facing severe headwinds. And study shows that elite party connections bring more subsidies to private firms.
Will China support Russia?
The U.S. is considering how China might help Russia economically, if sanctions are imposed over an Ukraine invasion, report the Wall Street Journal’s Kate O’Keeffe and Ian Talley.
While Washington considers cutting off Russian banks from global financing and implementing export controls that would hit Russian industries, officials are also assessing how Beijing might help Moscow by “marshaling the resources of the world’s second-largest economy to increase trade and supply financing and sanctioned goods,” the Journal reports.
“If this was Russia by itself, they’d be in a much harder position, but with the Chinese on their side … that limits what you can get out of sanctions,” James Lewis, a technology expert at the Center for Strategic and International Studies, told the business paper.
“Should Beijing decide to aid Russia, the two could try to bypass the global financial system dominated by the U.S. by increasing trade in Chinese yuan and by using a nascent Chinese interbank payments system for cross-border finance instead of the dominant SWIFT system used world-wide,” write O’Keefe and Talley.
Beijing weighs pros and cons
Meanwhile, Beijing is considering the costs and benefits of helping Russia, reports the Wall Street Journal’s Lingling Wei.
“With the threat of a Russian invasion of Ukraine looming, China’s final arbiter of power—the seven-member Politburo Standing Committee led by President Xi Jinping —has largely disappeared from public view,” writes Wei.
“Behind closed doors, according to people with knowledge of the matter, one topic of intense discussion is how to respond to the Russian-Ukraine crisis and back Moscow without hurting China’s own interests,” the Journal reports.
While Xi Jinping has supported Putin by saying China also opposes any expansion of the North Atlantic Treaty Organization, Beijing has not voiced open support for an invasion or signaled whether it plans to aid the Russian economy.
“It’s one thing for China to back Russia in opposing NATO enlargement, as it costs nothing,” said Sergey Radchenko, a professor of international relations at Johns Hopkins University in Bologna. “It’s quite another for China to help Russia evade the economic sanctions it would face if it invades Ukraine.”
Putin and Xi have met 38 times
Putin and Xi have now met 38 times, most recently on February 4 in Beijing, writes Sergey Radchenko in the Economist.
“Mr Putin and Mr Xi are political twins. They share an autocratic outlook on world affairs and a deep commitment to the Sino-Russian relationship, which, they both have claimed, is at its warmest in history,” writes Radchenko.
Even so the, the relationship is hardly an equal one. China’s economy is some six times larger than Russia’s, and while China is Russia’s largest trading partner, Russia is not even in the top ten for China.
And the Moscow-Beijing relationship has formal limits. “They have not offered one another security guarantees like those covered by NATO’s Article 5. They are aligned, not allied, and this arrangement allows each a degree of flexibility, permitting their interests to converge and diverge as the situation requires,” explains Radchenko.
One place their interests align is in mutual opposition to so-called “color revolutions,” supported by Western meddling. Xi sees that supposed threat in Hong Kong which explains his quick approval of Russia’s response to the recent protests in Kazakhstan, argues Radchenko.
China outpaces US in South America
China has used a strategy of working with local officials to expand business across South America, outpacing the United States, report Bloomberg Markets’ Jonathan Gilbert, Andrew Rosati, and Ethan Bronner.
“China has bought up so much copper, pork, and soy—and constructed so many roads, trains, power grids, and bridges—that it’s surpassed the U.S. as South America’s largest trade partner and is now the single biggest trader with Brazil, Chile, and Peru,” reports the financial news service.
“A Chinese company is leading a group that’s building the metro in the Colombian capital of Bogotá. Energy giant State Grid Corp. of China owns the company that supplies electricity to more than 10 million Brazilian homes. In February, Argentina announced that China would finance about $24 billion in infrastructure projects.”
Chinese companies are able to offer cheaper credit than those from other countries, says Mauricio Claver-Carone, president of the Inter-American Development Bank. That however can come with national security risks, he says: “The last thing countries need is to become reliant on secretive contracts and nontransparent actors like Chinese state-owned companies.”
Worrying about that is a “rich-world problem,” Oliver Stuenkel, a professor of international relations at the Getulio Vargas Foundation in São Paulo, tells Bloomberg. “You really can’t have the luxury of thinking about potential negative outcomes down the road if you have to face a very urgent problem right in front of you.”
China signals seriousness on CPTPP
China has again signaled its seriousness about joining the CPTPP or Comprehensive and Progressive Agreement for Trans-Pacific Partnership, one of the world’s largest trade groupings, tweets law professor Henry Gao.
"China has conducted a full, comprehensive and in-depth study and evaluation of the content of the agreement,” Chinese officials said at a recent press conference.
“China is willing to make efforts to fully meet the CPTPP rules and standards through reforms, and to make a high-level commitment to opening up in the field of market access that exceeds China's existing contracting practices, so as to provide members with market access opportunities with huge commercial interests."
China scrambles over economy in Party Congress year
With Xi Jinping aiming to secure an unprecedented third term at this fall’s Party Congress, Beijing has moved to emphasize economic stability reversing its earlier efforts to deleverage the debt-laden property sector, writes Matthew Kendrick in Morning Consult.
“There was a decision that debt was growing too fast, much of it driven by the housing sector, which was potentially destabilizing and not sustainable,” said Dexter Roberts, a senior fellow at the Atlantic Council’s Asia Security Initiative and author of The Myth of Chinese Capitalism. “China recovered from COVID much faster than any other major economy in the world and Beijing figured it was a good time to tap on the brakes with credit.”
But when some of China’s largest property developers looked likely to default in October, consumer confidence collapsed, Morning Consult survey data shows.
“Investors worried a collapse in the property sector would exact a huge toll on many Chinese households and companies that planned for their increasing spending.” writes Kendrick. “In response, Chinese authorities moved quickly. Interest rates were lowered to inject liquidity into the property markets and provincial officials stepped in to manage Evergrande, the most vulnerable firm.”
That hardly means the economic challenges are over. “Xi has pledged to equalize social welfare across the country, and Beijing wants to spend a lot more money raising the quality of services so that rural people can have similar access to health, health education and retirement benefits,” Roberts said to Morning Consult.
“The problem? China’s social welfare programs have typically been run through the lower echelons of government, who fund the programs through land sales and leases to private developers. And they are now in no position to keep buying,” writes Kendrick.
Micro and small enterprises struggling
Micro and small enterprises in China are struggling with falling revenues, reports the South China Morning Post’s He Huifeng.
According to a quarterly report from the Ant Group Research Institute and Peking University that surveyed over 15,000 micro and small enterprises (MSEs), average firm turnover fell from 131,000 yuan in the third quarter to 129,000 yuan in the last quarter of 2021.
Almost half of firms reported that fourth quarter revenues were less than 25,000 yuan with more than a quarter reporting losses. Not surprisingly, companies are also hiring fewer workers, with the average number of jobs created per firm falling from 6.9 in the third quarter to 4.3 in the last quarter of 2021.
China has 44 million micro and small enterprises - those with a taxable income of up to 3 million yuan and no more than 300 workers - who provide some 80 percent of all jobs in the country, according to state media.
“China’s exports are expected to drop significantly compared with last year,” said Simon Zhao, associate dean of BNU-HKBU United International College’s Division of Humanities and Social Sciences.
“Domestic consumption is believed to remain weak this year,” Zhao added. “Once export demand shrinks, a large surplus of products will amass. That will inevitably have a strong impact on [China’s small businesses].”
Private firms with elite connections get subsidies
A new study shows that private companies that have connections to senior Chinese Communist Party officials receive larger government subsidies, reports Bloomberg News’ Tom Hancock.
Private firms that have board members who went to university with someone from the elite 25-member Politburo received 16 percent higher subsidies relative to their revenues, compared to companies without those ties, shows the new study by researchers at the University of Navarra and University of Manchester, that was published in the Journal of Institutional Economics.
Interestingly, connections have become even more valuable since Xi became party leader and launched a massive anti-corruption crackdown in 2012. “The value of personal ties with politicians does not disappear after the anti-corruption campaign,” the researchers wrote. “In the case of private firms, it became stronger: connected firms get more subsidies relative to non-connected firms.”
Meanwhile, state-owned firms with politically-connected board members paid 0.2 percent points less interest on loans than those without the connections, a benefit that existed before and did not increase in value, with Xi’s ascension to power, however, the study shows.
Political connections may have become more important in the case of the private firms after the anti-graft campaign was launched, as personal ties began to serve “as an alternative channel to corruption in order to get resources,” the authors wrote. Higher subsidies result from “being friends to the politicians and not entirely through the channel of paying bribes in exchange for favors,” Marta Alonso, one of the paper’s authors, wrote in an email.
Given that the companies with elite connections do not have faster sales growth or invest more, favoring them with subsidies creates an “inefficient allocation of resources,” and has “been preventing the country from reaching its full growth potential,” the study concludes.
Skiing originated in Xinjiang, China claims
Beijing says cave art shows skiing originated 10,000 years ago in what is now Xinjiang, reports the Wall Street Journal’s James T. Areddy.
China used a Uyghur woman from Xinjiang as one of its torchbearers for the 2022 Beijing Winter Olympics opening ceremony, a choice apparently aimed at countering international condemnation of the severe human rights abuses occurring in the region.
Cross-country skier Dilnigar Ilhamjan, or Dinigeer Yilamujiang in Mandarin, was given this honor because she “seems to have a natural bond with snow,” reported the official news agency Xinhua.
“Pleistocene-Holocene skiing art would suggest skis predated, by thousands of years, Chinese civilization itself, as well as its innovations such as paper (A.D. 105), gunpowder (A.D. 142) and the compass (220 B.C.),” writes Areddy.
“The oldest ski ever found, according to the Guinness World Records, had been preserved in a Swedish peat bog and dates to 2,500 B.C.”
Notable/In Depth
Anti-China rhetoric is not only fanning racism towards Asian Americans but makes it more difficult for the West to counter China’s human rights violations, writes Joanna Chiu, author of China Unbound: A New World Disorder.
During this month which is the 50th anniversary of Nixon’s historic visit to China, listen to this podcast from former New York Times Beijing bureau chief Jane Perlez and WBUR’s Here & Now.
Construction workers, including on Evergrande building sites, made up the majority of strike participants last year, while those employed in the logistics and service industries also protested in large numbers, shows a report by Hong Kong-based China Labour Bulletin.
While strikes have fallen in the manufacturing and mining sectors, “automation and technological developments have changed the nature of labor relations and have threatened the livelihoods of workers in those sectors, raising the potential for worker actions [in coming years] in these still-declining sectors [too],” says the report.
Alumni at China’s elite Peking and Tsinghua universities are petitioning the central government to investigate the case of a trafficked woman who appeared in chains in a recent video that went viral, reports the South China Morning Post’s Mimi Lau.
“The tragic case and suffering of the Xuzhou woman has aroused widespread compassion, concern … as well as unsettling distress and anger,” said the letter from Peking University alumni, dated February 15. The petition was deleted from Weibo shortly after being posted.
Montana vistas
Morning hikes in Montana never fail when it comes to land and cloud vistas.