Welcome to newsletter 43 of Trade War. China’s got a new Five-Year Plan and it emphasizes self-reliance particularly in technology - but don’t forget, it also is about politics. The Hunter Biden-China story, Trump’s hoped-for October surprise, explodes with revelations of a made-up researcher, a fake company, and other serious questions about its provenance.
As the U.S. presidential election nears Trump’s record of success pressuring China via the trade war is getting examined anew (and it ain’t pretty. )And the leadership in Beijing’s plans to build a world-class semiconductor industry continue to show fault lines.
The statist visions of a Five-Year Plan
Following its fifth plenum (more on what a plenum is in the article linked to below), the Communist Party of China has announced the broad details of China’s 14th Five-Year Plan, set to run from 2021 to 2025. The final version will be revealed at next year’s National People’s Congress. And while of course it will be jam-packed with China’s economic goals, don’t forget its political importance.
“It is equally important to look beyond the targets, benchmarks and pronouncements and bear in mind that the CCP’s five-year plans are much more than simple plans. They are, importantly, statist visions of how planning should be done, and as such they are bold statements about the nature of political power and its relationship to society,” writes China Media Project’s David Bandurski.
Dose of certainty for chaotic world
That message is being amplified in the state-owned Chinese media: “While analysts at home and abroad are closely following the ongoing fifth plenary session of the 19th Communist Party of China Central Committee for clues about China's economic and social direction for the next five years and beyond,” at the same time they should appreciate “the strategic continuity of China's policy design” and the “certainty the nation can inject into a turbulent world,” writes the official Xinhua News, rather grandiosely.
Protectionism, unilateralism, and imbalanced development
Challenges to China are coming from both inside and outside of the country, explained one planning official in a post-plenum press conference. “Internationally, it’s the rise of protectionism and unilateralism, domestically, it’s the imbalance of economic development,” said Ning Jizhe, deputy head of the National Development and Reform Commission, reports the South China Morning Post.
That means the plan will double down on Xi Jinping’s “dual circulation” strategy: while continuing to trade with the world and try to lure overseas investors, China’s officials will focus much more on attempting to strengthen the domestic economy through growing the spending power of China’s own people, while aiming for self-sufficiency in technology.
Two more on the FYP:
Here are two more worthy pieces on the plan, one a good explanatory article from Jude Blanchette and Scott Kennedy of CSIS that looks at its statist tendencies and concludes:
“Looking at the document holistically, and alongside other recent pronouncements by Xi Jinping, the vision articulated here is highly statist, with markets being utilized to achieve strategic ends, rather than being expected to achieve socially beneficial outcomes on their own.”
And another article from Apco Worldwide’s James McGregor who considers what it might mean for foreign companies writing:
“Foreign business should remember that “dual circulation” is Beijing’s doubling down on its import substitution aspirations, reaching back to “Indigenous Innovation” in 2006 and “Made in China 2025” in 2015.”
Joe Biden’s son and China: a failed October surprise
Trump and the Republican Party’s hopes that the China business connections of Joe Biden’s son would blow up into a scandal, damaging the Democratic presidential contender, appear to have been dashed.
A 64-page document that purported to lay out Hunter Biden’s alleged nefarious connections and that was “disseminated by close associates of President Donald Trump, appears to be the work of a fake ‘intelligence firm’,” and the author of the document is a “fabricated identity, according to an analysis by disinformation researchers,” reports NBC News.
“The fake intelligence document … helped lay the groundwork among right-wing media for what would become a failed October surprise: a viral pile-on of conspiracy theories about Hunter Biden.”
American manufacturing? Still hollowing out
Whether measured on reducing the trade deficit, bringing U.S. factories back from China, growing American factory jobs, or ending IPR violations and unfair subsidies, the Trump trade war has accomplished little, concludes Bloomberg News.
“Trump ran for office pledging to rewrite the US economic relationship with China, which he blamed for hollowing out America’s manufacturing base and impoverishing its workers. His four years in the White House have shown limited impact on the metrics he laid out.”
US factory exports to China 17% lower than pre-trade war
The Peterson Institute’s Chad P. Bown reaches a similar conclusion, focusing his attention on the “phase one” purchase agreements.
“The latest official data show that China is falling short, reaching only 53 percent of the expected purchase target through September 2020. In fact, Chinese imports of US goods are now lower than they were before Trump started his trade war with a blitz of US tariffs on Chinese products in 2018,” Bown writes.
Noting that “Trump's complaints about China's imports [have] historically focused on manufacturing, which makes up 70 percent of goods covered by the purchase commitments,” Bown notes that U.S. manufacturing exports “remained 17 percent lower than pre-trade war levels.”
Wilbur Ross on Chinese company board
Somehow it comes as little surprise to find out that Commerce Secretary Wilbur Ross, according to Chinese corporate documents, “is listed as serving on the board of a Chinese joint venture until January 2019—nearly two years into his term as commerce secretary,” writes Isaac Stone Fish in Foreign Policy.
“In other words, while helping run the Trade War, the Commerce Secretary was partnered with a Chinese state-owned enterprise,” tweets Stone Fish in an illuminating thread. [The joint venture is with a subsidiary of China Huaneng, a large state-owned power producer.]
Biden to shift on China?
While Trump lately seems obsessed about only two China issues, trade and the coronavirus, Biden will approach the relationship as a “multifaceted contest that will determine the international order for several generations,” according to Axios.
And while Biden probably agrees that it is necessary to challenge China much more aggressively, part of a new consensus strengthened under Trump, “he’ll be more effective in challenging China by coordinating with allies, instead of going it alone.”
“There’s a technology competition, a military competition, an economic competition, an ideological competition and a diplomatic competition,” Ely Rattner, a Biden China adviser, told Axios. “It’s a big task.”
Wuhan semiconductor white elephant
“A semiconductor manufacturing plant in Wuhan — one of the most high-profile in China’s recent push to develop its domestic semiconductor industry — appears to be a white elephant,” reports SupChina.
Since the $20 billion Wuhan Hongxin Semiconductor Manufacturing (HSMC) was established in 2017, there has been “almost no actual manufacturing output.”
“HSMC is the latest in a string of state-of-the-art semiconductor plants to stall over lack of funding. Industry experts say failed semiconductor factories point to local governments’ eagerness to acquire government subsidies but lack of preparedness to follow through.”
China’s chip industry: workshops vacant, resources wasted
Caixin which has been reporting on China’s chip investment missteps, has a new editorial which mentions Wuhan as well as Huaian, Jiangsu, as sites of dud semiconductor projects. “Some projects have even stagnated, leaving workshops vacant and resources wasted,” the Chinese financial news agency reports.
“The current chaos in the industry will deal a heavy blow to China’s chip sector, which is trying to catch up with the U.S. and other countries. For this reason, we must strictly promote development while making sure to pop any emerging bubbles.”
“Delivery brothers” reality of China’s service economy
So much for China’s new service economy - the much touted economic shift is leading large numbers of migrants to find off-factory work as low-wage delivery couriers, “known colloquially as ‘delivery brothers’ [and] frequently seen weaving through the streets on their scooters,” reports the South China Morning Post.
“According to a recent report by the China Post and Express News, more than 75 per cent of 65,000 package-delivery couriers recently surveyed were earning less than 5,000 yuan (US$747) a month, and most lacked access to social insurance. More than half of the respondents also said they work at least 10 hours a day, and around 60 per cent said they take two or fewer days off each month.”
Meanwhile, a Red Menace in Montana?
There’s a red menace in Montana, is the laughable proposition being pushed in the state’s closely watched U.S. Senate race, where “China has become a boogeyman deployed by both parties—but particularly by outside Democratic groups,” writes Kathleen McLaughlin in Foreign Policy.
“Its lasting impact may be demonizing Asians in a state that’s 88.9 white and frequently far removed from the machinations of geopolitics,” McLaughlin warns.
Notable/In Depth
“Too damn cozy with China” is how Montana’s Republican Senator Steve Daines is described in a recent video from The Lincoln Project.
“China has absolutely no idea how to run a Twitter network,” writes Jordan Schneider in his interesting Tweet thread and story that examine how bad China has been at conveying its message abroad through the American social media platform.
Recent media and speaking
Five Big Questions on China was the topic of this Atlantic Council blog. The question I try to answer: How should US strategy account for the key structural challenges that China faces in the decades ahead?
I was back on Montana talk radio discussing declining productivity and debt in the Chinese economy, COVID-19, alarming tensions in the Taiwan Strait and much more. Listen to the podcast here.
Upcoming book event
I will be speaking at the Hong Kong International Literary Festival about The Myth of Chinese Capitalism with New Yorker staff writer Jiayang Fan next weekend (Saturday night US time/Sunday morning Hong Kong). Please tune in.