Trade War

Newsletter 71 - June 4, 2021

Welcome to the 71st edition of Trade War.

China moves to a “three children” policy as birth rates continue to fall. Chinese factories facing rising labor and commodity costs start exporting inflation to trading partners, including to the U.S.

Xi Jinping calls for China to be ‘trustworthy, lovable, and respectable’ while also telling Chinese scientists to prepare for unprecedented global competition. And Biden signs an order banning U.S. companies from investing in dozens of Chinese companies operating in the military and surveillance industries.

Remembering Tiananmen

On the 32nd anniversary of the 1989 Tiananmen Square Massacre, here is a historical thread of video clips showing the student activism of the preceding years through to the protests which ended tragically with hundreds if not thousands killed by the People’s Liberation Army on June 3rd and June 4th. All video is from the US documentary 'China: A Century of Revolution.'

Three child policy: ‘Only in your dreams’

After China reported its slowest population growth in decades, officials have announced they will now allow couples to have three children, loosening the country’s longtime family planning policy, reports the Financial Times’ Yuan Yang.

The new “three-child policy” aims to “actively address the aging population, and maintain China’s natural advantage in human resources”, according to the Chinese Communist Party’s politburo, made up of China’s 25 most senior officials, reported the official Xinhua News Agency.

Already many Chinese are facing a so-called “4-2-1 family structure,” where one income supports four grandparents and two parents. The UN has estimated that China’s old-age dependency ratio will double to over 40 percent by 2040, pressuring the pension system and economic growth.

“So many of us were the only child in our generation. Back then [the government] fined us. Now they want us to raise four aging parents plus three children . . . only in your dreams,” wrote one person responding to the Xinhua announcement on Weibo, China’s microblogging site.

TL;DR (too long; doesn’t recover) TFR

With China’s total fertility rate (TFR) having fallen to 1.3 births per woman, one of the world’s lowest, it is unlikely to ever recover, according to the experience of most other countries around the world.

“There are not many countries coming back from low fertility. The main exceptions are former Soviet Republics, which all went through a deep transition recession,” tweets the former head of the World Bank for China. “Of those whose TFR fell below 2.1, only Kazakhstan, Mongolia, Tunisia and the Seychelles bounced back to above 2.1.”

China workforce shrinks by a EU+Japan each year

“China's workforce shrinks each year by more than the EU and Japan put together, and it's only going to accelerate,” tweets Bloomberg Opinion’s David Fickling in a thread looking at the economic and social implications of China’s demographic crisis.

Read through the thread for graphs and links to informative articles including this one by Bloomberg’s Clara Ferreira Marques, on the prospect of a future where women and rural people face even greater inequality.

China’s anti-immigration problem

While delaying retirement, expanding education, and using robots will help deal with the challenges of a rapidly aging population, Chinese officials so far has been unwilling to allow people from other countries to emigrate to China, putting the country at a huge disadvantage compared to the U.S., tweets CSIS’ Scott Kennedy.

While 13.7 percent of the U.S. population are immigrants, the comparable figure in China is a minuscule 0.1 percent.

China inflation >> U.S. consumer inflation

As China’s factories continue to face rising commodity and labor costs, many are delaying orders; that trend likely will contribute to further global inflation, writes the Wall Street Journal’s Stella Yifan Xie.

Surging raw-material prices and a shortage of workers have pinched smaller Chinese manufacturers, including many that sell their products to the U.S. and other Western markets. While many have passed their higher costs on to overseas buyers, the pain is so severe at some manufacturers that they are finding it hard to raise prices enough to make up the difference,” Xie writes.

“If input cost pressure persists, more manufacturers in China will either be forced to halt production, or pass it on to consumers at home and abroad,” Shuang Ding, an economist at Standard Chartered told the Journal.

“Our research indicates that there’s a strong correlation between inflation in China and consumer inflation in the U.S.,” Ding said. In April, the consumer-price index in the U.S. went up by the most since 2008, the business paper notes.

Xi: China will be ‘trustworthy, lovable, and respectable’

Has China’s “wolf warrior” approach to diplomacy gotten out of hand? That may be what Xi Jinping is suggesting with his recent call for China to now work at being “trustworthy, lovable and respectable,” reports Bloomberg News.

Speaking to senior party leaders, Xi said the country must “make friends extensively, unite the majority and continuously expand its circle of friends with those who understand and are friendly to China,” according to the official Xinhua News Agency.

“Xi may be rethinking his communication strategy on the global stage as President Joe Biden works to bolster U.S. relationships weakened under his predecessor’s “America First” policies,” reports the financial news service. “Xi has cast aside the party’s decades-old “hide-and-bide” strategy of keeping a low international profile in favor of a “big country diplomacy.””

Xi Jinping rallies scientists for ‘unprecedented’ competition

Xi Jinping has called for China’s scientists to be prepared for “unprecedented” technological competition, the “the main battleground” of global power rivalry, reports the South China Morning Post’s Coco Feng.

Faced with protectionism, shifting global supply chains and uncertainty after the pandemic, China must work quickly to confront “technological bottlenecks and make breakthroughs in key areas such as artificial intelligence, semiconductors, quantum technology, life science and energy,” Xi said in a speech to China’s top scientists.

And Biden sanctions 59 Chinese companies

Biden has signed an executive order banning U.S. companies from investing in dozens of Chinese companies with ties to the military or surveillance industries, reports Singapore’s Business Times.

“The Treasury Department will enforce and update on a "rolling basis" the new list of about 59 companies, which bars buying or selling publicly traded securities in target companies, and replaces an earlier list,” reports the Singapore paper.

“Major Chinese firms included on the previous Defense Department list were also placed on the updated list, including Aviation Industry Corp of China (AVIC), China Mobile Communications Group, China National Offshore Oil Corp (CNOOC), Hangzhou Hikvision Digital Technology Co Ltd, Huawei Technologies and Semiconductor Manufacturing International Corp (SMIC).”

“The inclusion of Chinese surveillance technology companies expanded the scope of the Trump administration's initial order last year, which the White House argues was carelessly drafted, leaving it open to court challenges,” reports the Business Times.

No US investment in the PRC military-industrial complex

The new executive order aims to “solidify and strengthen” the earlier executive order and “prohibit U.S. investments in the military-industrial complex of the People’s Republic of China,“ says a White House fact sheet.

“It signals that the Administration will not hesitate to prevent U.S. capital from flowing into the PRC’s defense and related materiel sector” or into “Chinese companies that develop or use Chinese surveillance technology to facilitate repression or serious human rights abuse.”

Trade War be damned: Apple sources more from China

Trade War be damned: Apple is sourcing more from China and Hong Kong companies, and less from those headquartered in Japan and the U.S., reports The Information’s Wayne Ma.

“Apple has disclosed the list of its top 200 suppliers for the first time in two years, revealing an increased reliance on Chinese companies—even as some of them have expanded production to Vietnam and India to avoid U.S. tariffs and export controls,” writes Ma.

Forty-eight of Apple’s top 200 suppliers as of 2020 were China or Hong Kong companies, up from 43 in 2018. Meanwhile, 27 of Apple’s top suppliers had factories in India or Vietnam in 2020, up from 19 in 2018.

Notable/In Depth

Here is an interesting piece on China’s biggest and most powerful Internet company Tencent, and how it at least so far, has stayed in the good graces of Beijing, from New York Times reporter Li Yuan.

“Now I think it’s important for us to understand even more about what the government is concerned about, what the society is concerned about, and be even more compliant,” said Tencent’s president, Martin Lau earlier this year in an earnings call.

Is China’s authoritarian system superior to a liberal democracy in terms of crisis management? Council on Foreign Relations senior fellow Yanzhong Huang asks this question by looking at China’s pandemic response, in this piece in China Leadership Monitor.

The often overlooked, but central role that workers played in the 1989 Tiananmen protests is the theme of this fascinating piece by Yueran Zhang, a PhD student in sociology at UC Berkeley.

The hukou system is contributing to an ever worsening education divide in China, reports the Economist’ Sue-Lin Wong.

Foreign correspondents on expulsion from China

Tune in to hear from three foreign correspondents effectively expelled China, at this June 15 event organized by the Overseas Press Club.

Media coverage of 《低端中國》

Taiwan's NOWnews 今日新聞 reviews《低端中國》the Chinese edition of my book "The Myth of Chinese Capitalism." Watch the video here. (Chinese)

Montana creeks are getting high

We are close to reaching the peak runoff of the spring here in the Montana Rocky Mountains.