Welcome to the 67th edition of Trade War. Beijing’s increasing politicization of business appears to be hitting China’s economic productivity. And government subsidies are helping Chinese state-owned firms dominate overseas markets.
Even as the Biden administration may aim to keep Trump era restrictions on Chinese companies, with the help of the U.S. courts some are already evading them. A survey shows growing support amongst Chinese for their own government while another finds people around the world view the U.S. as the biggest threat to democracy-a bigger threat than China or Russia.
‘Politics in command’ means falling economic productivity
China’s increasing emphasis on a ‘politics in command’ approach to its economy is hurting economic growth, I argue in a commentary for the Atlantic Council.
Beijing is doubling down on policies that favor its state enterprises over private ones, and that minimize the role of foreign investors in key sectors, as it tries for a risky strategy of increasing self-reliance.
One sign of stress: whereas before 2007, about 70 percent of China’s GDP growth was due to increases in productivity, today those gains have largely disappeared.
Subsidy-driven Chinese companies roil markets
Supported by billions of dollars of subsidies, China’s state-owned companies are buying Western manufacturing competitors and building factories overseas, allowing them to sidestep tariffs and roiling global steel and other industrial markets, reports the Wall Street Journal Matthew Dalton.
“The U.S. and Europe have long relied on the World Trade Organization and tariffs to penalize China for subsidizing exports with grants, tax breaks and credit from state-owned banks, measures that helped the country grow rapidly. But the WTO rules weren’t written to constrain subsidies that a government gives to its manufacturers overseas,” writes Dalton.
“Western officials and executives say financial support from the Chinese government allows Chinese-owned manufacturers overseas to operate on razor-thin margins or at a loss, while they grab market share or serve the strategic objectives of the government. The problem, they say, is particularly difficult to address when the manufacturer in question is operating inside a Western market.”
$108 billion into R&D in Shenzhen
Shenzhen will invest more than $108 billion into R&D over the next five years with a focus on artificial intelligence, 6G, quantum technology, driverless vehicles, intelligent networks and other “frontier areas,” reports the South China Morning Post.
“By 2050, Shenzhen will represent China in global competition and cooperation, and lead worldwide trends in city development,” the city’s party secretary Wang Weizhong said at the end of last month, adding that 5 percent of GDP would go towards R&D in core technologies and its digital economy would account for more than 31 per cent of the economy by 2025.
“Despite Shenzhen’s grand plans, Wang said the city still faced many challenges, especially as several of its hi-tech firms remained on a US blacklist that prevented them buying American-made technology,” the South China Morning Post reported.
Biden to keep pressure on Chinese companies?
The Biden administration is likely to keep the Trump-era ban on U.S. investments in certain Chinese companies, reports Bloomberg News.
“The blacklist is not only a sore point in China but also on Wall Street. The financial sector has urged the Biden administration to completely roll back the investment ban, according to four people in the industry,” reports the financial news service. “At the least, banks want clear guidance from Treasury’s Office of Foreign Assets Control, or OFAC, on compliance with the ban.”
When Trump announced in November the ban on all companies included in the Treasury Department’s new list of “Communist Chinese Military Companies,” a farcical series of events ensued.
Shortly after the New York Stock Exchange initially announced it would delist China’s three largest telecom companies, it quickly reversed that decision “amid confusion over the scope of the ban.” The exchange then reinstated its plan to delist them after intervention from former Treasury Secretary Steven Mnuchin.
But some Chinese firms escape delisting
Nasdaq-listed Luokung is the second Chinese company to win a temporary injunction blocking the Biden Treasury Department from carrying out it delisting, reports Politico. The decision in the district court in D.C. follows an earlier victory for China’s smartphone giant Xiaomi in the same court in March.
“The two rulings at least temporarily restrict President Joe Biden’s ability to sanction China through blocks on stock market activity, though some watching the sanctions lawsuits expect the administration to take its own action in response to the court cases,” Politico reports.
American Securities Association CEO Chris Iacovella criticized the court’s argument that the government had failed to show Luokung was connected to the People’s Liberation Army. He said that argument was flawed as "the Chinese Communist Party blocks American agencies from obtaining any information about who exactly owns and controls Chinese companies."
98% of Chinese still trust Beijing since pandemic
While most people in Western countries say they believe Beijing mishandled the pandemic and have increasingly negative views towards China, by contrast, Chinese citizens are reporting even higher levels of support for their government, according to a new survey, reports the Washington Post.
“The data show that Chinese citizens’ trust in their national government increased to 98 percent. Their trust in local government also increased compared to 2018 levels,” writes Cary Wu, a sociologist at Canada’s York University, who carried out the survey.
While 91 percent of Chinese citizens said they trust township governments, the lowest tier of government surveyed, trust rose to 93 percent at the county level, 94 percent for city governments, and 95 percent for provincial governments.
“Chinese citizens often report hierarchical government trust — this means they trust national-level institutions more than institutions at the local level,” writes Wu. “Despite the high levels of trust we recorded across all levels of government during the pandemic, this pattern holds: Trust drops from 98 percent at the national level to 95 percent at the provincial level and down to 91 percent at the township level.”
U.S. bigger threat to democracy than China, Russia?
The U.S. is perceived as a greater threat to democracy than either China and Russia, according to the fourth Democracy Perception Index published by Latana and the Denmark-based Alliance of Democracies. (AOD was sanctioned by the Chinese government earlier this year.)
The world’s largest annual study on democracy which covers 50,000 people in 53 countries shows that 44 percent of respondents believe the U.S. is the largest threat to democracy, higher than the 38 percent who cite China and 28 percent who say Russia.
Overall, the biggest threat to democracy is economic inequality, according to 64 percent, followed by limits on free speech, cited by 53 percent. The power of big tech (cited by 48 percent) and foreign election interference (42 percent), are also cited as major threats.
Anders Fogh Rasmussen @AndersFoghRToday @LatanaBrand and @AoDemocracies publish the fourth Democracy Perception Index - the world’s largest annual study on democracy - 50,000 people in 53 countries. Below a thread on some of the findings: https://t.co/RsAbesTQFq
Tighter rules for Chinese companies listing overseas?
China is considering new rules that would tighten reporting requirements for firms considering listing in Hong Kong or overseas in part to “prevent any leaks of sensitive data that might be of national security interest,” reports Bloomberg News Lulu Yilun Chen.
The possible move would likely hit China’s tech companies hardest including Bytedance, the Chinese parent of TikTok, and ride-hailing giant Didi Chuxing, both of which are reportedly considering listings.
“The heightened regulatory concerns come as the U.S. tightens restrictions on Chinese firms listed on its exchanges, with legislation that requires the companies to allow inspectors to review their financial audits,” writes Bloomberg’s Chen. (Auditing of its firms by overseas institutions has long been resisted by Beijing which has cited national security concerns.)
How China almost turned to Big Bang Shock Therapy for its economy in the 1980s is the subject of this podcast interview with University of Massachusetts economist Isabella Weber.
A survey from rural China shows young women are increasingly willing to defer marriage or stay single while young men have more traditional attitudes about wedding, reports Sixth Tone.
China is building roads, villages, and military outposts inside Bhutan’s borders, shows an explosive new report by Tibet expert Robbie Barnett in Foreign Policy.
Foreign Policy @ForeignPolicyExclusive: In a recent escalation of tactics to outmaneuver India and its neighbors, China has mounted a wave of construction in disputed territories of Bhutan to give itself a military advantage. https://t.co/e94IrWXyVu
Book review for Chinese edition
Here is another review (Chinese) for my book, this time from the Voice of America.
Montana picture of the week
And here’s a Montana scene from a recent morning dog walk..