Newsletter 100 - January 29, 2022
Welcome to the 100th edition of Trade War. I am delighted that we have reached this centenary of sorts.
China see Ukraine crisis as opportunity to denigrate the U.S. and attack Western liberal governance. Foreign businesses leave Hong Kong put off by stringent zero-Covid policies. And investment in China is becoming riskier as the party-state gets more repressive and increasingly exerts control over business.
The latest IMF report shows that as the Chinese economy has recovered, consumption is lagging due to pandemic restrictions. China’s navy threatens Taiwan. And China’s ambassador to the U.S. warns of war over Taiwan too.
China trolls US & Europe over Ukraine
As the U.S. and Europe scramble to stop a possible Russian invasion of Ukraine, China’s diplomats are using the crisis to try to undermine the U.S. and liberal global values, writes Brookings Institution’s Jessica Brandt for Foreign Policy.
“China’s army of so-called wolf warrior diplomats and state media personalities, who aggressively promote Beijing’s objectives online, have taken to Twitter to highlight schisms within Europe, NATO, and the trans-Atlantic alliance, painting the U.S. response as ineffective, its people unsophisticated, and its cities violent,” writes Brandt.
“For Beijing, this is part of an attempt to showcase China’s governance model as a desirable alternative—an effort that has only accelerated during the COVID-19 pandemic.”
While Beijing’s efforts mirror similar ones in Moscow, with the two countries sharing a desire to see the West’s image sullied, there is no evidence of any coordination of strategies, Brandt writes. And while Russia as a declining power arguably has much to gain from sowing chaos, that is not true for China, Brandt points out.
“[China] is a rising power with much to lose, and as such it has traditionally been considerably more risk-averse and patient. It does not seek disorder but rather a new order more conducive to its interests. That may inhibit closer ties between the two parties [Russia and China] over time,” writes Brandt.
Foreign execs in Hong Kong head for the exits
Efforts to continue with a zero-Covid policy are eroding Hong Kong’s appeal for foreign executives and “chipping away at the city’s decades-old status as one of the world’s top business hubs,” reports the Wall Street Journal’s Dan Strumpf.
“Flight bans, lengthy quarantine stays for arrivals and repeated school closures are pushing more people to a breaking point as the pandemic enters its third year and the city clings to a zero-Covid strategy abandoned by nearly all countries save for China,” reports the Journal.
Over half of respondents to a poll given last fall by the American Chamber of Commerce in Hong Kong said pandemic policies increased the likelihood they would leave, with around one-third saying foreign business was less welcome than before. A similar number reported difficulty filling senior positions at their firms as well as plans to delay investments in Hong Kong.
Meanwhile, over a 12 month period, the number of foreign companies with their Asian headquarters in Hong Kong fell by the most in over a decade, according to the government. Many are relocating to Singapore.
Doing business in China ever more risky
Doing business in China has become far more complicated and riskier for foreign companies, than was true in previous decades, writes Johns Hopkins University’s SAIS lecturer Seth D. Kaplan, for the Harvard Business Review.
“There are two factors that are driving this changing context. First, instead of becoming more democratic as the country grew richer, the Chinese party-state has grown increasingly repressive,” writes Kaplan. “And second, instead of becoming a responsible member of the liberal international order, China is increasingly seen as a threat to it — and to U.S. interests in particular.”
The growing role of the party in business, as well as the challenge of monitoring supply chains, means there is “a high risk of inadvertently being involved in human rights violations or efforts to build up the Chinese military,” warns Kaplan.
Meanwhile, the challenge of doing business in China ethically will become ever more difficult “given Xi Jinping’s expanding mandate and agenda,” writes Kaplan. As a result, companies badly need “a clear set of principles to guide their actions and limit ethical risks,” he writes.
IMF says Chinese economy imbalanced
A new report by the IMF shows that imbalances in the Chinese economy are getting worse, reports the Wall Street Journal’s Lingling Wei.
Even as China’s economy strongly recovered, with growth reaching 8.1 percent last year, as compared to just 2.3 percent in 2020, pandemic restrictions have hit consumer confidence, as has the crackdown on the property market and other industries engaged in “what President Xi Jinping views as capitalist excesses,” writes Wei.
“Growth momentum has slowed considerably, with consumption lagging every other part of the GDP,” said Helge Berger, the IMF’s mission chief for China; as a result, the IMF has cut its forecast for China’s 2022 GDP growth from 5.7 percent previously, to 4.8 percent now. “Channeling funds into the pockets of low-income families could help spur consumption,” Berger said.
“The uneven recovery in China’s economy is also amplifying a trend of declining growth in productivity, or output per worker and unit of capital, according to the IMF report,” writes Wei. “China’s productivity growth has declined markedly in recent years, as the state sector gets bigger, crowding out private firms that tend to be nimbler and more profitable.”
The cost of China’s tech self reliance?
China’s management of its tech industry mixes heavy government influence with private enterprise “on a scale that no nation has ever attempted,” reports Bloomberg News.
“The Communist Party has rolled out several programs to nudge the economy away from the labor-intensive, low-margin industries that underpinned growth over the past two decades and to make China self-sufficient in critical technologies. Trillions of dollars will flow into companies, infrastructure and research parks under the plans,” writes the financial news service.
“The risk is that [Xi’s] government ends up wasting money by investing in companies and sectors that fail to live up to their promise,” Bloomberg warns.
China threatens Taiwan with navy
China has ratcheted up the threats aimed at Taiwan through the deployment of warships east of Taipei and near southern Japan, report the Financial Times’ Kathrin Hille and Demetri Sevastopulo.
“For at least six months, the People’s Liberation Army Navy has rotated destroyers and missile corvettes through the waters east and south of the southernmost tip of the Ryukyu chain — which Tokyo calls the Nansei islands — according to officials from Taiwan, Japan and the US,” reports the Financial Times.
The naval deployment shows China “exercising for situations that could be key in a potential future war over Taiwan,” reports the business paper. “These include attacking sheltered air bases on Taiwan’s east coast and cutting off access for US forces approaching from Japan and Guam in support of Taiwan.”
China ambassador warns of ‘military conflict’ with US
Meanwhile, the Chinese ambassador to the U.S. warned of a possible military conflict between his country and the U.S., in an interview with NPR’s Morning Edition.
“In an unusually direct warning, China’s ambassador to the U.S. talks of future “military conflict” between the US and China. Qin Gang says that’s “likely” if Taiwan, “emboldened” by the US, “keeps going down the road for independence,” tweeted NPR’s Steve Inskeep.
ChinaFile has gathered contributors to comment on what will make the imminent Beijing Winter Olympic Games different from the “coming out ceremony “ of the 2008 Beijing Summer Games.
“In 2008, the Games were viewed as an usher for what was shaping up to be a relatively liberal new era, and the world was excited to see what might happen next,” says China-based writer Alec Ash. “In 2022, the Games are widely seen by commentators as a tokenistic cap on the authoritarian Xi era that happened instead.”
"China could need as much as 2 million cubic meters of water — enough to fill 800 Olympic-sized swimming pools — to create enough fake snow to cover ski runs and access roads during the Games," writes Bloomberg News.
In a wide-ranging interview with The Wire China, Columbia University political scientist and China expert Andrew Nathan discusses the question of whether human rights issues should be mixed with business.
“The business and human rights field is very important,” says Nathan. “And corporations have to really be pushed and forced and embarrassed and exposed to do the right thing, because they quite naturally have an interest in making money. And China is a place where you can make money, and where relationships count and where records are kept. China takes names, as the saying goes.”
“So they know if you’re a friend or not a friend, and they have 1,001 ways of making life easier or harder for anybody who’s doing business there.” says Nathan.
China's economy "and above all the development of the technology sector, has flourished because of its contact and exchange with the outside world," I say in this report by Swedish business daily Dagens Industri. (in Swedish)
"Deliberately shielding China from the outside world will certainly harm the economy and the development of new technology."
“The World According to China” - new book
“By carefully examining Chinese leaders’ economic, political and military goals and explaining how they aim to displace the United States from its ascendant status, Economy has written a guidebook to understanding and dealing with this rising superpower," I write in a review in the Washington Post of “The World According to China,” a new book by Elizabeth Economy, a senior advisor to the Commerce Department.
Montana morning views
Some morning views over the valley on a recent walk.