Tag Archives: China

The Chinese way

By Lena Deros – The Chinese as people have proven to be very creative and have given the world many things that we use today, including silk, gunpowder, porcelain, and other more specialized items were initially produced in China.

There is also a rumor in some theoretical historical and political analyses that the Chinese have never tried to conquer or take over other nations as other countries have done in the past.

But how true is that theory?

Our research, based on a comprehensive new data set, shows that China has extended many more loans to developing countries than previously known. This systematic underreporting of Chinese loans has created a “hidden debt” problem – meaning that debtor countries and international institutions alike have an incomplete picture on how much countries around the world owe to China and under which conditions.

In total, the Chinese state and its subsidiaries have lent about $1.5 trillion in direct loans and trade credits to more than 150 countries around the globe. This has turned China into the world’s largest official creditor — surpassing traditional, official lenders such as the World Bank, the IMF, or all OECD creditor governments combined.

Despite the large size of China’s overseas lending boom, no official data exists on the resulting debt flows and stocks. China does not report on its international lending and Chinese loans literally fall through the cracks of traditional data-gathering institutions.

Credit rating agencies, such as Moody’s or Standard & Poor’s, or data providers, such as Bloomberg, focus on private creditors, but China’s lending is sponsored by the Communist Party, and therefore off their radar. Debtor countries themselves often do not collect data on debt owed by state-owned companies, which are the main recipients of Chinese loans. In addition, China is not a member of the Paris Club (an informal group of creditor nations) or the OECD, both of which collect data on lending by official creditors. more>

We are Hong Kong

By Chris Patten – In my final speech as Hong Kong’s governor on June 30, 1997, a few hours before I left the city on Britain’s royal yacht, I remarked that “Now, Hong Kong people are to run Hong Kong. That is the promise. And that is the unshakable destiny.”

That promise was contained in the 1984 Joint Declaration, a treaty signed by China and the United Kingdom and lodged at the United Nations. The deal was clear, and the guarantee to Hong Kong’s citizens was absolute: the return of the city from British to Chinese sovereignty would be governed by the principle of “one country, two systems.” Hong Kong would have a high degree of autonomy for 50 years, until 2047, and would continue to enjoy all the freedoms associated with an open society under the rule of law.

But with his recent decision to impose a draconian new security law on Hong Kong, Chinese President Xi Jinping has ridden roughshod over the Joint Declaration and directly threatened the city’s freedom. Defenders of liberal democracy must not stand idly by.

For over a decade after the 1997 handover, China largely kept its promise regarding “one country, two systems.” True, not everything was perfect. China retreated from its promise that Hong Kong could determine its own democratic government in the Legislative Council, and the Chinese government periodically interfered in the life of the city. In 2003, for example, it abandoned an attempt to introduce legislation on issues such as sedition – an odd priority in a peaceful and moderate community – in the face of mass public protests.

Overall, however, even skeptics conceded that things had gone pretty well. But China-Hong Kong relations started to deteriorate after Xi became president in 2013 and dusted off the playbook of aggressive and brutal Leninism. Xi reversed many of his immediate predecessors’ policy changes, and the Communist Party of China reasserted control over every aspect of Chinese society, including economic management.

Xi toughened the party’s grip on civil society and universities, and cracked down on any sign of dissident activity. He demonstrated that his regime’s word could not be trusted internationally, for example by reneging on promises he had made to US President Barack Obama that China would not militarize the atolls and islands it was seizing illegally in the South China Sea. more>

China in the Firing Line

By Clare Goldsberry – A two-hour webinar held by the Alliance of American Manufacturing last Thursday provided a forum for four members of Congress along with a business owner, a representative from the United Steelworkers, and the President and CEO of the National Council of Textile Organizations to talk about bringing manufacturing back to the United States.

“Crisis Brings Consensus: Prioritizing U.S. Industrial Policy in a COVID-19 World” began with a Q&A moderated by Josh Rogin featuring Marco Rubio (R-FL) and Josh Hawley (R-MO). Rubio noted that the increased push to bring back manufacturing and the need to change U.S. policies regarding trade with China is not “unique to a pandemic,” which has exposed vulnerabilities in the supply chain across several industries.

“This issue needs more than anger at China,” said Rubio. “While the Chinese Communist Party’s efforts to dominate the world in key sectors are evident, we’ve allowed them to do this. We need a strategy, then tactics to put in place the strategy to bring back U.S. manufacturing.” That would include developing incentives for companies to return their manufacturing to the United States.

Hawley began his remarks by noting that we live in a very different world today than we did after WWII. “The economic order is very different, and we need to address the rise of imperialist China,” he said. “We need very serious reform to address this different world and different [economic] system.” Hawley is not in favor of abolishing the WTO, while that issue has been raised by some. “I would rather ‘fix’ it than ‘nix’ it,” he added.

Hawley, who said he’s heard more about bringing U.S. manufacturing back home in the past four months than in the 14 months he’s been in Congress, does not approve of isolationism. “We are a trading nation and will continue to be, but we need reforms such as dispute resolution, which is a mess,” he stated. “We need an American economy that is strong and a strong American worker. Manufacturing is vitally important to the future of the United States. We need to bring back our supply chains.” more>

China, America, and the International Order after the Pandemic

By Mira Rapp-Hooper – As people around the world fall ill, global markets convulse, and supply chains collapse, COVID-19 may also reorder international politics as we know it. No analyst can know when this crisis will end, much less divine the world we will meet at its conclusion. But as scholars have begun to note, it is plausible that China will emerge from the wreckage as more of a global leader than it began.

Following World War II, the United States was a chief architect of the so-called liberal international order and became its uncontested leader with the Cold War’s end. China, with its breathtaking economic growth and vast increases in military spending, has been on the ascent for decades, but long remained focused on domestic stability and the security of the Chinese Communist Party. It clambered to center stage after 2008, when the global financial crisis appeared to signal a weakening of American primacy.

China and others took the American financial stumble as a blunder of democratic capitalism, and a moment of opportunity to advance their own agendas. Under Xi Jinping, Beijing has seen the last decade as a period of “strategic opportunity” — one it did not necessarily expect to last, as it faces its own expected economic and demographic slowdowns. It built military bases in the South China Sea in contravention of international law, launched the vast and opaque Belt and Road Initiative to spread economic and political influence, doubled down on the state’s role in the economy and prejudicial policies, and coopted international human rights bodies. Along the way, it began to develop its own global governance aspirations and visions.

With the election of Donald Trump, the United States widened Beijing’s window of opportunity with its self-inflicted political convulsion. To China’s great fortune, American foreign policy was now expressly hostile to multilateral institutions, bellicose on trade, and defined national security in terms of narrow, homeland defense. To experts in the United States and abroad this looked like a willing abdication of the system the United States had constructed and led. But alongside these fears, and in another significant shift, foreign policy thinkers from both major parties increasingly agreed that the United States and China had entered a period of a great-power competition, in part, over the future of the international order and which power would set its terms.

Alone, the United States could not hope to match China’s economic and military heft in Asia. With allies by its side, America could remain peerless and manage peaceful change. Narrow unilateralism stoked renewed perceptions of further American decline and attenuated an otherwise favorable balance of power.

Enter the novel coronavirus.

It should be stunning that a virus that originated in China and spread in part due to Chinese government mismanagement may reorder the world to Beijing’s advantage, as Kurt Campbell and Rush Doshi have argued. more>

Re-made in China

By Amy Hawkins and Jeffrey Wasserstrom – The dominant image of China in the West is of a closed, dark place; a country where what reigns supreme is an authoritarianism based on an ancient imperial past that today’s leaders claim to have renounced, while simultaneously extolling China’s 5,000-year history.

It’s not a wholly false perception, but the notion of China as a fortress state, impervious to foreign influence, is something of a smokescreen. So too – as the opposite but equally flawed assumption goes – is the perception of China as forever on the brink of being Westernized by the liberalizing forces of globalization and the free market, as if, whenever the fortress gates are opened, the country were barely capable of withstanding the influx of ‘contaminating’ or ‘corrupting’ ideas.

This idea of China received a powerful boost from Francis Fukuyama’s ‘End of History’ fantasy that the civilized world would converge around liberal democratic norms, leading many Western observers to believe that China’s economic boom and flirtation with freemarket forces was both inevitable, and would transform it completely.

In reality, China’s longstanding suspicion of foreign influence has not prevented the government or the people from becoming remarkably adept at marshalling the flow of overseas cultural touchstones into the country’s borders, remoulding them into something that isn’t entirely Chinese, but is also totally different from its original form.

Like authoritarian leaders everywhere, China’s are anxious about the population’s interaction with foreign ideas, and the state tries to police this closely, adapting cultural imports to fit national and regional needs. Still, the various ways that the government, villagers and city dwellers of different social classes and generations handle these mutations demonstrate that Chinese concepts of national identity are much more flexible than first impressions suggest.

Appreciating this is especially important now, as tensions between China and the United States rise. A strident form of Chinese nationalism is gaining ground. more>

A primer on how Chinese law might enforce a US-China trade deal

By Jamie P. Horsley – As recently as early May, optimism ran high that the United States and China were nearing an agreement to resolve their escalating trade dispute. But talks have hit an impasse, with both sides announcing new rounds of tariffs over the past few days.

In an interview on Fox News Sunday, White House economic adviser Larry Kudlow explained that a key point of contention is U.S. insistence that Chinese commitments be “codified by law in China, not just a State Council announcement.” According to Kudlow, the U.S. seeks “very strong enforcement provisions” to correct past Chinese behavior on trade, which he characterized as unfair, nonreciprocal, and sometimes unlawful.

Various U.S. media reported that the Chinese side was averse to the idea of a foreign country dictating Chinese law. Instead, negotiators from Beijing reportedly offered to codify the agreement through regulatory and administrative actions. The standoff raises an important question: If the other substantive issues can be resolved, would an agreement be enforceable even if it falls short of being codified in national laws?

National laws, local regulations, State Council regulations, and rules are all part of what is collectively called “legislation” (lifa). National laws (falü) are adopted by China’s National People’s Congress (NPC) and the NPC Standing Committee pursuant to formal procedures—including public notice and comment—set forth in the Legislation Law.

Similarly, local regulations (difangxing fagui) are adopted by the people’s congress operating in a particular province or autonomous region. State Council regulations (xingzheng fagui), which are legally binding and enforceable, are also governed by the Legislation Law and subject to public comment and other procedures stipulated in State Council implementing regulations (colloquially, the “Rulemaking Regulations”).

The same applies to rules (guizhang), which are promulgated by central departments and local governments. more>

China’s Belt and Road: The new geopolitics of global infrastructure development

By Amar Bhattacharya, David Dollar, Rush Doshi, Ryan Hass, Bruce Jones, Homi Kharas, Jennifer Mason, Mireya Solís, and Jonathan Stromseth – The growing strategic rivalry between the United States and China is driven by shifting power dynamics and competing visions of the future of the international order. China’s Belt and Road Initiative (BRI) is a leading indicator of the scale of China’s global ambitions.

Originally conceptualized as a “going out” strategy to develop productive outlets for domestic overcapacity and to diversify China’s foreign asset holdings, Beijing later branded the effort as its “Belt and Road Initiative.” While the initiative began with a predominantly economic focus, it has taken on a greater security profile over time.

China’s initiative has attracted interest from over 150 countries and international organizations in Asia, Europe, the Middle East, and Africa. This is due, in part, to the fact that the initiative is meeting a need and filling a void left by international financial institutions (IFI) as they shifted away from hard infrastructure development. But there is a real possibility that the BRI will follow in the footsteps of the IFIs, encounter the same problems, and falter.

BRI shouldn’t be seen as a traditional aid program because the Chinese themselves do not see it that way and it certainly does not operate that way. It is a money-making investment and an opportunity for China to increase its connectivity.

The initiative has a blend of economic, political, and strategic agendas that play out differently in different countries, which is illustrated by China’s approach to resolving debt, accepting payment in cash, commodities, or the lease of assets. The strategic objectives are particularly apparent when it comes to countries where the investment aligns with China’s strategy of developing its access to ports that abut key waterways. more>

The Western Illusion of Chinese Innovation

By Zhang Jun – In the West, many economists and observers now portray China as a fierce competitor for global technological supremacy. They believe that the Chinese state’s capacity is enabling the country, through top-down industrial policies, to stand virtually shoulder-to-shoulder with Europe and the US.

This is a serious misrepresentation.

While it is true that digital technologies are transforming China’s economy, this reflects the implementation of mobile-Internet-enabled business models more than the development of cutting-edge technologies, and it affects consumption patterns more than, say, manufacturing.

In fact, Western observers – not just the media, but also academics and government leaders, including US President Donald Trump – have fundamentally misunderstood the nature and exaggerated the role of China’s policies for developing strategic and high-tech industries. Contrary to popular belief, these policies do little more than help lower the entry cost for firms and enhance competition. In fact, such policies encourage excessive entry, and the resulting competition and lack of protection for existing firms have been constantly criticized in China. Therefore, if China relies on effective industrial policies, they would not create much unfairness in terms of global rules.

Clearly, there is a big difference between applying digital technologies to consumer-oriented business models and becoming a world leader in developing and producing hard technology. more>

Inside the growing backlash against China

By Peter Marino – The strategic environment in which China’s “lay low” approach to international affairs has helped to make it the world’s second-largest economy is changing – and a broader backlash against China is beginning.

The global conditions that favored China’s rise began at the end of the Cold War. With the fall of the Soviet Union, the West in general and the United States in particular were eager to bring additional countries into the world order they felt they had created. Throughout the 1990s, faith in the liberalizing power of commerce, and in Francis Fukuyama’s thesis that the West’s triumph over Soviet socialism heralded the “End of History,” was at its height. As a consequence, concerns about China’s autocratic model were largely shelved in Western capitals.

The United States in particular pushed for China’s accession to the World Trade Organization, which ultimately served as an inflection point in China’s economic growth.

While this was happening, Beijing played its hand skillfully. Deng Xiaopin advocated avoiding flashy shows of power in order to shield Chinese efforts from outside scrutiny while the country wasn’t positioned to handle them properly.

The last five years upended nearly all of this in very short order. Indirect diplomatic suggestions have been swapped for attention-grabbing proposals, strategic ambiguity has been abandoned for international military bases, high-profile drills, showy parades and standoffs with neighboring countries. Fueled by large state-subsidized loans, large Chinese firms were sent on international buying binges.

Modern China has never faced simultaneous suspicion of its motives and objectives in both the West and the developing world. Beijing’s diplomats are more experienced at sidestepping or deflecting critics than at engaging them, and the party’s domestic politics demand a near-absolute protection of “core interests.” This does not bode well for a country that will have to start addressing legitimate diplomatic concerns around the world. more>

Don’t be fooled by China’s grand plan to rule the world

By Gwynn Guilford – The “China is taking over the world” meme is a perennial one.

As usual, this argument overlooks what’s happening within China’s borders. That includes: a credit-driven growth model that has left debt growing faster than the economy, the continued dominance of inefficient state-owned enterprises (SOEs) at the expense of dynamic private firms, and a fiscal system that depends on a housing bubble to sustain it.

David Ignatius bemoans the rail line buildout connecting China to Europe and Eurasia while bypassing US-controlled sea lanes, but by exporting its short-term growth formula for wasteful investments abroad, Xi Jinping is compounding the already huge risk that befouls China’s financial system.

Thanks to China’s size, running even a slight surplus means foisting massive deficits on its trade partners, as well as the debt and unemployment that accompany those, as we’ve argued before. And as Xi’s goal of self-sufficiency and manufacturing-export dominance—articulated in the Made in China 2025 plan, which focuses on Chinese dominance of artificial intelligence, robotics, and other high-tech sectors—makes clear, it’s not just BRI (Belt and Road Initiative) countries that will be on the receiving end of Chinese mercantilism.

The core problem for China is: Power doesn’t guarantee competence. And Xi’s handling of the domestic economy in the past half-decade suggests a dearth of the latter. more>