President Trump made a statement a little while ago. He laid out a long list of issues with China in what sounded like a “China Carnage” speech. The rhetoric was very tough as he announced that the US:
is studying what to do about US-listed PRC firms;
will start restricting some PRC students from studying in the US;
is starting the process to eliminate special treatment for Hong Kong, across the board;
will take steps to sanction PRC officials who are involved in the Hong Kong situation;
is terminating the US membership in the WHO.
US stock markets shot up after his comments; it looks like investors are relieved the measures are not as bad as some were expecting. The language the President used appears to leave some wiggle room for timing and implementation. He did not mention the fate of the trade deal.
I would love to hear your thoughts about how painful these measures will be, and painful to whom, as well as what you thought about my comments yesterday. I hated writing them:
President Trump will hold a press conference Friday to discuss China. The speculation is that he will outline US actions in response to the Hong Kong law that will include changes to how the US treats Hong Kong in trade and immigration as well as “penalties” on the PRC and possibly PRC-linked entities and individuals. If President Trump still thinks the phase one trade deal is useful then expect the measures to be fairly weak. Whatever he announces, I highly doubt the actions will change the CCP’s course on Hong Kong.
The US runs the risk of having made a big deal about this law and then issuing a weak response that imposes relatively little cost on Beijing. I believe that is what Xi is betting on, and certainly the utterances from other governments have been fairly milquetoast, or non-existent as in the case of most of the PRC’s neighbors.
For Xi and the CCP, Hong Kong political security and the territory’s place in the Motherland trump whatever increase in US-China friction may come, and in the logic the two countries are now stuck in a harsh US response will only confirm to Xi and many in China that the US is hellbent on keeping China down, while a weak response from DC will add to the view already held by more than a few in Beijing that Trump and the US are paper tigers, as Mao liked to say, and Beijing can increasingly act with impunity. It is a toxic dynamic.
And how do these measures look from that lens, or is it too early to tell?
Trump has no policy on anything aside from getting reelected. He's tough on Cuba and Venezuela only because of the Florida vote. On China, like almost everything else, he simply assumed that if he yelled and screamed, they would...what? Fix the trade deficit? But China realized that Trump is a paper tiger and didn't roll over. Now he doesn't know what to do. If he "decouples," the markets tank and US economic recovery is all the more problematic. So he cuts ties with the WHO in the middle of a world pandemic as a proxy for hurting China, which is nonsense. Like many on this thread, I'm all for a reset of US-China relations, but the US, as far as I can tell, has no policy at all that looks beyond the day's news cycle
Absence of policy and absence of strategy, correct. Look at rare earth:
- April 2017 Xi came to see Trump in his kitschy golf club.
- June 2017 the Molycorp bankruptcy admins sell Mountain Pass in California, the largest rare earth mine on the American continent and the 3rd largest operating rare earth mine in the world, a billion dollar asset, for US$ 20.5 mio to a China-controlled consortium, even though there were higher bids from elsewhere.
- In August 2017 CFIUS approve the deal.
- In November 2017 Trump went to Beijing to celebrate everlasting China-US friendship.
One could certainly get the impression, Mountain Pass might have been Trump's tribute to Xi.
It took the Trump administration more than a year to figure out, that they had been screwed over royally and that the US might have a problem. That problem can't be solved, without admitting the foolish primary school student blunder of letting China have Mountain Pass.
There might be the one or the other who says, China has only 9.9% share in Mountain Pass. That is naïve bordering on stupid. 9.9% are held by Shenghe Resources, a subsidiary of rare earth giant China Aluminum and the rest is held by Oaktree Capital established vehicles. China Investment Corp is considered to be Oaktree's largest customer. Go figure.
Behind the bluster, it's clear that there are quite a few career officials within the Washington bureaucracy working to craft anti-China policy. It's simply that Trump unfortunately isn't a very effective messenger for it. I expect we'll get a better idea from the next POTUS.
Based on my time at the NSC, State, and US Embassy Beijing, I think the Rose Garden presentation was a the logical result of Secretary Pompeo's declaration that Hong Kong no longer enjoys a "high degree of autonomy" as set forth in the 1992 Hong Kong Policy Act (and the 2019 HKHRDA).
The extradition treaty and export controls are probably the two most import areas of Hong Kong differentiation on trade/law enforcement from the Mainland. As you say, this is the beginning of the process, which is a natural follow on. Pompeo added a bit of additional "umph" by having Trump say State would issue a travel warning to executives going to the HKSAR; and decent risk officer at a large American company would already be aware of that risk, even if they have not altered their networks to reflect that recognition.
The authorities to go after specific PRC officials was granted in the global Magnitsky act, then reaffirmed in the HKHRDA. Those have been there and the question now is, who, if anyone, is actually targeted (Xia Baolong? Han Zheng? Li Zhanshu?). That and what financial institutions, like the Bank of China international? So I didn't see the mini speech as announcing new policies in those areas, rather reaffirming existing authorities. Of course, naming anyone in the PRC government would be explosive so I don't discount the impact, just noting that saying a process is underway does not actually change anything.
The push for greater oversight of PRC-listed companies, as you say, has been in the works for a while. Here I believe the Administration is following Congress (Sen Kenney's bill which passed by unanimous consent) and grabbing onto something that people on Wall Street see as a problem (except for the exchanges themselves which benefit from the status quo). This issue of providing working papers is solvable, although at this stage CSRC probably is not too keen to find a solution.
Finally, as the stock market reaction has indicated, by NOT mentioning the US-China trade agreement (while having Amb Lighthizer and Secretary Mnuchin as part of the flanking group). My read, having been in meetings a few times with Liu He and staffed Amb Lighthizer during visits to Beijing, is that for the moment, both sides believe the "deal" is worthwhile keeping. It is a very modest agreement -- I called it a "bamboo agreement" at one point: hollow on the inside, Chinese on the outside -- so keeping it costs little. The U.S. simply agrees not to levy new tariffs based on the Section 301 investigation. China can continue to buy U.S. exports and liberalize the financial sector -- which was offered up when President Trump paid his state visit way back in November 2017. Since the first check in for export numbers do not come up until AFTER the Nov 2020 presidential election, no other objective metrics can be used to claim China is cheating on the agreement. Now, at some stage, the political usefulness of the agreement may wane for the U.S. Administration, but my friends at MOFCOM are working hard to ensure if the agreement blows up that fingers will point to 1600 Penn.
As is the case whenever the T-word is mentioned a lot of the comments here are focusing on the President's thoughts, motives, and actions. To me the speech, which had minimal "improvisations", sounded again like someone with a fairly coherent and well-informed thought process wrote it, and it included all the major expected announcements.
I think from a policy perspective, having the President declare that "one country, two systems" is dead has pretty far-reaching implications, as that is one of those CCP key concepts that it uses to maintain the illusion that it can't do whatever it wants with Hong Kong. With that fantasy now dispensed with the U.S. can move forward in a more direct manner to dismantle the many loopholes that the CCP has created for their own benefit in this system, such as shady cross border land deals, fraudulent loans, money laundering, sock-puppet companies used to secure foreign capital and IP, etc.
On the Beijing side the complete lack of interest in making these moves palatable internationally is revealing. How much harder would it have been to have this bill rammed through Legco by friendly politicians? Why do this now when they are under intense scrutiny over the virus response (yes, I know, everyone is "distracted" but that doesn't seem to be keeping China off the front page everyday)?
They undid 30 years of careful cultivation of this concept of 1C2S in less than a year, and lost Taiwan in one summer. To me it's like the CCP is in a big hurry to get all this done before something happens, and damn the consequences because they won't matter soon anyway. Very dangerous place to be for a country.
Bill, how likely is it that the PRC responds with action against US students studying there as well? Very worried that myself & classmates will become pawns. In my opinion, blocking students from genuinely learning about each other's cultures and politics also blocks the chance for a future generation of policymakers with the experience and passion to untangle this diplomatic mess.
They won't do anything to change their international programs, as those programs are mostly vanity projects set up to improve the image of their universities (world-class!) and ensure reciprocal access for ruling class scions at elite Western schools. A few American students may get their visa applications rejected, but in my opinion they are much more likely to go after the think-tank crowd and maybe certain business interests first.
I am not a student or an American, but I am a foreigner in China. I am also feeling worried after the recent actions taken against Gui Minhai, Michael Kovrig, Michael Spavor, several foreign journalists and many black migrant workers and students. Even if there isn't any action taken directly against us as a group, it's clear that the Chinese government sees us individually as pawns that are increasingly disposable.
I think Taiwan might provide a safer option for study right now. I suspect you might end up with a biased view studying China through the lens of Taiwan, but then studying China under an administration that has made it a priority to crack down on academic freedoms is going to give a biased view too.
It is extremely unlikely that something happens to you. Among the best sinologists along studied in Taiwan. To begin with, real Chinese characters, not the crippled mainland version.
We in the elite forget how little importance to the outcome our actions and statements are.
I will tell a short story - When I was young I used to pick fruit on my great uncle's farm. His best friend Reg, a Pom (Englishman) used to often come over. I was a nerd and used to read history books after work one time I was reading a book about the origins of WW2 and when looking at the picture of Chamberlin with his "bit of paper" post-Munich 1938, Reg said "I remember that I went to the movies and the newsreel at the end had the PM doing that when we all walked out of the movies, everyone said, "we are going to war".
I looked at him and realised for all the attempts by the government to assuage the worker's worries, they just see right through them. At that moment I learned to always trust the opinion of the common person they just see the truth.
So what is the "opinion of the common person" in Australia, Canada and NZ (I've added the last two after discussions with a handful of Canucks and NZers this week, but data from Australia is much stronger). Put simply the CCP is the enemy, every word and action by the CCP overseas and in our own countries is just reinforcing this perception. This is like a seachange in public opinion, like how blatant racism was OK until all of a sudden it wasn't, that women should stop working once married and now that is not OK.
Consequences - China finds itself in the horns of a dilemma it is in a situation like Germany pre WW1 and acting like Germany pre ww2. The damage to China is immeasurable. Speaking from lived family experience Germans on my wife's side and my Grandmother. It is literally only in my lifetime that it was OK to be German again. My wife's great grandfather was murdered post-WW1 and her mum who was German used to say when asked about her accent that she was "Welsh" (hilarious, I know). I hope this won't revert to racism, as it appears people have great sympathy for HK and Taiwanese people and discern that is the CCP.
To quote 300 "this is madness" who picks fights with the speartip of the WW1 & WW2 allies, binding them to the US, and apparently dragging the UK with them. China like Germany pre WW1 is an exporting powerhouse but with no planet-spanning navy who has to import food, fuel, and resources. An infantry officer friend of my said "4-1 odds, we can work with that". See my quote above.
I reread Thucydides in the lockdown, I reminded everyone I know. It wasn't the up and coming power that won.
Long time China hand. I speak Chinese about as well as Bill, but I also speak Japanese, Cantonese, Taiwanese and Thai with similar proficiency. I am happy to see that the U.S. now is seeing that China is a very bad actor and will never be a responsible stake holder in the international system. I lived in China many years and promoted products used by virtually every coal-fired power station in the U.S. in China for several years. I had some successes up to about 2011 but things went South from there. It wasn't that the technology I promoted was stolen it was that it was too complicated and expensive. The China's preferred indigenous technology that wasn't effective but was cheap and provided some very basic benefits. Of course the simple indigenous technology wasn't much help in reducing NOx pollution but this didn't really matter because the power plants produced fake data and China's version of the EPA basically pretended that not only wasn't there much of a pollution problem, but also that China is doing a better job than the West. Atmospheric NOx data from Greenpeace show otherwise. So after many years trying to build a business to help save a large portion of the more than 300,000 Chinese people that die every year from the consequence of NOx pollution, I gave up and turned to trying to do business with countries more friendly to the U.S. namely Taiwan, Japan and Thailand.
So essentially I think the U.S. is right to de-couple from China. Xi has played the biggest role in the de-coupling, but Trump with bi-partisan support has broken the pattern of pretending that China can be a responsible stake holder in the international system. I think de-coupling portends disaster for China. The factors that propelled China's rise literacy/basic education, investment and demographics are now depleted, what China now needs is innovation and that will not be happening now that China is de-coupling from the world. The U.S., Europe and Japan have the large part of the know-how that could help to improve China's economy, but all are now very wary of China and China will no longer be able to buy or steal the technology it needs to even maintain it's economy. Having worked in the power industry and some other industry I know first-hand that despite China's attempt to convince foreigners otherwise China develops very little technology on it's own and with less access to foreign connections will develop less still.
In the short term Chinese may blame foreigners for their diminished prospects , but at the end of the day they are likely to see that it is their own government that is largely to blame. Many surveys of Chinese people have shown that the Chinese are optimistic but not because they are that satisfied with where they are today but more where they think they are going. When those people wake up to the prospects that their future is actually not bright the impact on regime stability could be great.
From the American perspective we have to hope for regime change also. Nothing good for the U.S. is going to come from the current regime. Certainly I personally will not be able to help China with their NOx pollution problem without major changes in China's governance.
David, you sound quite bitter from your China experience. I used to invest in China and came across quite a few "long time China hands" and noticed a high correlation between individual's success in China and their outlook on the country. I always played the anxious newbie willing to learn but took their expert views with a grain of salt. Found it best to normalize their "expert assessments" against their individual experiences.
Actually a lot of people that tried to sell to China had a lot worse experience than I did. I had some okay years in the business. I enjoyed going to power plants and looking at their issues and designing solutions. I wasn't an engineer before I started the job but I was a pretty good engineer in my area afterwards. I really liked fielding all the questions in Chinese. I wrote and translated many 100 pages of technical information. What I didn't like is that the Chinese almost never bought and largely ignored the technology I was promoting, so I got to save relatively few lives. I wanted an income but I also wanted to help people. Most people in the Chinese government don't seem to care about the 300K people dying of NOx pollution every year but I cared. I am one of the few foreigners that is an actual awarded hero in China 見義勇爲 in Chinese。 Disappointed but not defeated. After prospects in China turned negative I turned my efforts to Japanese and now can do business in Japanese. Most recently I learned Thai and that too is now at the business level (after 3 years of hard but completely enjoyable study.) China is turning inwards. The funny jokes in China calling China Chosun West (i.e. North Korea) 朝鮮西 seem less funny and more prescient now. Regardless where China goes I will still be in Asia helping Asian consumers leverage American know-how but it more likely be consumers in Japan, Thailand or Taiwan, not China.
Hi David. Please don't lose faith. Since July 2014 China's EPA issued a new standard of NOx SOx emissions and fined SOE power plants for a total of 410 million. Is it possible that things are getting better? Just saw a CNN report in Nov. 2019 quoting GreenPeace that praised China for its green effort. Hope you can come back and do your great work.
Actually it's far worse that you think. On paper China has quite strict environmental standards but in practice they don't have compliance. The government will come up with a very high standard that will require a very low level of emissions for instance but at the same time have a completely unrealistic expectation how to get there. I once heard Taiwan Power say that 25% of their cost for coal-fired power stations was pollution remediation. In China that figure would be 7%. Taiwan Power buys from suppliers all over the world. China almost exclusively buys Chinese-made. Taiwan's pollution standard on NOx are around 400 mg/M3 and China's standard is 50 mg/M3. They are you have the riddle. 8 times the performance, a fraction the cost and almost all locally made for China versus Taiwan. Sound too good to be true? Of course it is. China's data coming from there plants are fake. Their emission are not 50mg/M3 but likely many times that. I know how China engineers their plants. The emphasis is on cost and Guanxi not on performance. We know that something is not right by comparing the terrific performance of China's power plants to the still high level of PM 2.5 in the atmosphere collected by the Chinese government and the US embassy and consulates. I know Green Peace people too. They have studied atmospheric satellite data for China. The data does not show a very step reduction on NOx in China's air despite the "amazing" performance of China's power stations. To get good NOx performance (i.e. low emissions) here are some of the things you need. You need to do sophisticated boiler optimization with advanced automatic control. China's boilers are almost all manual. You need good air flow data and actuation, China's air flow data and actuation are done cheaply and not carefully designed. You need a good and comprehensive O2 measurement grid, China generally has only 1 or 2 O2 monitors done cheaply and rarely calibrated. You need a good SCR system with expensive catalysts with a high titanium content. China's catalysts are far cheaper than those in the West and their performance must be far worse although China claims their performance is far better. I could go on and on but you get the point. Without transparency and honesty this problem just continues to fester. By the way RMB 410 Million in fines for the whole country of China is equivalent to what just 1 1000 Mw Coal-fired power station burns through in coal in a week.
Yes, I am sure you know many who found it tough to sell to China, including the Chinese. The most daunting aspect of doing business in China was the intense competition, whether selling or investing. Never seen that in any other country, including other Asian countries. Sure, being foreign is tougher. But being foreign is tougher in most countries. Lets not forget that we have a preference here for Made in America, which predates Trump’s America First. Your experience in China was not good. I hear that. Yes, perhaps your product could better reduce pollution. But is that the right product/mkt fit at that time? Perhaps they were more interested in getting the basic functionalities and not the “luxury” of cleaner air. I don’t know the answer to that. But I do sense a strong tinge of bitterness from your experience, which skews your objectivity and puts the blame on China. Look, I don’t think we have a situation where one country is more right than the other. The countries are different with orthogonal cultures and value systems. Lets acknowledge that and stop pretending that the US monopolizes the moral high ground. Blaming others has never been a winning strategy. The US did not blame its way to the top, and we certainly wont be able to maintain a developed nation quality of life for future generations if we keep on blaming China for all our troubles.
"Perhaps they were more interested in getting the basic functionalities and not the “luxury” of cleaner air. " if that were true then China would have more lenient emission standards but in fact they have more stringent standards. In fact this is all lies, just like the Chinese constitution enshrines rule of law, democracy and freedom of expression. "Look, I don’t think we have a situation where one country is more right than the other." Oh, you don't? Well I do. Why don't you look at the Frontline special on Xinjiang. I don't think there is a parallel like that of systematic cultural extermination of a minority since the fall of the Third Reich. There are other issues: the China Tribunal, the Wuhan Virus mysteries but you can start with the Xinjiang issue.
Hi Zenmaster. I believe the mentioned NOx emission data fabrication issue was real. Hopefully it is getting better. I think most international organizations don't have enough authority to control and punish nation state's behavior. That caused many global issues on environment, public health, etc. It kinda encouraged local officials to fake emission data or hide epidemic outbursts coz they won't be punished heavily but they are actually using the nation's global reputation as cost to their own political career benefits. Maybe in the future, nation states can hand over more domestic governance power to international agencies.
Hi David, The issue of Chinese public opinion is an interesting one. There seems to me to be no question now that the dominant (but by NO means universal) paradigm is absolute acceptance of the CCP propaganda line, which in practice means zero tolerance of criticism of discussion of the situation and lots of emotional, shrill, aggressive, "I know you are but what am I" style arguing, like arguing with a teenager (in fairness, that's what it's like arguing with a Fox News watcher, imo, but hey I'm a Democrat I couldn't resist :).
I would say that there are really 2 things going on: first, people really are (justly! for the most part) proud of CHina's achievements over the past generation plus, and no one likes the (implicit, usually) feeling of being inferior to another civilization/group. And it's such an awesome and amazing thing that this huge group of people (to be clear--the urban middle class only, the peasants have been absolutely screwed since 1989 in terms of income growth, resource allocation and personal freedoms, and being 3/4 of the population that of course is the point) now is basically humming along with very cool jobs and tech and all this (economic) opportunity. The problem is of course that CCP propaganda has brilliantly exploited the basic fact of economic growth to buttress and legitimize the very worst and most vile aspects of CCP rule. So for instance, people like a certain VC (whose name I won't even mention since he doesn't deserve it) argue the CCP line that Tiananmen was good because it ensured everything that happened after it, but of course even a cursory look at the insider accounts of that time (I'd start with Zhao Ziyang's memoirs as he was the highest up guy to write openly about it, the number 2 to Deng! Different era) make it clear that it was a horrible decision, probably influenced by the infamous Li Peng (who it turns out was also a coward and fled the scene when Zhao stayed to engage with the protesters), and Deng mistakenly associated it with the street chaos Cultural Revolution rather than it being something completely different (in a way that I imagine is not too dissimilar from how the CCP is reporting on the current riots in the US, just as "chaos" with no understanding of why people might be upset, but of course security states always say any disturbances are chaos because they don't want people to act on feelings of injustice). And of course the fallout of Tiananmen was massive, the party never liberalized, and from that date essentially rural income growth collapsed relative to urban growth as the party tightened controls and only focused on urban growth, plus you got the ultra corrupt Jiang Zemin in there as head guy instead of the outstanding (by most accounts) Zhao Ziyang. Anyone can unleash a bit of the profit motive and build lots of infrastructure, and bully to the CCP for that, but the missed opportunity to have an uncorrupt leader in power who might have been able to ensure rural income growth and liberalize the party to rebalance much earlier, and not have the need to make aggressive chauvinistic nationalism the legitimizing ideology (again, and as a Dem, I'm very critical of Trump on this issue, and of course that's sort of the point that I can be openly unlike Xi's domestic critics with rare and heroic exceptions like Xu Zhangrun), was devastating.
This leads to the second point which is the complete lack of a public counter narrative. This is why Pottinger's speech, while not particularly earth shattering as a speech in and of itself (and in fairness to him, it probably wasn't meant to be), was so vilified in the Chinese state media, because ANY attempt to put together a coherent counter narrative to CCP state propaganda is an existential threat to them. This is why some of the most important work we can do right now in the West I think is to create a counter narrative, based in truth and justice, to the CCP's propaganda. And I'll emphasize again, THE best way to ensure that happens is to apply the principles of justice, freedom and equality to ourselves as stringently as we seek to apply them to the CCP. So we need to fix ourselves at home at the same time as we create a counter narrative abroad (and of course rebuild alliances and all that it goes without saying).
Very good point. CCP is definitely exploiting America First policy and the Bannon narrative to lower the western democracies to just other competing nation states. This echos very well with the nationalism sentiment spurred by 1840s-1920s colonization/ sphere of influence memories by western powers.
While I welcome stronger action to impose costs for the CCP, it is hard to see how restricting our ability to brain-drain the CCP through access to our open, free society is helpful. If we have concerns about espionage, and I have no doubt that some of these concerns are valid, let's let the FBI do their jobs.
Additionally, I fail to see how withdrawal from the WHO does much to address concerns of excessive Chinese influence within the organization. Oh, well. I'm appreciative to Trump for shifting the window on China and increasingly pushing both DC and the public to acknowledge the very real threat posed by the CCP, but assuming the Democrats are prepared to pick up the flag and run with it, I think it's time for him to go.
I agree. The new Cold War is a war for talent, especially in a knowledge economy. We should be aggressively recruiting Chinese students to remain in America permanently and contribute - as have so many immigrants - to making America great.
We are in no way dependent on chinese talent. There is plenty of talent in India and Central & eatern europe for us to leverage. And besides, those talent pools are of far higher quality than Chinoise talent.
Who said we're dependent? Just because we can make do without them doesn't mean that we shouldn't want to draw the best and brightest away from the CCP to America if we can. And let's dispense with the racially charged rhetoric about "quality" as well. I have several Chinese coworkers and they are lovely and intelligent people.
I agree that there is great talent everywhere. But in Texas, 4 of 19 HHMI scholars (e.g. such awards are often associated with Nobel awards) are Chinese, now Chinese-Americans, doing cutting edge research in biomedicine. This is true of other fields such as AI, robotics, etc. But we’re better off leveraging ALL talent.
I think the withdrawal from the WHO looks like a typical "kill a chicken to scare the monkey" kind of move. Leaving the WHO doesn't do too much harm to American interests at this point and simultaneously sends a big warning signal to other international organizations heavily funded from America that they'd do best to remember who their friends are. Hopefully it'll be more effective in this regard than the American withdrawal from UNESCO last year, which hasn't had an impact on other international organizations yet.
Completely agreed on the first point you raised. I'd also like to add that as opportunities to spread American narratives and soft power inside the mainland are further and further restrained, the experience of mainlanders studying abroad as a window to these things is going to become a whole lot more important.
For instance, you might be surprised how many Chinese college students don't even know that America has an independent judiciary until they've already been studying here a few years.
Thought-provoking but disagree with your WHO point. There’s a two word reason to fund the WHO: Smallpox Eradication. Back in Cold War 1.0, WHO provided indispensable political cover that allowed American and Soviet health officials to focus on vaccination efforts instead of acrimonious geopolitical rivalry. WHO can serve as same political shield for US and China today.
Well, Bill I was looking to see where Liu He was seated at the Two Sessions of the NPC last weekend. He was seated four away from Xi on the left which means in the main seven members of the Politburo he was/is outside the inner circle of Xi power advisors (he seven were divided three on left and three on the right of Xi). No loss of position as Vice Premier of China and still a member of the Politburo but there is distance.
What that means to me is that Xi didn't like the trade deal. As much as Xi is an ideologue, he is still a pragmatist, and agreed to the Phase One US Trade deal to keep the peace with the US, except it hasn't worked.
The stability of trade relations Xi had hoped for after agreeing to the deal which favored the US in the main got even rockier with Trump spouting anti=Chinese invective at every opportunity. Xi didn't bank on COVUD-19 upsetting the delicate balance or Trump's double-dealing two-faced maniacal claims to make China the scapegoat for the disease. On several occasions, Trump threatening to curtail/sever all economic ties with China altogether. While typical for Trump, the Chinese leadership were at first dismayed and are now infuriated.
So with the passing of the Hong Kong security law in essence telling Trump and SecStat Pompeo to go eff themselves and with standing applause in the Great Hall of the People it was clear to me that Xi is going fight the US. The subsequent retaliatory threats brought on by Trump on Friday May 29 was a fool's errand and now gives Xi the excuse he wants to kill the trade deal, which I believe is the game here.
The way this happens for the PRC is that China slows all trade covered under the agreement to a trickle while not cancelling exactly, but slows the movement of US trade imports to where US farmers have to plow over their grain crops or to ditch the crops stored in silos around the country. Of course. this will exacerbate tensions by about September or October at the latest with Trump finally ending the trade deal and increasing tariff on Chinese imports into the US.
With US farmers facing financial ruin and Trump having to probably bail them out again with grain subsidies or lump sum payments, yet again, Trump faces the last weeks of the campaign blaming China for everything that ails him.
If you missed the Chinese announcement that local pork production was back to normal and increasing, and that grain imports from Brazil and other grain growing countries — except Australia — had increased from previous years to all time highs, you missed Chinese confidence in what is going to happen in coming weeks and months.
As most China watchers in the west don't watch CCTV or CGTN they will have missed all commentary at the Two Sessions which was about China expanding/developing its domestic market — the largest market in the world —as the primary goal while foreign trade is of secondary importance.
Looking forward to further Trump conniption fits. So it goes. The old adage that "China needs us more than we need them" is going to get a work out on US news channels in coming weeks and months but for me the above scenario is already in play. Cheers.
Minor suggestions on Chinese official seatings [I think I watched the same video(NPC opening and closing ceremony, the other two full member meetings and various small group meetings are not live streamed)]:
- Front row is consisted by 16 people: 1 NPC chairman + 14 vice-chairman + 1 secretary [6 of the 14 are non-CCP]
- Second row is consisted by 24 people with Xi in the right hand side middle (but they will put an extra chair on his left so Xi kinda looks like in the middle): 25 CCP politburo members - 1 NPC chairman - 1 NPC 1st vice chairman + VP WANG
- Liu sits on the 4th seat to Xi's right, that is actually the 9th rank, it goes with a Xi - 1 seat to his left-1 seat to his right- 2 seat to his left - ... kinda sequence
- The top 7 seats are 6 standing member of politburo( coz NPC chairman is in the front row) + VP WANG, these 7 or 8 (VP sometimes doesn't show up) always has a designated ranking
- The other politburo members (18 non-standing members) do not have a ranking , they will sit according to the sequence of their family name's Chinese strokes (from less to more)
- So Ding (丁, 2 strokes）takes the 8th seat, NPC's 1st Vice Chairman WANG Chen(王晨, 4 strokes）should have taken the 9th seat but he is also up in front row.
- That left Liu (刘, 6 strokes）on the 9th seat, so four to Xi's right.
The CCP's TV camera-man will very carefully go through these guys one by one with a close up.
This is just where he should sit. I think there shouldn't be any implied information on Xi's happiness about the Trade Deal.
Great analysis David. In my talking with Chinese friends and colleagues, in the weeks since reopening there has been a greater sense of national self-belief and optimism. It is not delusional - they see the challenges and difficulties ahead - but there’s definitely a new level of confidence. Perhaps it’s a consequence of CCP propaganda, I don’t know, but it’s palpable.
The two main things on the US side that worry me are firstly that Mr Trump rarely sticks to script. He’s read a speech that someone wrote for him. How often has he torn up previous such carefully-prepared positions?
Second, we are still 5 and a bit months from the election. The strategy to make China a scapegoat for his failings is going to morph into making China a scapegoat for everything. We are going to be in for a torrid few months. And the people in HK are going to feel it ten times more than we will.
Interesting analysis. I will say that it's very hard to have sympathy for China with regard to Trump "scapegoating" them for the disease when it was the MFA which initiated the whole mess with their irresponsible and inflammatory insinuations that the US Army was involved in bringing the virus to Wuhan. I don't doubt that Trump would have turned on China eventually anyways as it became politically expedient regardless of the MFA's behavior, of course. However, the reality is that in the timeline we live in, which is not that hypothetical one, China began indulging in finger-pointing to dodge the blame before anyone else and has absolutely no right to complain when the US returns fire.
This is late but ... I don't think Liu He was seated any closer than protocol allowed ... certainly it would have been interesting if he was inside Wang Qishan ... also on pork production, it is nowhere near normal, it's still below what it was in January before Covid, and about 75% below where it was last summer, before the effect of African Swine Fever on the herd became fully apparent ... they won't be back to normal before 2022 at the earliest ...
The answer you want won't be here I think, but the opening up and development of western provinces and remote communities with infrastructure. The development of vast solar power farms and wind generators to help those living at subsistence to moderate income levels, who like living where they are. There are at least 100 million people who can benefit.
There are plans to develop the tracts of underground aquifers to being crops to sandy regions go the Gobi. Not to mention the development of the grasslands around the Mongolian autonomous region which is still in early stages.The expansion of rail routes to Pakistan, Iran and Afghanistan. But where the Chinese build infrastructure – and they are pretty good at it — people will come and gravitate to this part of the world.
If you take the time to look at any number propaganda documentaries on Youtube of what China has planned and how they can accomplish it makes me envious. And its only beginning in my view. No wonder 90% of the Chinese people support the Chinese government because they do put their people first.
I think about this as I travel on the I-70 at the interstate junction to Pittsburgh dodging the massive potholes so I don't break my axles and further the interchange along the I-80 to the I=65 and I-57 to Chicago in Indiana.
If only Trump cared about the welfare of his people first.
Hi David, You proposed the following ways China could expand its domestic market: 1) opening up and development of western provinces and remote communities with infrastructure: This is just building roads, railroads and airports, which China does extraordinarily well and has been able to for the past generation. If there were major population centers without those things, such that just building them would easily create massive growth, they would have done it already (they're not dumb)--and they did! I know of no major population center in China right now that does not have access to reasonable infrastructure (at the very least, good highways and reasonable proximity to rail). So if they already have infrastructure, and are still underdeveloped, further infrastructure isn't the answer. So then the question becomes, which (if any) large Chinese population centers DON'T already have access to good infrastructure such that an easy fix to major growth is building more? 2) The development of [renewable, locally generated] power, the implication is that there are huge communities in China without access to electricity or prohibitively expensive electricity, and that therefore providing that will create huge growth. According to the world bank, 100% of the Chinese population has access to electricity (2017). I don't have the pricing data, so that's one thing to look into, but certainly providing access to electricity is not a current path to Chinese growth. 3) Making the Gobi desert farmable: Recapturing farmland is super expensive, and China is already short of water... open to more data on this, but even the Chinese gov't itself isn't talking about a massive aquifer project of the Gobi desert as the path to future growth. 4) Expansion of rail routes abroad i.e. OBOR: This is a way of saying that China can export demand, in other words, those rail links would create Chinese jobs by increasing Chinese exports to those countries, but those economies are tiny compared to China's and already in deficit and unlikely to support massive increases in trade deficits with China, nor would such deficits lead to large-scale growth in China--those economies are simply too small. 5) China has a lot of additional economic activity (you didn't specify what) planned, based on youtube propaganda documentaries (which are plentiful no doubt!!): I assume you mean infrastructure plans as that is what the government has the ability to do, for the reasons already stated more infrastructure probably isn't the answer.
Basically I (and I think most Americans!) would agree that the US needs waaaay more infrastructure investment and China has done an amazing job on this. It's just that at some point there can be too MUCH emphasis on infrastructure investment (i.e. once your entire country already has access to world-class infrastructure, building more isn't a productive use of resources obviously). That's the dilemma China is facing (and has been faced by about 2 dozen other countries throughout the 20th century who invested a ton in their fixed capital stock but once they hit the limit growth totally stalled out, that history is the origin of the term the middle-income trap). The main thing they need to do to expand the domestic market is to transfer resources from infrastructure companies and local governments to Chinese households so that... there is more demand, but of course infrastructure companies and local governments are all state-owned, so they'd be undercutting their own political base... which is why it hasn't happened despite central government statements since at least 2007 (they rebalanced from 33% of GDP being consumption to 40% in the past 13 years, about 0.5% a year, obviously far too slow and of course debt exploded in that time due to unproductive investment increasing so much since they've been unable to increase domestic demand). I don't say that really as an anti-CCP or pro-American argument or whatever, that's just the situation they find themselves in... just like the Soviet Union with it's Siberia investment policy in the 60's and 70's, or Brazil with it's Amazon policy in the 60's etc. Much better institutions (business law enforcement, anti-monopoly law, equal access to capital and reasonable regulation for non-state owned companies, reasonable demand from households etc) is the key to moving from being middle-income to high-income, so we should look for those kinds of reforms if China is to begin using increased domestic demand to power growth as opposed to investment and exports (again, household consumption is just 40% of GDP after over a decade of frenzied talk about rebalancing).
fully agree; you were more thorough and polite than I was. Do you think "business law enforcement, anti- monopoly law, reasonable regulation of SOE will happen anytime soon? Me neither. One then comes to the reasonable conclusion that . . .
Agree with the western provinces development is a hard job. The Grand Development for Western Areas strategy was first put out by Chairman Jiang back in 90s, but the progress is not very satisfying. Xinjiang/Tibet/Qinghai together covers about 1/3 of China's territory but only have 30 million population.
China recently proposed a new round of Grand Development (guideline policy announced on 17 May), I think it focused more on helping coastal area manufacturing capabilities move or expand in western area, and try to sell products in Central Asia and to Europe by train. It also mentioned upgrading schools and hospitals, enhancing cable and mobile network infrastructures etc.
Thanks for your thoughtful engagement with the post, Ding Kang. It's worth mentioning upfront that any discussion of "development" in the Xinjiang area is obviously affected by the concentration camp network there, which reveals I think a problem with the traditional vocabulary for understanding China's development--the very word "development" obviously doesn't even address the question of justice, which invariably must be raised when millions of people are being forcibly imprisoned/deprived of their most basic liberty in some fundamental way regardless of the word we choose to use. Of course this goes back to the larger narrative question, the CCP DOES try to define justice merely as economic development (albeit development for some, and with the most significant benefits going to the CCP elite), with no discussion of other questions traditionally associated with justice (getting what one deserves, freedom and liberty, autonomy and choosing one's own path, choosing the right laws and form of government, daily questions of right and wrong and having the power to organize to correct them, etc). And as I've tried to make clear, I think those of us in the West who care deeply about the question of justice should also be willing to discuss the failures of our own society, while also constantly asking the CCP why it won't allow its own people to do the same.
But on the pure economics, and I'm expanding this beyond Xinjiang/Tibet/Qinghai to include the southwestern provinces and the northeastern ones, i.e. all the low GDP provinces, at this point, any new government "proposals" or "policies," with the exception of investment/subsidies for new tech research, development and entrepreneurship, are more or less meaningless in my view.
In other words, if you think about China's grand development since 1978, you've had the unleashing of private incentives in about half (give or take etc etc) the economy, plus dramatic reform in the state sector combined with partial use of market pricing mechanisms there to increase efficiency. But the state sector is really only good at one thing--massive construction projects which require huge capital expenditures and regulatory approvals at the highest level to overcome any political obstacles. That was awesome for a very long time (the 80's, 90's, and 2000's basically) as the country built up all the modern technological and infrastructure apparatus and improved everyone's lives incalculably of course! But as I've said elsewhere, the problem in most low GDP places in China isn't that they don't have cell or internet service ("mobile network infrastructures" as you noted) or buildings usable as schools or hospitals (although these could always be better, hospitals in the vast majority of Chinese cities aren't lacking in basic medical equipment). Those things are relatively straightforward to build (once you have the political economy set up in the right way, which the party to its credit managed to do after 1978), and they've already done that.
So every new "policy" which promotes more of that is more or less a waste of resources. Imagine an alternative world in which "reform" actually meant... reform! In other words, what if the government announced it was dissolving 80% of the SOE's in a given 县 and transferring the assets to private families. Depending on the areas, you could be looking at a few thousand extra RMB per month, per family (obviously it depends on the area and the extent of SOE/gov't reform). This would provide a massive new market for better housing, better education, better health care, better food and food safety, and so forth--in short, an economic boom! How much better would it be for the local people in China to have all those sectors booming with growth (obviously, there are many opportunities in these areas simply because China is a massive economy, but not because the government has massively increased the share of income going to the average person/household in China). Or what if the government suddenly announce that the judiciary for business law would be truly independent, and that to register a business in nearly any industry you simply registered online and away you went, without having to kiss the ring of the head of the local relevant government department in order to get a license, and figure out which private companies he (almost always) is secretly supporting, and who his enemies are, and therefore how you can finagle your way in to getting the license, or getting the subsidy, etc, i.e. all the things all of us who have operated successfully in China know we actually have to do. How much less tired, and more successful, would we all be if we could focus merely on the business, not on the politics, and let the best man win! Those kinds of reforms would be massively exciting. The US equivalent for someone like me would be not listening to f*cking Wall Street so much anymore as they sell the country down the river and actually create a more equitable economy at home with less inequality and therefore greater domestic demand to the benefit of all Americans. That's the kind of economic talk that gets me going (personally)!
Thank you for the warm and kind reply. Very educational and thought evoking. Let me share a few things from my personal experiences -
- camp vs development: There are 8.4 million Han Chinese in Xinjiang. If the great and lovely Uyghur people (10.0 million) set up their own nation state, I think China still has a legit cause to develop the Han majority area. There are 18 other ethnic groups (3 million in total) residing there as well.
- private business and CCP manipulation: I would argue that CCP is quite pro business in general. But the environment varies a lot in different parts of China. As you mentioned, low GDP growth areas are in general not very business friendly.
- recent provincial exchange of officials: For 6-7 decades, the CCP officials usually will be granted a cross-province position when they are above city level (厅局级正职以上方可跨省任职）, after 2016, they are allowing county level and will gradually lower to village level. This will gradually change the local government administration atmosphere.
- business registration and ring-kissing: Zhejiang province put out a 'one-time at most' scheme in 2016 (最多跑一次）, that all business registration and any other government related approvals can be done by one visit to the town hall (every county level government will concentrate all business related functions to a same building). This scheme is pushed to almost every province now. I opened a small firm in Dalian last year, and it is done by one visit. I hope the business environment will get better and better.
- local SOE privatizations: China is quite keen on this front, they put out PPP reform in 2015, after a set back in 2017, the newly adjusted reform is doing quite ok. the accumulated PPP projects are more than 10,000 and the total investment surpassed 14 trillion. Most of the new projects have to involve private investors.
- school&hospital in the west: this also means they will hire more people from China-proper.
Many very fair points. To me, China's biggest growth potential lies with its still-to-be urbanized population and human capital. On urbanization, China is now 60% compared to OECD's average 80%. China's higher education obviously isn't world-class and it may never be, but the university graduates do carry way significantly more skills than the previous generation. In TFP terms, a Chinese worker is now about 2/5 as productive as their US counterparts; if you think Chinese workers could reach 3/5 with the increasing human capital, then China still has lots of growth potential to sustain China's rise but not necessarily catching up.
Hi Owen, Thanks for the nice engagement. These discussions are really honing my thoughts as well and I'm grateful for the opportunity to have them. I agree a lot of people have been predicting China's decline since the 90's, both for political reasons (people like Gordon C. Chang who make strong pro-freedom arguments but without an understanding of the underlying economic situation, imo) and economic reasons (lots of free marketeers with no understanding of the ability of government to successfully invest in massive infrastructure projects in developing countries). But I would say, simply dismissing macro arguments doesn't appear to me to be feasible, because even in your thoughts, macro data like urbanization still must be used, so I don't see how we get away from it. We just need to choose the right data, and have the right/best understanding we can.
As you can probably tell from my arguments above, I'd tend to agree with Dan Berg on this one, "urbanization" in and of itself just means people moving from the country to the city, but the decisive question is, what do they do once they get there? Just having people live in closer proximity to one another doesn't automatically create growth, it's a question of what economic activity they do, so the macro data doesn't capture the real situation (as it often doesn't and as you noted).
Gains in education certainly make the population's POTENTIAL much higher, but in an economy where 50% of resources are controlled by the state and deployed very inefficiently at this point (mainly in infrastructure projects), and just 40% of money ends up in private hands (household consumption), the question is will the country be able to USE the great potential of its people. That's precisely the issue, if the CCP actually were to transfer a massive amount of state-owned assets to average people, and dramatically raise incomes, well you would have an absolute boom in demand for education, better (affordable) housing, better food and food safety, better health care, and on and on, and that would provide incredible opportunity for the educated young people (who are ready and raring to go as you noted). In addition, if laws, monopolies, corruption etc were much improved in the poorest rural areas, combined with dramatically growing income, people could urbanize in their booming local areas rather than moving to the top cities (the difference in GDP per capita between the poorest Chinese provinces and the richest is like around 7 I think, where as in the US Mississippi is about only half as poor as the richest state, excluding DC, and that has to do with better institutions in Mississippi as compared to the poorest Chinese provinces, i.e. even the poorest US states still have reasonably uncorrupt government and enforcement of business law).
But with only 50% of the country's resources being used efficiently, and far too high a % of the economic gains going to the government and business and the ultra-rich for savings and investment rather than the average person for consumption for a better basic material life and opportunity and health for their children, the country is massively hamstrung. Sure, migrant workers can go to the cities and get jobs in construction building more needless infrastructure (which is what they do, of course you can be a kuaidi xiaoge, and then a waimai xiaoge, the 50% private is incredibly innovative, but it's crushingly just half the economy or so), which isn't productive so shows up as debt, so debt explodes, and then you need more stimulus for more needless infrastructure, and around and around it goes until the GDP growth target can't be reached anymore and everyone realizes building more is futile and the economy stagnates. That's the basic economic situation, which of course coexists with an innovative and thriving and exploding internet and tech sector, but that is severely limited in its impact by the massive state involvement in the economy and the unequal distribution of final income between gov't/business/the ultra rich saving and the average person consuming.
Thank you David for engaging with me constructively as well. I also learned a lot from your writing. I’d certainly agree that macro structural conditions matter a great deal—my response was a reaction against swinging too far to the macro direction to the extent we ignore the micros—because ultimately it is action (taken by specific individuals) not just conditions (all the structural ones) that propel social change. But if I were to analyze China’s political economy seriously, I’d at least do it in three-levels, namely the structural (demographics, public finance (debt), infrastructure, etc.), the institutional (property rights, IP, private&public economy, etc.) and individual (human capital, work ethics, etc.). All three levels are interlinked and exerting influence on one another. All three are important. I think we often tend to exclusively take a top-down perspective (structural to individual) but dismiss the bottom-up avenue exists (better educated individuals could drive institutional, even structural changes; think of, say, Jack Ma). My comment was meant to push back on that but in no way to reject the other.
I agree with Mr. Peng and Fukuyama that urbanization without industrialization is problematic. The most salient examples are in Africa. People moved to cities en masses and slums emerged as a result. In China’s case, I think the government is aware of the risk and does not want slums to appear in cities. Unlike Africa, they also have the state capacity to regulate the migrant flow and force people out as they deem necessary (“the low end people” in Beijing). But I think rapid mass immigration to cities only happened in a few mega cities; in the rest of China urbanization mostly took place gradually and naturally. Of course, there are exceptions, particularly when the local government wants to grab land from famers for real estate development or to achieve some quick poverty reduction goals (moving people from mountain top to townships). Those people face real problems finding jobs. But overall, I think China’s urbanization proceeded orderly and gradually. That is good because they allow the job markets to develop. More people do create more demands. That is the lump of labor fallacy I warned against. But only if the process happened gradually can labor market develop. You really want the new migrants to mingle and be employed by non-migrants otherwise you risk having a enclave economy like in slums.
I totally agree with the institutions. China needs to improve its institutions to continue to release its people’s potential. Yet institutions can’t get the work done alone and can’t really sustain itself. There are people like Deng and Trump who can change institutions from above and countless policy entrepreneurs at the local and central level (Tightening party control is not gonna help such entrepreneurship for sure). Not to speak of SMEs and middle class that have pushed and will continue to push for better governance and institutions. My point was that if these people become more educated and cosmopolitan-minded, the chances for better institutions will increase.
Better infrastructure, especially of transportation and telecommunication, will facilitate connecting creative minds. China’s e-commerce would not be where it is today without the excellent logistics infrastructure. It may have decreasing returns but overall I believe it is better than debt-sponsored consumption.
The very smart Larry Summers has an interesting answer when asked about building airport in China (cited in full below). The same can be said about industrial policies. Larry's answer is more nuanced than the much-teased popular memes such as "bridge to nowhere" or "picking winners." The problem with reading only macro data and newspaper articles is people may never get to appreciate such nuances.
" You’re a rapidly growing Asian country, and you decide to build an airport somewhere where there aren’t very many people. You do that because it’s going to be cheap to build it now, when there aren’t a lot of people around, and it’s important to establish the land. Then 15 years later, if you’ve grown fast, you’re a brilliant hero of masterful long-term planning, and if you’ve grown slow, you’re an idiot who’s building an airport where nobody wanted to go. It’s hard to know which is the case. The Japanese probably look stupider than they really were because they built in anticipation of more growth than they, in fact, were able to generate. I don’t know quite what’s going to happen with respect to China. It’s not unlike Dulles Airport. Today we think of Dulles Airport as an important strategic stroke that cemented and made possible a hugely vibrant technological economy in Northern Virginia. I’m old enough to remember in the late ’70s or early ’80s when it was a generation after Dulles Airport was built. It was a ridiculous idea, built a million miles from anywhere, and like, “Why did we build that?” So it’s very difficult to judge some of these infrastructure investments except in the very, very long run. Even when you judge them in the very, very long run, you can make a judgment ex post as to whether they were a good idea, but even then, it’s going to be even more difficult to make a judgment about whether they were ex ante sensible or ex ante not sensible"
Great Analysis! I read Fukuyama's book on Greece, he also mentioned urbanization without proper industrialization will usually lead to stagnation and political decay. Things will go worse if poor provinces don't enhance business friendly environment, since the central government is subsidizing these provinces and the urbanization there will look more like Greece or Southern Italy. Local officials get lazier and more corrupt by distributing the free subsidies or relentlessly raise debt.
- Maybe some of the westward development policies are encouraging these provinces to nurture more meaningful export oriented manufacturing businesses. But again this goes back to your earlier comment on exporting to a poor neighboring country will make no sense at all.
- Enriching the laobaixing ( Bannon is using this term very often :-)
-- I wouldn't entirely agree that CCP cadres are just greedy m*f*ers. They are gradually transferring SOE assets or their profits to fund the retirement fund and healthcare insurances.
-- Split the SOE and give each citizen a fraction. This is discussed quite vividly in 80-90s, which to my understanding is one of the suggestions in Washington Consensus. CCP may think that didn't work really well in Russia/Eastern Bloc post USSR. Part of those fractions was somehow purchased by Tycoons at very low price. Or is this just a misinformation campaign by CCP? Never got a chance to study well.
----- This can be better executed now with 2020s tech. Maybe every citizen can get a digital currency wallet and contains a piece of SOE stock portfolio and no super rich can exploit them easily? But if they can't sell it immediately that is quite similar to gradually transfer those to pension accounts.
- In all, am still a bit confused by how to effectively dissolve these SOE assets. They are huge. Maybe sell it to private owners by auction and then distribute the cash to 1.4 billion LBX? It will be about 10,000 USD for each citizen using 2018 National Assets Report (to the NPC) number.
I've never understood the continuing urbanization argument; another 200-300 million poorly educated people wander into the cities - and do what? That's assuming the hukuo system is abolished - which I dont think is going to happen. How would they go about raising workers' productivity 20%? How long would that take? Sounds like a good idea - why dont we (and everybody do that?
It almost has nothing to do with Hukou. Urban Hukou is only 40% now but urbanization is already 60%. I'd suggest you look at the micro-level because macro only can tell you so much: consumption, investment, government spending, exports... it's static and boring. I've worked with many migrant children and in cities and in rural areas, the strong urge of rural youth to go to cities is what may continue to drive urbanization. Please don't fall to the lump of labor fallacy. As for worker's productivity, again, with more human capital of at the individual level (not "everybody" has witnessed such a huge increase of education attainment) it is not entirely unthinkable. The macro people had long predicted China's decline since the late 90s.
wow, you're right; it wasn't there. Infrastructure: building hi-speed rail to no-where (oops: remote communities) results in higher debt, no return on investment; solar power farms and wind generators for subsistence farmers?! Result? (see first example) Rail routes to no where (oops: Pakistan, Iran, Afghanistan) (see first example). My favorite: "If you . . .look at any number of propaganda docs . .. (one learns that) the Chinese govt (i.e. CCP) do put their people first."
Oh my; I'm afraid we are looking at 2 different countries
You have no idea how the US west was won (sic!). You may scoff but the railroad opened up the American west, same as will happen in China.
As to higher debt in China. This is easier to overcome than public debt in the US which to China's disappointment it foolishly financed for 20 years and will no longer be doing it. Chinese backing US Treasury notes made for the US invasion and war in Iraq and the war in Afghanistan and pays Mike Pompeo's salary. It seems you overlooked that.
So for me, the sad thing for America is that if you haven't already started up your business in China, American investment will likely miss out due to US foreign investment laws from now on. A pity that.
Hi David, The American west is often brought up as a counterexample, but when I looked at this issue originally, the essential difference which convinced me it wasn't a good comparison with China's current situation is that in the American west, you had a bunch of productive land with no people (post-Native American genocide) or infrastructure, so simply by having people go there to farm, and building infrastructure (railroads), you could create huge economic activity. In China, however, all the arable land is already in use, and there is already infrastructure to every major population center, so they can't really use the US strategy (have lots of unpopulated arable land and send people to it and build infrastructure to it).
On the debt issue, China's own internal organs (the IIF, for instance) calculate its debt-GDP at over 300%, up from around 150% in 2008--roughly doubling in a decade (again, I don't say that to be negative, it's just the situation). The question is, why the dramatic increase? From what I've been able to find out by reading the different views of the world's top macroeconomists on this issue, the answer is that the CCP has borrowed heavily to finance infrastructure investment (with the Beipanjiang Bridge in mighty Guizhou province being a poster child :) for this ), which hasn't been productive for the most part since the financial crisis which is when debt started exploding (since every population center in the country already had excellent infrastructure). So that implies a need for rebalancing away from putting so many resources into that area of the economy, but that's been politically difficult despite very frequent statements of intent from Beijing (as evidenced by the fact that consumption as a % of GDP has barely budged since Wen Jiabao's 2007 speech about unbalanced growth, from 33% to just 40%, not nearly fast enough to avoid the dramatic increase in debt or create sustainable domestic demand).
As for the US debt situation, I agree Mike Pompeo is an idiot, but China owns only about 5% of US debt and interest rates are at historic lows, so China not buying any more debt wouldn't have a big impact just based on the proportions. And I agree that it was foolish for the CCP to buy so much US debt since at best it pays out only 3%, whereas the Chinese economy was growing at 17% nominal for decades. They did it probably because it was politically easier to export to the US market than to transfer resources from CCP factions to the laobaixing and use domestic demand to support employment.
Again: agree; West in US led to California (8th largest economy in the world, Oregon, Washington, Alaska and a Golden Gate to the Orient. West in China leads one out into the desert and a hard border.
But my question to you:why is high and rising debt not a major problem ?
ref US Treasuries: given the export led economy they had no choice; what else could they do with the dollars?
Great Analysis. West-ward development also has a unique historical resemblance of '3rd line development' (三线建设) back in 60s when Chairman Mao tried to relocate certain industrial capabilities and populations to the western area, fearing a war with both USSR and USA, causing loss of the entire eastern area. This is when President Jiang was directly involved building a new Electronics 'facility' in Wuhan, and when President Xi was a middle school student. I think some of the previous and current westward development strategy has a thing linked with this memory.
- But also I heard the modern US nuke missiles will all come from the Arctic, so it might mean nothing whether you go west or go anywhere else.
A good enough Chinese infrastructure system leading west is to Iran+Pakistan+Afghanistan+5 Central Asian states. Altogether 420 million people lives in that region, that is 80+% of 10 ASEAN countries. But GDP per capita of Pakistan is now only around 1/3 of ASEAN economies（slightly better than Myanmar/Cambodia). China's westward strategy would be no match to the US' for sure. But it should be better than nowhere.
But there are great challenges -
- Islamism and the mainstream Atheism or at least Secularism in China. Can these two cultures work well enough? I have a high school classmates working in Iran, and he said the cultural challenge is quite tough. This should be a great topic to dive in. How is US business community coping this in Middle East market? Please kindly share some insights if anyone knows it well.
- Regional Stability. Both USSR/US retreated from Afghanistan. Can peace be finally restored?
- Economic development: Can Pakistan grow its economy to Indonesia level? How? Both countries have similar population and similar religion.
Premier Li announced last Thursday a 6 trillion stimulus plan, 2 for tax cut and infrastructure spending, 4 for cost cut for SMEs (pension fee/housing fund reform/electricity/gas/water/rent). The details for the stimulus package is not announced and probably won't be available for general public. But the investment analyst community in China have made some estimates:
- there will be around 500 billion tax cut and consumer coupons
- 1.2 trillion infrastructure spending (5G, Data Center, Cables, subway, roads)
- 300 billion spending on public education and medication
- the 4 trillion cost cut is not as well estimated because it is a fresh new announcement. But after the re-opening, some local governments directed the local SOE who owns ample commercial properties to cut the rent to 1/3 or 1/4 for small businesses.
Further expand/develop domestic demand is a long term task, but I think trying to re-distribute and invest in commoners, help them to get out of absolute poverty, enhance their sense of social security will in general encourage them to spend more. I do agree that relying on infrastructure spending won't be enough.
China is the biggest market now for Chilean cherries（88% of the total export). I think gradually people in China will consume more products all over the world.
Dan. You are right to question how China is going to "expand and develop its domestic market." When export prospects diminish Chinese consumers don't spend. China is still sitting on a huge asset bubble (real estate) which can't expand any more. When the asset bubble pops or fails to appreciate consumers will tighten their belts. On the supply side China's plan is a lot of infrastructure in the West an area with few people and little water not well connected to large markets. Xi's economic policies look like some of the worst economic policies from China since the Great Leap Forward era.
Trump is setting the tone for the election. He wants to use China to distract from his domestic failures. He's pinning Biden in this. If Biden doesn't mention China, Trump will calim Biden's weak on China. It will become a race between who can manage China better and not about good goverance for the United States. Either way, US-China relations will sour.
I don't believe China is too worried about this. By imposing the HK law, the government signaled that they are ready for whatever consequences may approach. The Chinese view on this is long term. They know that US policies can change over presidencies. Furthermore, I don't believe that this is the death of one country two systems as others believe. The law is China emphasizing that HK is, well, part of China. It's a reminder to HK and the world.
Beijing has done the sums. More to be gained from integrating HK into the mainland than losing HK's special trading privileges. HK is a big cog in the development on the Greater Bay Area but Beijing does not want a volatile city-state.
You are absolutely correct! Hongkong is a domino that China cannot permit to fall over. Already, we see that the HK resistance has emboldened Taiwan. While we can't gauge the impact, the massive rallies in HK must have strengthened the resolve of Uyghur and Tibetan nationalists as well. That, Xi cannot afford.
To me, it seems this is just the opening rhetoric of the beginning of what will be the darkest phase in US-China relations since the 1970s. The US and China will pursue their own course in what will start a process of decoupling in economic terms - while it won't be a complete decoupling, it will certainly spur a rethink on both sides on how to insulate themselves from the other in part.
Again I will say that Beijing has already prepared its plans more doubling up on BRI and acceleration of development of the 19 city clusters which involves bringing into the mainstream the 1bn odd who have hardly prospered from 40 years of growth. Plenty of room here to maintain a healthy growth rate. Should the world get through 2020 without conflict either over HK, Taiwan, Russia or Iran and should Trump get back into the WH then Trump will first clean-up Washington and then focus on how he sees America's role in the world; one of three superpowers living in peace by divvying up spheres of interest. Remember April 2017 in Helsinki.
All good points, Mr. Hunt. I would add that internal growth challenges are paramount for Xi. The government has to find jobs for 20 million-plus young people every year and that dictates the continuous expansion of his economy. (I taught 1-semester courses in international marketing and cross-cultural communication to university seniors in China for 10 years - employment was the number one subject of discussion for those young people!)
Concur. In his own inept way, DJT has set in motion the quiet reversing of those outsourcing areas that currently appear to make us vulnerable. That outsourcing was always based on maximizing US/Foreign profits and has taken place over many decades. It will take a lot of national policy willpower to sustain and I don't see that even getting started during the present administration.
I actually don't think Beijing cares what the USG response is, as they know the hardliners are in charge in DC, in both parties, and probably will be as far as the eye can see: the constant decoupling talk, the apparent determination to crush Huawei, the rumblings about restricting Chinese students intent on pursuing STEM studies and so on all make this completely clear. I think Beijing has always known that a day of reckoning was in the offing, the whole "韜光養晦" notion（"biding our time," for lack of a more nuanced translation), so bruited about in China over the last two decades, was a tacit acknowledgement of that. Beijing well knows it is playing the weaker hand, and that this condition will be the case for some time to come, so they have been trying to put off the ultimate declaration of outright enmity for as long as they could; but US policy is making that increasing difficult. With the timing of their new policy, Beijing is simply taking advantage of two current weaknesses: 1) Trump's incapacity for follow-through and 2) Covid-19 paralysis, to deal with what is to their mind and open-sore of a problem, that is Hong Kong verging on anarchy for the second half of last year and the real prospect that it might continue. HK's advantages to China are far less now than what they once were, and most of the place's "irreplaceable" functions can go either to Shenzhen, Shanghai, or Singapore, to little disadvantage to anyway save HK. To my mind, the HK opposition is not sufficiently aware of their Achilles heel.
This is a good analysis. Also, the CCP is taking advantage of the changes in domestic public opinion caused by the radical actions by HK protesters and recent US policies. Because of those things very few in China will criticize the HK National Security Law. If China tried this gambit one or two years ago I think there would have been heavy criticism within Chinese policy and academic circles, saying it is unnecessary, overly provocative and damaging to HK. Similarly, Trump's reaction to the new law also plays into the CCP's narrative. Chinese will ask why would the US be so upset by a National Security Law covering Hong Kong, a part of China? The obvious answer is that the US has in fact been using HK as a base to launch clandestine operations against China and this law thwarts those operations.
I agree with you completely on this. I was in HK last year, arriving Oct. 2 (thinking that by avoiding 10/1 any activity would have subsided, which it did, until the no-mask law came down that Friday and all hell broke loose--by the way one would never have realized the extent of the vandalism of public property by reading the Western media). I went to Changsha about 2 weeks later, then on to Shanghai and Hangzhou, and no one I talked to had anything good to say about the HK disturbances (so much for the US media reports that the HK activity was going to stir up anti-gov't activity on the mainland), even the liberals who normally have absolutely nothing good to say about Beijing. To the extent that the US is stirring the pot in HK, I'm not sure they have thought things through very clearly.
Taking advantage of “1)trumps incapacity 2) covid” + 3) 2 new Chinese aircraft carriers set sail 4) chinese/russian hypersonic missiles. I’d say the huffing and puffing about a military grab of Taiwan is likely and will likely occur before the US develops ubermensch (uberwomensch(political correctness(Pardon my french(i know it’s german))) missiles. How many war games has the US lost over the Taiwan objective? The argument against the the military objective of Taiwan is the expense which in my opinion may be subordinate to the timing with all inputs factored in. I’ll give it a 76% chance.
Classic Trump speech and policy. Mostly garbage bluster that will result in nothing of note. The only substantive actions he will take will harm the innocent and do nothing to advance the interests of the US. Add in some US isolationism and self-pity and that checks all the boxes for a Trump policy speech.
Threw a big fit about China making him look bad and blaming the WHO first, then said he would look into things about market and basically gave HK over to China. Nothing in defense of HK, it’s people or anything else. He gave in to markets and Xi. Tough on China president is Not tough on China
The scale of China’s production of goods and trade with the rest of the world dwarfs that of any other nation. Disengaging from China is rhetoric, for now, as no one else has the industrial capacity or skills to replace it. Any other country will also need to bear the pollution, upgrade its education system, and mobilize massive capital inflows to do so. Long haul.
Edward, I work in finance, the damage that the pandemic has done to demand is vast, we are only getting business financial data now. In Australia we didn't really have a hard lockdown, I the State I'm in at the moment, no lockdown at all really with zero cases currently. Still businesses have been ravaged the upper middle class who have the money to spend on "things" rather than just existing have seen their income imploding. I had a surgeon literally crying in my office that his income had fallen from $2 million a year to $100K. Rents are not being paid killing the wealthy classes income. The consequences will be that "decoupling" has already happened as the demand for China's manufactured goods is just evaporating.
Not unlike the depression there is a lot of manufacturing capacity, but not the demand to buy it.
Trump's speech failed on many fronts. As you noted Bill, it will not deter the Chinese to change course - they had conducted considerable scenario planning ahead of time before moving on Hong Kong. But what is even worse is that this speech will also fail to unite more countries from the Western world behind the US - especially the withdrawal from the WHO. Let me offer an illustrative example. Earlier today, when the foreign ministers from all member states of the EU met, Sweden was the ONLY country that made reference to the question of sanctions against China because of the move on Hong Kong. Yet less than an hour after Trump's speech ended, the Swedish foreign minister Mrs. Ann Linde has already issued a statement expressing how regrettable she and the Swedish government views the US:s action to leave WHO. That became the main takeaway - the abandonment of American global leadership - rather than focusing on productive countermeasures towards CCP:s action on HK. 适得其反。Sensible Americans, like yourself Bill, ought to reflect on that for a minute. It is not China's rise that now looks staggering, but rather the fall of American civility and rejection of global leadership. This is profoundly regrettable. As a European who has always admired America, it is deeply troubling to see turmoil you are in at the moment.
Ignoring Trump's bluffing words, one can only conclude this is NOT a strong response; a "proportional" one at best.
Trade is a separate issue, but so far it appears China is only purchasing half of what they are supposed to purchase. At some point in the near future, this will need to be addressed, but now I have realized that other than tariffs, there seems little Trump can do to cause real damage to China in this arena, because the CCP almost always deviates from "agreements" whenever there is a chance to cheat (so do NOT assume there is a strong "social contract" between the CCP and the Chinese people either, because it would be much easier to just trick them into believing "it is all the US' fault" should the Chinese economy tank).
I believe a next sensible move would be to put those tariffs back as soon as possible, but the myopic stock market would not like it, and as people know, when it comes to the stock market, Trump's hands are tied (at least for as long as his re-election campaign is going on).
Regarding Beijing's "heads I win, tails you lose" mindset in terms of the intensity of the USG's response, I think it is just a rhetoric device that justifies China's one-sided, unconstrained actions. I don't think it is a valuable point of discussion because what could ultimately restrict Beijing's behaviors would be counteracting economic and military forces in a realpolitik sense, not mere rhetorics.
I don't know who wrote the passage on Hong Kong but I thought it was very good. Especially the part on how hopes were high that China would open up and develop to be more like Hong Kong rather than HK getting freedoms closed down to the mainland level.
I also agree with the points about now having one-country-one-system and about the moves from Beijing being 27 years premature and the breaking of the Sino-British Treaty. It is a shame he has said some of these things before the British government given it is our treaty, but perhaps we will be willing to speak out now standing safely in the shadow of the US response.
The markets seemed to be fearing something worse, but perhaps the onshoring of key supply chains and the expectation that Chinese firms' market shares may be up for grabs soon is a bigger factor? If the US could successfully decouple from China and not depend on them economically then there would be no reason for the market to fall even if these restrictions do bite on China.
China has pursued multiple policies with the effect of making other countries reliant on it so they can wield power in abusive relationships. From buying huge amounts of FX to making a lot of key items very cheaply and flooding the markets with them. Also belt and road policies involve building unnecessary infrastructure and then loading huge debts on places that cannot repay it. They always threaten neighbours with turning off the tourist taps that put a lot into their economies, its a constant modus operandi and the only way to avoid it is to be self sufficient or at least not be reliant on Chinese supply chains.
While Trump's language may have been strong, his actions are weak. His entire America First would by it's very nature would dictate a weak response. With his decoupling from China will only make China stronger. If he tries to make the rest of the world choose between the USA or China, dont be surprised if they choose China.
Trump has only shortened the time until China becomes the dominant economic force on the planet. My concern is that there is a very real possibility of war as we sink to second place. It will be critical that the next president have a deft hand to counter the damage this one man has created.
Lets see: debt/gdp ratio around 350% of gdp, rising capital/output ratio, gdp growth falling, consumption stagnant, working age pop falling, retired pop rising and living longer, unemployment rising, exports falling, rmb falling, environmental degredation rising, water shortages increasing . . . How does this model create "the dominant force on the planet?"
Dan, i dont know which line of work u r in or how old u r. Those thing habe been cited for decades to Make predictions...everyone betting against China based on those seemingly obvious 'facts' has since died career wise (except the lucky few who can just talk for a living). Every single thing u cited is arguable and not what it appears. This IS not the place for a proper debate. But as a shorthand, isnt it self evident that the model has created a, if not dominant certainly equally powerful, force, on the planet? If youbfind yourself resisting that fact, then all other rationalisation and analysis would be a waste of time. And it s precisely why we are where we are today, having got China wrong fron at least 40 years, if not longer.
Hey Ken, I had a longer answer, and I agree we don't all want to be Gordon Chang's here (god bless him haha), but as you acknowledged this isn't necessarily the best format for a proper debate, so to go shorthand as you did, it turns out the the model China has wasn't "created" by the CCP as you said, but has been used by about 2 dozen countries throughout the 20th century. In every case, the key to growth was the government increasing the investment share of gov't and business and decreasing the household share of national income in order to goose growth by starting from very little and then building a ton of stuff, and this led to massive growth for about 30 years. During this time, the groups/families that controlled the major gov't and business investment vehicles became incredibly politically powerful, so when the things they built weren't needed anymore--for instance, on infrastructure, China already has excellent infrastructure essentially everywhere--the rational economic thing to do is to redeploy resources from this companies back to households so that they can spend it on other things (for instance, health care, education, better quality food, better quality housing, etc). That's politically difficult though, of course, because powerful and wealthy families aren't generally interested in giving up their power and wealth (and of course, China has completely failed to rebalance the past half generation, since Wen Jiabao's 2007 unbalanced speech consumption as a % of GDP has gone from 33%, the lowest in history for a major economy, to just 40%). So instead, they keep their resources and just keep building infrastructure (in the case of that particular sector, as in China), debt starts exploding, and growth grinds to a halt because a majority of national resources aren't being deployed in useful ways.
So the fact that China has had a generation of growth doesn't mean it will have another one, in fact, from the available evidence, they will follow the path of the other 24 countries who have used this growth model and stagnate, unless they can achieve the politically very difficult feat of transferring massive resources from elite CCP families in Beijing and in provincial governments back to the laobaixing.
At the same time, stagnation now still means they're the #2 economy, and they seem to be doing a good job of staying up with the US and possibly passing the US in some of the most advanced technologies, and are aggressively anti-liberal, so this isn't a prediction of a Chinese collapse or anything like that, just a description of what their economic reality looks like so we can have a clear understanding of what's going on over there.
Thanks David for a thoughtful answer. Sorry i cant do it justice with a proper reply. Suffice it to say that i find it useful and thank you. It is a bewildering subject. I just find confident pronouncements based on cliches frustrating, after so many years of listening to them. Time will tell in any case. All we can do is our best, to be slightly more right than wrong.
China is most certainly large, growth has been the largest in Chinese history, so of course it is a "force." Given that, which of my "facts" (your scare quote marks) are "not what it appears?"
I think US needs to appeal directly to HK people with both rhetorical and material (visas) support. Trump seems personally incapable of doing this, and America First seems unfortunately to make this strategically sound move (that more traditional Bush/Reagan conservatives should love) impossible.
Yep. That s the crux of the matter. Global Leadership and America First are in many ways contradictory. Only the most ideological fantasists think it s the the same thing. The rest of the world doesnt quite agree with them.
1. If we assume there is a sense of proportionality with regards to what is unwittingly inflicted on Hong Kong as a result of normalising its status with the mainland on the US side, that must mean what the US should be prepared to deliberately pursue against Beijing should at least be equivalent, or more powerful.
2. So, the price Hong Kong will have to pay will be high, but the US, in order to make their displeasure meaningful, will have to make Beijing pay more still. The critique that the US, by raising its stakes, accelerates the return of Hong Kong, thus playing into Beijing's hands, misses the mark - the US will go over the top, and demonstrate that doing so will be painful to Beijing directly. Punishing Hong Kong for being dissatisfied with Beijing makes no sense.
3. The joint statement with the UK, Australia and Canada, by definition a multilateral approach, hints at how a robust response to Beijing might be done. If you want to go fast, travel alone. If you want to go far, travel together. To the extent this is possible, a long term engagement seems likely to involve other actors.
4. Accordingly, the depth and scale of these sort of measures seem likely to go far beyond what we have seen in 'peacetime', and this will bring the relationship to new lows. How far it goes, and implementation, these policy differences are so big and important, that lasting and credible decision making should be done with the election in mind. Statesmen make tough decisions that last, so President Trump has his work cut out for him - whether or not he wins the election.
5. What does this mean for markets? For Chinese markets, as an emerging market, where political stability is usually more important, I think it is positive, because nothing focuses attention better than a common enemy, consolidating Xi's position. More fiscal spending in order to ensure a post-virus recovery will be good for the economy, and can be justified as a temporary salve to soothe things over with the vested interests. However, it also increases the debt burden, building further on an imbalance that will have to be reckoned with, down the road.
For the US, as a developed market, where corporate earnings is usually more important, this isn't my wheelhouse... so I, uh, don't know*. To the extent that US-China matters, it will depend on the extent of policy differences between Biden and Trump. The more they disagree, the more the uncertainty this creates, and so the higher the related stock market volatility, and risk to valuations. This first round will eventually be resolved once we know the election result, kicking off a second round aligned to the winner's preferences.
Well, the stock market did just fine during World War II, didn't it.
*investing legend Warren Buffett has been cautious, the younger hedge fund manager Bill Ackman, who is having a good year, is buying American, and the macro guru Stanley Druckenmiller + 'Finance Twitter consensus', as far as I can tell, thinks this is bad risk/reward, in that the stock market recovery has far outrun the underlying fundamentals - hopefully this gives a flavour of the range of opinion.
Long ago Xi has pegged Trump. He never would have proceeded against HK on extradition if he thought there was any chance of a substantive response from the US on his current move, which was certainly planned in advance.
President Trump would be wise to realize that, in spite of his throng language and proposed policy actions, Xi (and the CCP) will never, and can never afford to back down. The opposite of rejuvenation is humiliation. And Xi has likely pulled off the HK legal change due to perceived political vulnerability on the part of President Trump. But Xi would be remiss if he underestimates either President Trump’s resolve or America’s resilience. This is thereby the next step in a long-term strategic battle for influence and economic power.
The only resolve that Trump has shown is getting away from consequences for the crimes he commits. Unfortunately Xi seems to be mistaking Trump's personal weakness for America's. This mistake will have bad long term consequences for China and the world.
The policy debate will now focus on how tough the USA needs to get weighed against the potential for severe economic damage to BOTH countries and, by proxy, the world.
Of course, some people here spout nonsense like 'garbage bluster' or simplistic trolling such as 'trump is killing Americans'. In other words, they have nothing substantive to say.
So, I'll instead quote someone from today who actually knows what he's talking about:
“Frankly the U.S. government is -- I’ll use the word ‘furious,’ at what China has done in recent days, weeks, and months,” White House economic adviser Larry Kudlow said Friday. “They have not behaved well and they have lost the trust, I think, of the whole Western world.”
I'd be curious to hear if there are any rumblings in the U.S. about allowing some sort of "asylum" arrangement for Hong Kongers who'd like to flee (bringing their wealth with them) similar to the way the US, UK and Canada got a lot of investment/immigration from the uncertainty surrounding the 1997 handover. The British government seems to be dangling this as a possibility at least for about 300K who hold special passports. This would obviously be a highly inflammatory move if the U.S. were to undertake it, but it also seems to be a natural extension of the pullback on special trade privileges and could be a source of leverage, that is if the U.S. is sincere about trying to get China to back off versus resigning Hong Kong to being swallowed up by Xi prematurely.
As strong a symbolic move as this would be, there is simply no way in hell that the current administration would open the floodgates for Hong Kongers. Even though I expect not many would actually take the offer, it's simply not tenable for this POTUS to be seen advocating for increased immigration of any kind, given the way he's stoked his base over the past four years.
I am also interested in this. There has been some chatter in the UK, US and Taiwan about providing immigration paths for political activists, but I worry that given the current global trend to nationalism any kind of "refugee" arrangement is only going to benefit the Hong Kong elites who anyway wouldn't have too much trouble escaping to the west.
The people who are the least able to weather the storm of these crackdowns are the poor and working class. From a humanitarian perspective I think (comparatively) free countries around the world should prioritize opening the doors to them.
From a cynical perspective, I think it might also be politically advantageous to open the door to poor and working class migrants from China and Hong Kong, because seeing relatives who are just ordinary people legitimately doing alright for themselves in a foreign country is far better propaganda than having exiled billionaires or high brow academics go on political rants.
How much more in taxes are you willing to pay for these poor persons to come to America? Please answer with dollar amounts. And how many years are you willing to pay these extra taxes? In years. Thanks.
I agree this seems like a smart move from US perspective—visas and path to citizenship for HK people. As others have said, battle for both talent and ‘hearts and minds’ is very significant. If Trump hadn’t been elected on such strong anti-immigration rhetoric he might have been able to consider this more seriously. Are there other downsides I’m not seeing?
The first indicator of emerging markets as an asset class is offshore yuan trading. On Wednesday the dollar traded as high as 7.1963 against the offshore currency. All other discussions about the future will take time. I am watching the yuan being sold to buy the dollar simply on fears of a poor economic performance by China and its massive budget deficit this year. There will be collateral damage if the trend continues.
1. It’s time for Boris to offer asylum to all HK students, offer them a swift transfer into Russell Group universities and transfer of credits.
2. Any remaining British citizens still working in the HK Police should be investigated and if possible stripped of their citizenship.
3. HK Government officials and members of the CPPCC who hold British passports should have their citizenship taken away. The children of these people should be denied access to British universities.
Thanks for this Bill. Despite not much caring for the US president's approach to doing business, one thing you cannot say is that he doesn't try to do what he has set out in his original manifesto. At the time of the last presidential elections, I was living in the west and a friend pointed out that DT was actually taking part in the debates and process. But differently. I watched some 'debates' and thought he was actually taking the piss. I could not believe he was serious. Every other candidate would earnestly talk about employment, the economy and all that. DT would just say loudly 'look at him. He's got a huge nose! How can you take him seriously?' He may not have been but that was how it seemed to me at the time. By the end of the campaign, everyone else had changed to try to be like him. Of course, they were so much less practiced than him and so pretty useless at it. Remember, "You're Fired!!!" on the Apprentice?? As for his tweeting, it was and remains a total joke but look what has happened to Twitter! Just after DT started tweeting regularly and invited the top 50 US businessmen for a sit down, I read Jamie Dymon from JP Morgan had taken on board what DT was doing on Twitter and said that he thought it a great idea and that he'd do the same.
Being an investment strategist it was my job to determine whether or not the next US president would have a harmful effect on financial markets. So being a nerd, I looked behind the headlines, admittedly not very far as I stopped at his website. The first item was ... China. It said that on day 1 of his presidency he would declare China to be a currency manipulator which carries automatic sanctions (not sure what they are). So all this focus on China is set out very clearly on his website (I haven't looked lately but it was there in 2015 and 2016). It really shouldn't come as a surprise to anyone. For me, its not only the fact that he was pretty much the first person to call a spade a spade regarding China in the public domain, but he is also the first person to actually do something too.
Totally weak response and equity markets are likely to rip higher in the weeks ahead.. Other than invoking sanctions on the big 4 chinese banks or coming up with a bill to subsidize US MNC for ripping apart supply chains and reshoring them either in the US or friendly countries, dont think the Chinese are going to care much. In my opinion, the weakest link for the Chinese is the USD, i.e. the reserve currency. In a world where they are a current account deficit country, their ability to project power outside the country will be limited to their access to USD reserves. To that end, the trade pact served an important strategic purpose. Acting against the big 4 chinese banks or actively rupturing supply chains will accelerate this problem.
Trump's hands are tied wrt HK. On one hand, he needs to show toughness for Nov. On the other hand, he knows China will react with like4like countermeasures. Right now is definitely not the best time to create more chaos given Covid and the George Floyd mess. Plus, can you imagine what sanctions for the Big4 will mean? They are the payment rails for a big chunk of imports from China. LT decoupling makes sense. But can we do it tomorrow? What will that do to our already sparse store shelves and its resultant consequences?
As for the reserve currency, China knows that and has been working to circumvent. This video has a reasonably decent summary of what has happened so far and their ongoing efforts: https://youtu.be/LB7e-anNfaQ
btw its not a recommendation of a course of action that i am referring to. With respect to supply chains, actions taken now will have impact over the next 5-10 years. Thats why it is called a strategic course of action. As for the Youtube video, its a bit shallow in its analysis. When a developing country borrows from China, its in USD and when they default, who will bear the USD impact of the loss? As for internalisation of the renminbi, this started a few years ago but has stalled in the last 18months or so.
Grasshopper, his point on the developing country borrowing is that now they are more beholden to PRC and their influence of currency for payments. Rather than relying on the SWIFT hub and spoke, China is slowing setting up individual point to points with countries across the world, ala Southwest vs United
Lets keep the discourse civil? As for your internationalization of RMB comment, if you were in the markets, you would know that its a non-issue. What has been the growth of offshore RMB deposits, What has been the growth of trade payments in RMB, and what has been the growth of capital market activity in offshore RMB.. Suggest you check that out before you arrive at any conclusion on the success of this project. FWIW, i was closely involved in this project when it was initiated many years ago. With regards to your comment on holding the debtor country hostage, i agree that it works in the short run but in the long run, there is only so much any country will be subject to forced colonization. Besides if there is a default, china does not have the ability to print USD and that is the point that i am making. Also i doubt that IMF and the Paris club would be willing to bail these countries without a commensurate haircut from China.
Also, if you have had conversations with project finance bankers involved in this, you would know that Chinese banks have lent massive amounts of USD to fund infrastructure projects (with Chinese SOEs taking the equity stakes) in frontier emerging markets with the domestic infrastructure companies and governments taking the currency risk. If you had been trading during the 1998 asian financial crisis, you would know that most of these offtake agreements ended in tears with the local companies and governments defaulting or restructuring on it. These USD loans by the chinese banks are 20-25 year loans funded by shorter term debt in commercial markets - they have no natural USD deposit base. This ALM mismatch coupled with the enhanced possibility of a default cycle in these frontier emerging markets makes me wonder how the Chinese banks will fund the USD deficit that will ensue. Further the Youtube video has incorrect statement about Unallocated reserves. Pls see the link below for the correct definition.
Grasshopper, my goodness, you seem obsessed. 3 replies since yesterday AM, including one that you seem to have deleted. Oh dear, that’s not good. Hope you don’t get too worked up over this.
I never said that China will replace the US as the reserve currency. Go back and reread my comments, junior. However, they are trying to circumvent it by creating bilateral agreements with nations across the world. The threat of the US leveraging its reserve currency status to sanction China, similar to what it has done with some countries, is very low, at least in the near to medium term, given that we trade with China a lot and so does rest of the world. Nonetheless, no country feels comfortable with that threat. It is akin to giving up sovereignty. And this is not just felt by the Chinese, Russians, etc. but also the EU and other friendlies.
FWIW, I don’t think China is aiming for the RMB to replace the USD as the reserve currency. They must know that’s not gonna happen. And it also will not happen for any fiat currency. Now that they have seen what the US has done with it, the world will not accept another country holding jurisdiction over them. Fool me once, shame on you; fool me twice, shame on me. If and when the USD loses its status as the global reserve currency, and it will happen, either a basket or something else non-fiat will replace it.
I hope you enjoy the rest of your Sunday. Do something relaxing instead of getting all uptight over an online forum. I am taking my kids fishing :)
It is not Trump viz China or even Trump viz XJP. The UK, Canada, Australia are active in declaratory policy. France took the firmest line with "Wolf" disinformation re the origin of the virus. The Germans will not allow the EU to stray into the domain of principle, but if there is resistance rather than submission in HKG once the new measures come into effect, Chancellor Merkel will not hold the line. In Japan also the option of silence would be untenable. India, Vietnam, Indonesia will do nothing for HKG but they are resisting physical expansionism & will continue to do so--especially if USA does not rush in ...
All I can think of is this timely quote from The History of the Peloponessian War: “[some states’] over-mastering desire for victory makes them neglect their own best interest”. At the risk of mixing my metaphors, I would call this Pyrrhic although that would imply Trump will get a victory.
Trump has taken the strategic rivalry strategy and eaten it with a lump of e-coli.
But it certainly can apply to the entire reaction. Most Trump policy towards Chins is like this - hurts the American economy and long-term US power, but it is done just to spite China and try desperately to cause a collapse of the Chinese state. The Huawei ban hurts American companies and damages America's long-term technological dominance (by forcing an end to American monopolies in certain industries). Tariffs hurt the American consumer and business profitability. Restricting academic collaboration hurts American universities and America's technological leadership. Leaving the WHO damages America's global standing and ability to respond to future epidemics. It is primarily driven by ideology, fear and spite rather than rational self-interest. Of course "winning" is self-interest, but these policies actually won't help the US "win" in the long run unless the Chinese state collapses, which seems highly unlikely. As a result, I don't think China's leadership dislikes these policies. They just want to stop the US from poisoning China's relationship with other countries.
I don't think the Chinese state needs to "collapse" (what does that even mean in real terms) for some of these trade/tech policies to be effective. By setting them back for X number of years, you can increase your relative advantage very quickly in a battle for influence - remember its not easy to catch up on advanced tech across the entire breadth of the spectrum, especially when it requires enormous amounts of time and money, two resources that China (and to be fair every country) is running short of. The difference is that the US has had a long time to build that reservoir of power, technology, money, etc
Its not like China isn't trying to independently develop these technologies anyways - so the US is not sacrificing long term tech dominance (which is determined by long term economic growth regardless of any other factor) but instead trading short term corporate profits for a strategic blow to set the Chinese back. Is it worth it? Debatable, but at least it should be framed correctly
Yeah it will be interesting to see what comes out over time about what has been happening with the WHO and the US in the last couple months. I suspect the funding cut-off was a bit of a bluff, and they went straight to the WHO with a list of demands (Taiwan observer status, mea culpa from Tedros, install US compliant staff or oversight) and they were rebuffed completely. Backed into a corner Trump had to deliver on his threats, so it's flick a match over the shoulder and walk out the door.
You GOP Dip Tihs, American NEEDS China. Look at EVERYTHING that is MADE IN CHINA. 45% of all medicines Americans take are MADE IN CHINA. You complete trump Idiot!!!!
Respectfully thank you for the invitation to comment Bill. US actions towards China, and the latter’s responses to it. Your points of view were most informative and interesting. So were the views of those who commented here.
English is not my native language, so sincere apologies in advance for inevitable errors in grammar and syntax, especially if those errors come across as culturally impolite. Cultural protocols having been dispensed with, allow me to define the “promontory” from which I will base my thoughts re your request for a comment about US and China relations today.
Economic, cultural, political growth is an invisible but powerful undercurrent similar to the main undercurrents underneath our oceans. For lack of a better term, the outward nature of this undercurrent is political and economic but its main force is religious and ideological. And it dynamically alive. One cannot physically see it on the economic radar, but its location and destination can be tracked by the sound and heat waves it radiates in its wake.
This invisible undercurrent started way back, about 2,500-3,000 years ago. The direction it took followed the path of the moon- from the west to the east. Originating from India, it flowed towards China, then Korea, until it reached Japan. On its path disasters and calamities preceded order and prosperity that came afterwards. Approximately 60 years ago, this current started to move to the opposite direction. From the Asian east, starting in Japan, it is moving back to the western side towards India. It is like a stealth jet.
This shift and its path is characterized initially by economic and political turmoils but followed by prosperity. It seems political and economic forces cannot stopped this undercurrent but can only benefit from it. This undercurrent acts like an economic magnet that attracts benevolent forces from without or a plow that brings up to the surface benevolent economic forces.
From Japan and moving towards India, major economic shifts sprouted unsuppressed. Western economic entities gravitate towards it or native economic forces become strengthened by it. The times pan, though measured in decades, is apparent.
I can only surmise, the foundational force that propels this invisible current is very primal and humanistic in nature. This is my promontory. Having defined it, here is my brief view of your request.
The four countries - Japan, Korea, China, India, and beyond say Africa will benefit economically from this irreversible undercurrent. There will be inevitable hiccups along the way like this covid19 virus. But the benefits will occur, regardless of what the US will do. Perhaps, regardless also of what the internal power structures of China or even India will do as well.
But there is a catch. For this “living, benevolent and humanistic dragon” to march on and benefit all, it must be fed, or must feed on “inclusive” and “compassionate” actions.
Of course that is just a hunch. But there is a basis for that hunch.
Imagine if the Roman Empire, did the opposite in their governance. Instead of insisting on being “exclusive” and aggregating all the resources of their client states to themselves, what if they pursued equal prosperity and inclusiveness towards everyone including the barbarian states? What if?
Would the Germanic tribes invade and destroy them if these tribes are just as prosperous or even more prosperous than Rome? Would South Americans migrate up North, if they are more prosperous than the those up North? Water seeks its own level. But what if, by humanistic and collective choice, one make the water stop seeking other levels? What if we can make “water” be content at the level where it is now? This is inclusive economic growth.
If Japan, Korea, China, and India, learned from the Romans and does the opposite, like making their neighbors just as prosperous, or even slightly more prosperous than them, what would the world look like, 50 years from now? Instead of constructing expensive border walls, one can utilize that same money for more beneficial ventures.
Perhaps this is the direction that China is going with its infrastructure expansion. Ambitious but so far sighted. An improved variation of the European Union.
Moreover, the traditional model of export growth is exporting goods. But nobody ever tried exporting “utilities” on a massive scale. Natural gas yes, but how about energy? Energy industries, even if regulated in their profits are profitable ventures, done well.
What if one can create an enormous power grid spanning an area as big as Asia? The new Silk Road is already in place reaching up to Africa. The maritime silk road will soon be for Asia pacific islands. That is for transport. Imagine if High-Tension energy follows the same route.
It’s like expanding Rome’s walls, making it so wide and inclusive, it includes the Gauls, Germania, Asia Major and Minor, the Asian Steepes, and even Britannia. The only purpose of that wall is to protect the people inside it against the fierce northern icy winds.
If this is where China and possibly India is going, wow! If the four - Japan, Korea, China, India can only work together peacefully like long lost brothers, wow! That invisible undercurrent will expand beyond the Asian shelf to benefit the entire humankind. Peacefully.
That’s it! Thank you Bill for the invite. Apologies if my comment was too long and have abused your hospitality.
good grief! (that's an American bit of slang meant to convey amazement and disagreement): "Perhaps this is the direction China is going with its infrastructure expansion": direction seems to be towards Xinjiang, not an "improved European Union."
Trump‘s irrational policy makes it difficult for European leaders to do what would be extremely necessary towards China: stand united. The West‘s division will leave China as the only profiteer - as we can see now regarding Hongkong.
Playing poker with Trump is an easy task. He loves to bet his opening cards, and then double down regardless of what the next cards bing to his hand, noticing that he bluffs with impunity, all Xi has to do is stay with Trump, don't fold unless his hand is pairless, but hold until that last card, the River card shows up and leaves Trump with nothing but a high pair. You can call his bluff, for he will waste money in order to bluff for he wants to win every hand and of course that's impossible. China will end up outplaying and outmaneuvering our moronic bluff of a President, that is unless Xi is not good at cards and calling bluffs.
His history is the bluff. I call raise and call him. His analytical powers are sophomoric. His thinking is predictably reactionary, dull, morose, and prosaic. Thus far US Companies have suffered a 1.7 Trillion dollar loss in company value. His understanding of the international global economy is non-existent. China has the manufacturing capability of which the US lacks. The country that manufactures wins wars.
Lets assume your characterization of his personal characteristics are true (I dont think so, but . . .). My guess is that the country with the aircraft carriers and the allies (Japan, View Nam, Australia, India, Singapore) wins. But we certainly dont want to find out!
Several conservative online sources have stated that during war games with China around Asia, China has beaten US most of the times. Welcome others who may have more reliable info as "online" has risks of being "fake".
Your suggestion that Japan, VN, Aus, India and SP to aid the US, especially if they fight in the Asian theater, is highly doubtful. Maybe moral support.
Brinksmanship is how Trump sustains the illusion of being thr Great Negotiator - actially Great Illusionist.
As Xi knows he'll come back to the table and the endless one upmanship will restart post COVID I
A circular game only ended when Mr.T trips on his own rhetoric and implodes once the Pandoras Box of horrors that's been.brewing springs open in early Fall.
November will be bloody - hopefully only metaphorically, since the Republic trully faces Civil War II whatever the election result.
Weak sauce. If it's not sanctioning the big 4 banks, forced removal of all US/Western supply lines/manufacturing from China, sanctioning/freezing/seizure of assets of top PRC officials and their families in the West, or banning of PRC propaganda from Western platforms they don't care.
None of these (other than vague sanctions mention) were put on the table today, but do people think they could be should things escalate? What would come first? What would never happen?
Our policy should be to defend liberal democratic values at all costs. The question should always only be what actions can we take best to further that goal. Any commentary or position which fails to address this question head on without attacking the person asking this question is a fail.
supply chains are BILLIONS of dollars, constructed over decades, financed by the hedge funds and investment bankers who decide the daily movement of the stock market. clearly globalization, going back to the Clinton-Blair era, failed to foresee the consequences of the off-shoring of this, but now it's done. In the absence of a war, I'm not sure that any president, even one less besmitten by Wall Street than Trump, could reverse this. Yes, most of the huge corporations that have set up shop in China have lost money, but they are still betting both on cheap Chinese labor and the growing Chinese middle class for the next 50 years...
that's correct; Mexican labor is now cheaper than Chinese; is this the same "middle class" with the lowest consumption/gdp in recorded history? average income around $4-5,000/yr?
Respectfully reposting. It seems the previous comment didn't get through the thread.
Respectfully thank you for the invitation to comment Bill. US actions towards China, and the latter’s responses to it. Your points of view were most informative and interesting. So were the views of those who commented here.
English is not my native language, so sincere apologies in advance for inevitable errors in grammar and syntax, especially if those errors come across as culturally impolite. Cultural protocols having been dispensed with, allow me to define the “promontory” from which I will base my thoughts re your request for a comment about US and China relations today.
Economic, cultural, political growth is an invisible but powerful undercurrent similar to the main undercurrents underneath our oceans. For lack of a better term, the outward nature of this undercurrent is political and economic but its main force is religious and ideological. And it dynamically alive. One cannot physically see it on the economic radar, but its location and destination can be tracked by the sound and heat waves it radiates in its wake. Like a slow stealthy vehicle.
This invisible undercurrent started way back, about 2,500-3,000 years ago. The direction it took followed the path of the moon- from the west to the east. Originating from India, it flowed towards China, then Korea, until it reached Japan. On its path disasters and calamities preceded order and prosperity that came afterwards. Approximately 60 years ago, this current started to move to the opposite direction. From the Asian east, starting in Japan, it is moving back to the western side towards India.
This east-to-west shift and its path is characterized initially by economic and political turmoils but followed by prosperity. It seems political and economic forces cannot stopped this undercurrent but can only benefit from it. This undercurrent acts like an economic magnet that attracts benevolent forces from without or a plow that brings up to the surface benevolent economic forces.
From Japan and moving towards India, major economic shifts sprouted unsuppressed. Western economic entities gravitate towards it or native economic forces become strengthened by it. The times pan, though measured in decades, is apparent.
I can only surmise, the foundational force that propels this invisible current is very primal and humanistic in nature. This is my promontory. Having defined it, here is my brief view of your request.
The four countries - Japan, Korea, China, India, and beyond say Africa will benefit economically from this irreversible undercurrent. There will be inevitable hiccups along the way like this covid19 virus. But the benefits will occur, regardless of what the US will do. Perhaps, regardless also of what the internal power structures of China or even India will do as well.
But there is a catch. Suffering and misery awakens this dragon. However, for this “living, benevolent and humanistic dragon” to march on and benefit all, it must be fed, or must feed on “inclusive” and “compassionate” actions. Otherwise, it buries itself back and the suffering, and the prevailing sense of powerlessness stays.
Of course that is just a hunch. But there is a basis for that hunch.
Imagine if the Roman Empire, did the opposite in their governance. Instead of insisting on being “exclusive” and aggregating all the resources of their client states to themselves, what if they pursued equal prosperity and inclusiveness towards everyone including the barbarian states? What if?
Would the Germanic tribes invade and destroy them if these tribes are just as prosperous or even more prosperous than Rome? Would South Americans migrate up North, if they are more prosperous than the those up North? Water seeks its own level. But what if, by humanistic and collective choice, one make the water stop seeking other levels? What if we can make “water” be content at the level where it is now? This is inclusive economic growth.
If Japan, Korea, China, and India, learned from the Romans and does the opposite, like making their neighbors just as prosperous, or even slightly more prosperous than them, what would the world look like, 50 years from now? Instead of constructing expensive border walls, one can utilize that same money for more beneficial ventures.
Perhaps this is the direction that China is going with its infrastructure expansion. Ambitious but so far sighted. An improved variation of the European Union.
Moreover, the traditional model of export growth is exporting goods. But nobody ever tried exporting “utilities” on a massive scale. Natural gas yes, but how about energy? Energy industries, even if regulated in their profits are profitable ventures, done well.
What if one can create an enormous power grid spanning an area as big as Asia? The new Silk Road is already in place reaching up to Africa. The maritime silk road will soon be for Asia pacific islands. That is for transport. Imagine if High-Tension energy follows the same route.
It’s like expanding Rome’s walls, making it so wide and inclusive, it includes the Gauls, Germania, Asia Major and Minor, the Asian Steepes, and even Britannia. The only purpose of that wall is to protect the people inside it against the fierce northern icy winds.
If this is where China and possibly India is going, wow! If the four - Japan, Korea, China, India can only work together peacefully like long lost brothers, wow! That invisible undercurrent will expand beyond the Asian shelf to benefit the entire humankind. Peacefully.
That’s it! Thank you Bill for the invite. Apologies if my comment was too long and have abused your hospitality.
Speaking of Taiwan ... Despite the Wuhan coronavirus (COVID-19) pandemic, Taiwan registered 1.54 percent economic growth during the first quarter, the highest of any of Asia's Four Dragons and one of the highest in the world. https://www.taiwannews.com.tw/en/news/3941096
We are at the beginning of June. Elections are in November. New term starts in January. Even if ultimately reelected, Trump is a lame duck for now, and China will not even need to respond, whatever he says.
He wasn’t specific. However, whatever the specifics may be, if they follow the scheme and broader actions he listed, they’re set to be very harsh, even without factoring in retaliation and counter retaliation. He said clearly HK status will be revised. He doesn’t look like he will backtrack from that. Looking at November, China turned into the pillar of his re-elections campaign. Above all, it is crystal clear to anybody that China is ‘enemy’ number one. China is on target.
Heard rumors that the administration had been considering using IEEPA to declare a national emergency. If that's true, what was announced is a significant scale-down.
Trump has no policy on anything aside from getting reelected. He's tough on Cuba and Venezuela only because of the Florida vote. On China, like almost everything else, he simply assumed that if he yelled and screamed, they would...what? Fix the trade deficit? But China realized that Trump is a paper tiger and didn't roll over. Now he doesn't know what to do. If he "decouples," the markets tank and US economic recovery is all the more problematic. So he cuts ties with the WHO in the middle of a world pandemic as a proxy for hurting China, which is nonsense. Like many on this thread, I'm all for a reset of US-China relations, but the US, as far as I can tell, has no policy at all that looks beyond the day's news cycle
Absence of policy and absence of strategy, correct. Look at rare earth:
- April 2017 Xi came to see Trump in his kitschy golf club.
- June 2017 the Molycorp bankruptcy admins sell Mountain Pass in California, the largest rare earth mine on the American continent and the 3rd largest operating rare earth mine in the world, a billion dollar asset, for US$ 20.5 mio to a China-controlled consortium, even though there were higher bids from elsewhere.
- In August 2017 CFIUS approve the deal.
- In November 2017 Trump went to Beijing to celebrate everlasting China-US friendship.
One could certainly get the impression, Mountain Pass might have been Trump's tribute to Xi.
It took the Trump administration more than a year to figure out, that they had been screwed over royally and that the US might have a problem. That problem can't be solved, without admitting the foolish primary school student blunder of letting China have Mountain Pass.
There might be the one or the other who says, China has only 9.9% share in Mountain Pass. That is naïve bordering on stupid. 9.9% are held by Shenghe Resources, a subsidiary of rare earth giant China Aluminum and the rest is held by Oaktree Capital established vehicles. China Investment Corp is considered to be Oaktree's largest customer. Go figure.
Agreed. Not even that any more. All news i dont like is fake news...so....
Behind the bluster, it's clear that there are quite a few career officials within the Washington bureaucracy working to craft anti-China policy. It's simply that Trump unfortunately isn't a very effective messenger for it. I expect we'll get a better idea from the next POTUS.
Bill.
Based on my time at the NSC, State, and US Embassy Beijing, I think the Rose Garden presentation was a the logical result of Secretary Pompeo's declaration that Hong Kong no longer enjoys a "high degree of autonomy" as set forth in the 1992 Hong Kong Policy Act (and the 2019 HKHRDA).
The extradition treaty and export controls are probably the two most import areas of Hong Kong differentiation on trade/law enforcement from the Mainland. As you say, this is the beginning of the process, which is a natural follow on. Pompeo added a bit of additional "umph" by having Trump say State would issue a travel warning to executives going to the HKSAR; and decent risk officer at a large American company would already be aware of that risk, even if they have not altered their networks to reflect that recognition.
The authorities to go after specific PRC officials was granted in the global Magnitsky act, then reaffirmed in the HKHRDA. Those have been there and the question now is, who, if anyone, is actually targeted (Xia Baolong? Han Zheng? Li Zhanshu?). That and what financial institutions, like the Bank of China international? So I didn't see the mini speech as announcing new policies in those areas, rather reaffirming existing authorities. Of course, naming anyone in the PRC government would be explosive so I don't discount the impact, just noting that saying a process is underway does not actually change anything.
The push for greater oversight of PRC-listed companies, as you say, has been in the works for a while. Here I believe the Administration is following Congress (Sen Kenney's bill which passed by unanimous consent) and grabbing onto something that people on Wall Street see as a problem (except for the exchanges themselves which benefit from the status quo). This issue of providing working papers is solvable, although at this stage CSRC probably is not too keen to find a solution.
Finally, as the stock market reaction has indicated, by NOT mentioning the US-China trade agreement (while having Amb Lighthizer and Secretary Mnuchin as part of the flanking group). My read, having been in meetings a few times with Liu He and staffed Amb Lighthizer during visits to Beijing, is that for the moment, both sides believe the "deal" is worthwhile keeping. It is a very modest agreement -- I called it a "bamboo agreement" at one point: hollow on the inside, Chinese on the outside -- so keeping it costs little. The U.S. simply agrees not to levy new tariffs based on the Section 301 investigation. China can continue to buy U.S. exports and liberalize the financial sector -- which was offered up when President Trump paid his state visit way back in November 2017. Since the first check in for export numbers do not come up until AFTER the Nov 2020 presidential election, no other objective metrics can be used to claim China is cheating on the agreement. Now, at some stage, the political usefulness of the agreement may wane for the U.S. Administration, but my friends at MOFCOM are working hard to ensure if the agreement blows up that fingers will point to 1600 Penn.
Warmest from Bay.
James
Dear James. Wondering if you can further point out the meaning of Rose Green Presentation. Eager to learn, but didn't find anything by Googling it.
Great Post, thanks for sharing!
what are your thoughts on the near term (next few years) prospects for the chinese economy?
As is the case whenever the T-word is mentioned a lot of the comments here are focusing on the President's thoughts, motives, and actions. To me the speech, which had minimal "improvisations", sounded again like someone with a fairly coherent and well-informed thought process wrote it, and it included all the major expected announcements.
I think from a policy perspective, having the President declare that "one country, two systems" is dead has pretty far-reaching implications, as that is one of those CCP key concepts that it uses to maintain the illusion that it can't do whatever it wants with Hong Kong. With that fantasy now dispensed with the U.S. can move forward in a more direct manner to dismantle the many loopholes that the CCP has created for their own benefit in this system, such as shady cross border land deals, fraudulent loans, money laundering, sock-puppet companies used to secure foreign capital and IP, etc.
On the Beijing side the complete lack of interest in making these moves palatable internationally is revealing. How much harder would it have been to have this bill rammed through Legco by friendly politicians? Why do this now when they are under intense scrutiny over the virus response (yes, I know, everyone is "distracted" but that doesn't seem to be keeping China off the front page everyday)?
They undid 30 years of careful cultivation of this concept of 1C2S in less than a year, and lost Taiwan in one summer. To me it's like the CCP is in a big hurry to get all this done before something happens, and damn the consequences because they won't matter soon anyway. Very dangerous place to be for a country.
Bill, how likely is it that the PRC responds with action against US students studying there as well? Very worried that myself & classmates will become pawns. In my opinion, blocking students from genuinely learning about each other's cultures and politics also blocks the chance for a future generation of policymakers with the experience and passion to untangle this diplomatic mess.
They won't do anything to change their international programs, as those programs are mostly vanity projects set up to improve the image of their universities (world-class!) and ensure reciprocal access for ruling class scions at elite Western schools. A few American students may get their visa applications rejected, but in my opinion they are much more likely to go after the think-tank crowd and maybe certain business interests first.
I am not a student or an American, but I am a foreigner in China. I am also feeling worried after the recent actions taken against Gui Minhai, Michael Kovrig, Michael Spavor, several foreign journalists and many black migrant workers and students. Even if there isn't any action taken directly against us as a group, it's clear that the Chinese government sees us individually as pawns that are increasingly disposable.
I think Taiwan might provide a safer option for study right now. I suspect you might end up with a biased view studying China through the lens of Taiwan, but then studying China under an administration that has made it a priority to crack down on academic freedoms is going to give a biased view too.
It is extremely unlikely that something happens to you. Among the best sinologists along studied in Taiwan. To begin with, real Chinese characters, not the crippled mainland version.
We in the elite forget how little importance to the outcome our actions and statements are.
I will tell a short story - When I was young I used to pick fruit on my great uncle's farm. His best friend Reg, a Pom (Englishman) used to often come over. I was a nerd and used to read history books after work one time I was reading a book about the origins of WW2 and when looking at the picture of Chamberlin with his "bit of paper" post-Munich 1938, Reg said "I remember that I went to the movies and the newsreel at the end had the PM doing that when we all walked out of the movies, everyone said, "we are going to war".
I looked at him and realised for all the attempts by the government to assuage the worker's worries, they just see right through them. At that moment I learned to always trust the opinion of the common person they just see the truth.
So what is the "opinion of the common person" in Australia, Canada and NZ (I've added the last two after discussions with a handful of Canucks and NZers this week, but data from Australia is much stronger). Put simply the CCP is the enemy, every word and action by the CCP overseas and in our own countries is just reinforcing this perception. This is like a seachange in public opinion, like how blatant racism was OK until all of a sudden it wasn't, that women should stop working once married and now that is not OK.
Consequences - China finds itself in the horns of a dilemma it is in a situation like Germany pre WW1 and acting like Germany pre ww2. The damage to China is immeasurable. Speaking from lived family experience Germans on my wife's side and my Grandmother. It is literally only in my lifetime that it was OK to be German again. My wife's great grandfather was murdered post-WW1 and her mum who was German used to say when asked about her accent that she was "Welsh" (hilarious, I know). I hope this won't revert to racism, as it appears people have great sympathy for HK and Taiwanese people and discern that is the CCP.
To quote 300 "this is madness" who picks fights with the speartip of the WW1 & WW2 allies, binding them to the US, and apparently dragging the UK with them. China like Germany pre WW1 is an exporting powerhouse but with no planet-spanning navy who has to import food, fuel, and resources. An infantry officer friend of my said "4-1 odds, we can work with that". See my quote above.
I reread Thucydides in the lockdown, I reminded everyone I know. It wasn't the up and coming power that won.
Long time China hand. I speak Chinese about as well as Bill, but I also speak Japanese, Cantonese, Taiwanese and Thai with similar proficiency. I am happy to see that the U.S. now is seeing that China is a very bad actor and will never be a responsible stake holder in the international system. I lived in China many years and promoted products used by virtually every coal-fired power station in the U.S. in China for several years. I had some successes up to about 2011 but things went South from there. It wasn't that the technology I promoted was stolen it was that it was too complicated and expensive. The China's preferred indigenous technology that wasn't effective but was cheap and provided some very basic benefits. Of course the simple indigenous technology wasn't much help in reducing NOx pollution but this didn't really matter because the power plants produced fake data and China's version of the EPA basically pretended that not only wasn't there much of a pollution problem, but also that China is doing a better job than the West. Atmospheric NOx data from Greenpeace show otherwise. So after many years trying to build a business to help save a large portion of the more than 300,000 Chinese people that die every year from the consequence of NOx pollution, I gave up and turned to trying to do business with countries more friendly to the U.S. namely Taiwan, Japan and Thailand.
So essentially I think the U.S. is right to de-couple from China. Xi has played the biggest role in the de-coupling, but Trump with bi-partisan support has broken the pattern of pretending that China can be a responsible stake holder in the international system. I think de-coupling portends disaster for China. The factors that propelled China's rise literacy/basic education, investment and demographics are now depleted, what China now needs is innovation and that will not be happening now that China is de-coupling from the world. The U.S., Europe and Japan have the large part of the know-how that could help to improve China's economy, but all are now very wary of China and China will no longer be able to buy or steal the technology it needs to even maintain it's economy. Having worked in the power industry and some other industry I know first-hand that despite China's attempt to convince foreigners otherwise China develops very little technology on it's own and with less access to foreign connections will develop less still.
In the short term Chinese may blame foreigners for their diminished prospects , but at the end of the day they are likely to see that it is their own government that is largely to blame. Many surveys of Chinese people have shown that the Chinese are optimistic but not because they are that satisfied with where they are today but more where they think they are going. When those people wake up to the prospects that their future is actually not bright the impact on regime stability could be great.
From the American perspective we have to hope for regime change also. Nothing good for the U.S. is going to come from the current regime. Certainly I personally will not be able to help China with their NOx pollution problem without major changes in China's governance.
David, you sound quite bitter from your China experience. I used to invest in China and came across quite a few "long time China hands" and noticed a high correlation between individual's success in China and their outlook on the country. I always played the anxious newbie willing to learn but took their expert views with a grain of salt. Found it best to normalize their "expert assessments" against their individual experiences.
I didn't read anything bitter there, or anything subjective at all for the matter beyond the first three sentences. Just straightforward facts.
Actually a lot of people that tried to sell to China had a lot worse experience than I did. I had some okay years in the business. I enjoyed going to power plants and looking at their issues and designing solutions. I wasn't an engineer before I started the job but I was a pretty good engineer in my area afterwards. I really liked fielding all the questions in Chinese. I wrote and translated many 100 pages of technical information. What I didn't like is that the Chinese almost never bought and largely ignored the technology I was promoting, so I got to save relatively few lives. I wanted an income but I also wanted to help people. Most people in the Chinese government don't seem to care about the 300K people dying of NOx pollution every year but I cared. I am one of the few foreigners that is an actual awarded hero in China 見義勇爲 in Chinese。 Disappointed but not defeated. After prospects in China turned negative I turned my efforts to Japanese and now can do business in Japanese. Most recently I learned Thai and that too is now at the business level (after 3 years of hard but completely enjoyable study.) China is turning inwards. The funny jokes in China calling China Chosun West (i.e. North Korea) 朝鮮西 seem less funny and more prescient now. Regardless where China goes I will still be in Asia helping Asian consumers leverage American know-how but it more likely be consumers in Japan, Thailand or Taiwan, not China.
Hi David. Please don't lose faith. Since July 2014 China's EPA issued a new standard of NOx SOx emissions and fined SOE power plants for a total of 410 million. Is it possible that things are getting better? Just saw a CNN report in Nov. 2019 quoting GreenPeace that praised China for its green effort. Hope you can come back and do your great work.
Actually it's far worse that you think. On paper China has quite strict environmental standards but in practice they don't have compliance. The government will come up with a very high standard that will require a very low level of emissions for instance but at the same time have a completely unrealistic expectation how to get there. I once heard Taiwan Power say that 25% of their cost for coal-fired power stations was pollution remediation. In China that figure would be 7%. Taiwan Power buys from suppliers all over the world. China almost exclusively buys Chinese-made. Taiwan's pollution standard on NOx are around 400 mg/M3 and China's standard is 50 mg/M3. They are you have the riddle. 8 times the performance, a fraction the cost and almost all locally made for China versus Taiwan. Sound too good to be true? Of course it is. China's data coming from there plants are fake. Their emission are not 50mg/M3 but likely many times that. I know how China engineers their plants. The emphasis is on cost and Guanxi not on performance. We know that something is not right by comparing the terrific performance of China's power plants to the still high level of PM 2.5 in the atmosphere collected by the Chinese government and the US embassy and consulates. I know Green Peace people too. They have studied atmospheric satellite data for China. The data does not show a very step reduction on NOx in China's air despite the "amazing" performance of China's power stations. To get good NOx performance (i.e. low emissions) here are some of the things you need. You need to do sophisticated boiler optimization with advanced automatic control. China's boilers are almost all manual. You need good air flow data and actuation, China's air flow data and actuation are done cheaply and not carefully designed. You need a good and comprehensive O2 measurement grid, China generally has only 1 or 2 O2 monitors done cheaply and rarely calibrated. You need a good SCR system with expensive catalysts with a high titanium content. China's catalysts are far cheaper than those in the West and their performance must be far worse although China claims their performance is far better. I could go on and on but you get the point. Without transparency and honesty this problem just continues to fester. By the way RMB 410 Million in fines for the whole country of China is equivalent to what just 1 1000 Mw Coal-fired power station burns through in coal in a week.
Yes, I am sure you know many who found it tough to sell to China, including the Chinese. The most daunting aspect of doing business in China was the intense competition, whether selling or investing. Never seen that in any other country, including other Asian countries. Sure, being foreign is tougher. But being foreign is tougher in most countries. Lets not forget that we have a preference here for Made in America, which predates Trump’s America First. Your experience in China was not good. I hear that. Yes, perhaps your product could better reduce pollution. But is that the right product/mkt fit at that time? Perhaps they were more interested in getting the basic functionalities and not the “luxury” of cleaner air. I don’t know the answer to that. But I do sense a strong tinge of bitterness from your experience, which skews your objectivity and puts the blame on China. Look, I don’t think we have a situation where one country is more right than the other. The countries are different with orthogonal cultures and value systems. Lets acknowledge that and stop pretending that the US monopolizes the moral high ground. Blaming others has never been a winning strategy. The US did not blame its way to the top, and we certainly wont be able to maintain a developed nation quality of life for future generations if we keep on blaming China for all our troubles.
"Perhaps they were more interested in getting the basic functionalities and not the “luxury” of cleaner air. " if that were true then China would have more lenient emission standards but in fact they have more stringent standards. In fact this is all lies, just like the Chinese constitution enshrines rule of law, democracy and freedom of expression. "Look, I don’t think we have a situation where one country is more right than the other." Oh, you don't? Well I do. Why don't you look at the Frontline special on Xinjiang. I don't think there is a parallel like that of systematic cultural extermination of a minority since the fall of the Third Reich. There are other issues: the China Tribunal, the Wuhan Virus mysteries but you can start with the Xinjiang issue.
Hi Zenmaster. I believe the mentioned NOx emission data fabrication issue was real. Hopefully it is getting better. I think most international organizations don't have enough authority to control and punish nation state's behavior. That caused many global issues on environment, public health, etc. It kinda encouraged local officials to fake emission data or hide epidemic outbursts coz they won't be punished heavily but they are actually using the nation's global reputation as cost to their own political career benefits. Maybe in the future, nation states can hand over more domestic governance power to international agencies.
Hi David, The issue of Chinese public opinion is an interesting one. There seems to me to be no question now that the dominant (but by NO means universal) paradigm is absolute acceptance of the CCP propaganda line, which in practice means zero tolerance of criticism of discussion of the situation and lots of emotional, shrill, aggressive, "I know you are but what am I" style arguing, like arguing with a teenager (in fairness, that's what it's like arguing with a Fox News watcher, imo, but hey I'm a Democrat I couldn't resist :).
I would say that there are really 2 things going on: first, people really are (justly! for the most part) proud of CHina's achievements over the past generation plus, and no one likes the (implicit, usually) feeling of being inferior to another civilization/group. And it's such an awesome and amazing thing that this huge group of people (to be clear--the urban middle class only, the peasants have been absolutely screwed since 1989 in terms of income growth, resource allocation and personal freedoms, and being 3/4 of the population that of course is the point) now is basically humming along with very cool jobs and tech and all this (economic) opportunity. The problem is of course that CCP propaganda has brilliantly exploited the basic fact of economic growth to buttress and legitimize the very worst and most vile aspects of CCP rule. So for instance, people like a certain VC (whose name I won't even mention since he doesn't deserve it) argue the CCP line that Tiananmen was good because it ensured everything that happened after it, but of course even a cursory look at the insider accounts of that time (I'd start with Zhao Ziyang's memoirs as he was the highest up guy to write openly about it, the number 2 to Deng! Different era) make it clear that it was a horrible decision, probably influenced by the infamous Li Peng (who it turns out was also a coward and fled the scene when Zhao stayed to engage with the protesters), and Deng mistakenly associated it with the street chaos Cultural Revolution rather than it being something completely different (in a way that I imagine is not too dissimilar from how the CCP is reporting on the current riots in the US, just as "chaos" with no understanding of why people might be upset, but of course security states always say any disturbances are chaos because they don't want people to act on feelings of injustice). And of course the fallout of Tiananmen was massive, the party never liberalized, and from that date essentially rural income growth collapsed relative to urban growth as the party tightened controls and only focused on urban growth, plus you got the ultra corrupt Jiang Zemin in there as head guy instead of the outstanding (by most accounts) Zhao Ziyang. Anyone can unleash a bit of the profit motive and build lots of infrastructure, and bully to the CCP for that, but the missed opportunity to have an uncorrupt leader in power who might have been able to ensure rural income growth and liberalize the party to rebalance much earlier, and not have the need to make aggressive chauvinistic nationalism the legitimizing ideology (again, and as a Dem, I'm very critical of Trump on this issue, and of course that's sort of the point that I can be openly unlike Xi's domestic critics with rare and heroic exceptions like Xu Zhangrun), was devastating.
This leads to the second point which is the complete lack of a public counter narrative. This is why Pottinger's speech, while not particularly earth shattering as a speech in and of itself (and in fairness to him, it probably wasn't meant to be), was so vilified in the Chinese state media, because ANY attempt to put together a coherent counter narrative to CCP state propaganda is an existential threat to them. This is why some of the most important work we can do right now in the West I think is to create a counter narrative, based in truth and justice, to the CCP's propaganda. And I'll emphasize again, THE best way to ensure that happens is to apply the principles of justice, freedom and equality to ourselves as stringently as we seek to apply them to the CCP. So we need to fix ourselves at home at the same time as we create a counter narrative abroad (and of course rebuild alliances and all that it goes without saying).
Very good point. CCP is definitely exploiting America First policy and the Bannon narrative to lower the western democracies to just other competing nation states. This echos very well with the nationalism sentiment spurred by 1840s-1920s colonization/ sphere of influence memories by western powers.
While I welcome stronger action to impose costs for the CCP, it is hard to see how restricting our ability to brain-drain the CCP through access to our open, free society is helpful. If we have concerns about espionage, and I have no doubt that some of these concerns are valid, let's let the FBI do their jobs.
Additionally, I fail to see how withdrawal from the WHO does much to address concerns of excessive Chinese influence within the organization. Oh, well. I'm appreciative to Trump for shifting the window on China and increasingly pushing both DC and the public to acknowledge the very real threat posed by the CCP, but assuming the Democrats are prepared to pick up the flag and run with it, I think it's time for him to go.
I agree. The new Cold War is a war for talent, especially in a knowledge economy. We should be aggressively recruiting Chinese students to remain in America permanently and contribute - as have so many immigrants - to making America great.
We are in no way dependent on chinese talent. There is plenty of talent in India and Central & eatern europe for us to leverage. And besides, those talent pools are of far higher quality than Chinoise talent.
Who said we're dependent? Just because we can make do without them doesn't mean that we shouldn't want to draw the best and brightest away from the CCP to America if we can. And let's dispense with the racially charged rhetoric about "quality" as well. I have several Chinese coworkers and they are lovely and intelligent people.
I agree that there is great talent everywhere. But in Texas, 4 of 19 HHMI scholars (e.g. such awards are often associated with Nobel awards) are Chinese, now Chinese-Americans, doing cutting edge research in biomedicine. This is true of other fields such as AI, robotics, etc. But we’re better off leveraging ALL talent.
I think the withdrawal from the WHO looks like a typical "kill a chicken to scare the monkey" kind of move. Leaving the WHO doesn't do too much harm to American interests at this point and simultaneously sends a big warning signal to other international organizations heavily funded from America that they'd do best to remember who their friends are. Hopefully it'll be more effective in this regard than the American withdrawal from UNESCO last year, which hasn't had an impact on other international organizations yet.
Completely agreed on the first point you raised. I'd also like to add that as opportunities to spread American narratives and soft power inside the mainland are further and further restrained, the experience of mainlanders studying abroad as a window to these things is going to become a whole lot more important.
For instance, you might be surprised how many Chinese college students don't even know that America has an independent judiciary until they've already been studying here a few years.
Thought-provoking but disagree with your WHO point. There’s a two word reason to fund the WHO: Smallpox Eradication. Back in Cold War 1.0, WHO provided indispensable political cover that allowed American and Soviet health officials to focus on vaccination efforts instead of acrimonious geopolitical rivalry. WHO can serve as same political shield for US and China today.
Oh boy, it always comes back to the Gates Foundation, doesn't it? Get your shots.
Not bloody likely!!
Well, Bill I was looking to see where Liu He was seated at the Two Sessions of the NPC last weekend. He was seated four away from Xi on the left which means in the main seven members of the Politburo he was/is outside the inner circle of Xi power advisors (he seven were divided three on left and three on the right of Xi). No loss of position as Vice Premier of China and still a member of the Politburo but there is distance.
What that means to me is that Xi didn't like the trade deal. As much as Xi is an ideologue, he is still a pragmatist, and agreed to the Phase One US Trade deal to keep the peace with the US, except it hasn't worked.
The stability of trade relations Xi had hoped for after agreeing to the deal which favored the US in the main got even rockier with Trump spouting anti=Chinese invective at every opportunity. Xi didn't bank on COVUD-19 upsetting the delicate balance or Trump's double-dealing two-faced maniacal claims to make China the scapegoat for the disease. On several occasions, Trump threatening to curtail/sever all economic ties with China altogether. While typical for Trump, the Chinese leadership were at first dismayed and are now infuriated.
So with the passing of the Hong Kong security law in essence telling Trump and SecStat Pompeo to go eff themselves and with standing applause in the Great Hall of the People it was clear to me that Xi is going fight the US. The subsequent retaliatory threats brought on by Trump on Friday May 29 was a fool's errand and now gives Xi the excuse he wants to kill the trade deal, which I believe is the game here.
The way this happens for the PRC is that China slows all trade covered under the agreement to a trickle while not cancelling exactly, but slows the movement of US trade imports to where US farmers have to plow over their grain crops or to ditch the crops stored in silos around the country. Of course. this will exacerbate tensions by about September or October at the latest with Trump finally ending the trade deal and increasing tariff on Chinese imports into the US.
With US farmers facing financial ruin and Trump having to probably bail them out again with grain subsidies or lump sum payments, yet again, Trump faces the last weeks of the campaign blaming China for everything that ails him.
If you missed the Chinese announcement that local pork production was back to normal and increasing, and that grain imports from Brazil and other grain growing countries — except Australia — had increased from previous years to all time highs, you missed Chinese confidence in what is going to happen in coming weeks and months.
As most China watchers in the west don't watch CCTV or CGTN they will have missed all commentary at the Two Sessions which was about China expanding/developing its domestic market — the largest market in the world —as the primary goal while foreign trade is of secondary importance.
Looking forward to further Trump conniption fits. So it goes. The old adage that "China needs us more than we need them" is going to get a work out on US news channels in coming weeks and months but for me the above scenario is already in play. Cheers.
Minor suggestions on Chinese official seatings [I think I watched the same video(NPC opening and closing ceremony, the other two full member meetings and various small group meetings are not live streamed)]:
- Front row is consisted by 16 people: 1 NPC chairman + 14 vice-chairman + 1 secretary [6 of the 14 are non-CCP]
- Second row is consisted by 24 people with Xi in the right hand side middle (but they will put an extra chair on his left so Xi kinda looks like in the middle): 25 CCP politburo members - 1 NPC chairman - 1 NPC 1st vice chairman + VP WANG
- Liu sits on the 4th seat to Xi's right, that is actually the 9th rank, it goes with a Xi - 1 seat to his left-1 seat to his right- 2 seat to his left - ... kinda sequence
- The top 7 seats are 6 standing member of politburo( coz NPC chairman is in the front row) + VP WANG, these 7 or 8 (VP sometimes doesn't show up) always has a designated ranking
- The other politburo members (18 non-standing members) do not have a ranking , they will sit according to the sequence of their family name's Chinese strokes (from less to more)
- So Ding (丁, 2 strokes）takes the 8th seat, NPC's 1st Vice Chairman WANG Chen(王晨, 4 strokes）should have taken the 9th seat but he is also up in front row.
- That left Liu (刘, 6 strokes）on the 9th seat, so four to Xi's right.
The CCP's TV camera-man will very carefully go through these guys one by one with a close up.
This is just where he should sit. I think there shouldn't be any implied information on Xi's happiness about the Trade Deal.
Great analysis David. In my talking with Chinese friends and colleagues, in the weeks since reopening there has been a greater sense of national self-belief and optimism. It is not delusional - they see the challenges and difficulties ahead - but there’s definitely a new level of confidence. Perhaps it’s a consequence of CCP propaganda, I don’t know, but it’s palpable.
The two main things on the US side that worry me are firstly that Mr Trump rarely sticks to script. He’s read a speech that someone wrote for him. How often has he torn up previous such carefully-prepared positions?
Second, we are still 5 and a bit months from the election. The strategy to make China a scapegoat for his failings is going to morph into making China a scapegoat for everything. We are going to be in for a torrid few months. And the people in HK are going to feel it ten times more than we will.
Interesting analysis. I will say that it's very hard to have sympathy for China with regard to Trump "scapegoating" them for the disease when it was the MFA which initiated the whole mess with their irresponsible and inflammatory insinuations that the US Army was involved in bringing the virus to Wuhan. I don't doubt that Trump would have turned on China eventually anyways as it became politically expedient regardless of the MFA's behavior, of course. However, the reality is that in the timeline we live in, which is not that hypothetical one, China began indulging in finger-pointing to dodge the blame before anyone else and has absolutely no right to complain when the US returns fire.
This is late but ... I don't think Liu He was seated any closer than protocol allowed ... certainly it would have been interesting if he was inside Wang Qishan ... also on pork production, it is nowhere near normal, it's still below what it was in January before Covid, and about 75% below where it was last summer, before the effect of African Swine Fever on the herd became fully apparent ... they won't be back to normal before 2022 at the earliest ...
Can you explain exactly HOW China is going to "expand/develop its domestic market?
The answer you want won't be here I think, but the opening up and development of western provinces and remote communities with infrastructure. The development of vast solar power farms and wind generators to help those living at subsistence to moderate income levels, who like living where they are. There are at least 100 million people who can benefit.
There are plans to develop the tracts of underground aquifers to being crops to sandy regions go the Gobi. Not to mention the development of the grasslands around the Mongolian autonomous region which is still in early stages.The expansion of rail routes to Pakistan, Iran and Afghanistan. But where the Chinese build infrastructure – and they are pretty good at it — people will come and gravitate to this part of the world.
If you take the time to look at any number propaganda documentaries on Youtube of what China has planned and how they can accomplish it makes me envious. And its only beginning in my view. No wonder 90% of the Chinese people support the Chinese government because they do put their people first.
I think about this as I travel on the I-70 at the interstate junction to Pittsburgh dodging the massive potholes so I don't break my axles and further the interchange along the I-80 to the I=65 and I-57 to Chicago in Indiana.
If only Trump cared about the welfare of his people first.
Hi David, You proposed the following ways China could expand its domestic market: 1) opening up and development of western provinces and remote communities with infrastructure: This is just building roads, railroads and airports, which China does extraordinarily well and has been able to for the past generation. If there were major population centers without those things, such that just building them would easily create massive growth, they would have done it already (they're not dumb)--and they did! I know of no major population center in China right now that does not have access to reasonable infrastructure (at the very least, good highways and reasonable proximity to rail). So if they already have infrastructure, and are still underdeveloped, further infrastructure isn't the answer. So then the question becomes, which (if any) large Chinese population centers DON'T already have access to good infrastructure such that an easy fix to major growth is building more? 2) The development of [renewable, locally generated] power, the implication is that there are huge communities in China without access to electricity or prohibitively expensive electricity, and that therefore providing that will create huge growth. According to the world bank, 100% of the Chinese population has access to electricity (2017). I don't have the pricing data, so that's one thing to look into, but certainly providing access to electricity is not a current path to Chinese growth. 3) Making the Gobi desert farmable: Recapturing farmland is super expensive, and China is already short of water... open to more data on this, but even the Chinese gov't itself isn't talking about a massive aquifer project of the Gobi desert as the path to future growth. 4) Expansion of rail routes abroad i.e. OBOR: This is a way of saying that China can export demand, in other words, those rail links would create Chinese jobs by increasing Chinese exports to those countries, but those economies are tiny compared to China's and already in deficit and unlikely to support massive increases in trade deficits with China, nor would such deficits lead to large-scale growth in China--those economies are simply too small. 5) China has a lot of additional economic activity (you didn't specify what) planned, based on youtube propaganda documentaries (which are plentiful no doubt!!): I assume you mean infrastructure plans as that is what the government has the ability to do, for the reasons already stated more infrastructure probably isn't the answer.
Basically I (and I think most Americans!) would agree that the US needs waaaay more infrastructure investment and China has done an amazing job on this. It's just that at some point there can be too MUCH emphasis on infrastructure investment (i.e. once your entire country already has access to world-class infrastructure, building more isn't a productive use of resources obviously). That's the dilemma China is facing (and has been faced by about 2 dozen other countries throughout the 20th century who invested a ton in their fixed capital stock but once they hit the limit growth totally stalled out, that history is the origin of the term the middle-income trap). The main thing they need to do to expand the domestic market is to transfer resources from infrastructure companies and local governments to Chinese households so that... there is more demand, but of course infrastructure companies and local governments are all state-owned, so they'd be undercutting their own political base... which is why it hasn't happened despite central government statements since at least 2007 (they rebalanced from 33% of GDP being consumption to 40% in the past 13 years, about 0.5% a year, obviously far too slow and of course debt exploded in that time due to unproductive investment increasing so much since they've been unable to increase domestic demand). I don't say that really as an anti-CCP or pro-American argument or whatever, that's just the situation they find themselves in... just like the Soviet Union with it's Siberia investment policy in the 60's and 70's, or Brazil with it's Amazon policy in the 60's etc. Much better institutions (business law enforcement, anti-monopoly law, equal access to capital and reasonable regulation for non-state owned companies, reasonable demand from households etc) is the key to moving from being middle-income to high-income, so we should look for those kinds of reforms if China is to begin using increased domestic demand to power growth as opposed to investment and exports (again, household consumption is just 40% of GDP after over a decade of frenzied talk about rebalancing).
fully agree; you were more thorough and polite than I was. Do you think "business law enforcement, anti- monopoly law, reasonable regulation of SOE will happen anytime soon? Me neither. One then comes to the reasonable conclusion that . . .
Agree with the western provinces development is a hard job. The Grand Development for Western Areas strategy was first put out by Chairman Jiang back in 90s, but the progress is not very satisfying. Xinjiang/Tibet/Qinghai together covers about 1/3 of China's territory but only have 30 million population.
China recently proposed a new round of Grand Development (guideline policy announced on 17 May), I think it focused more on helping coastal area manufacturing capabilities move or expand in western area, and try to sell products in Central Asia and to Europe by train. It also mentioned upgrading schools and hospitals, enhancing cable and mobile network infrastructures etc.
Thanks for your thoughtful engagement with the post, Ding Kang. It's worth mentioning upfront that any discussion of "development" in the Xinjiang area is obviously affected by the concentration camp network there, which reveals I think a problem with the traditional vocabulary for understanding China's development--the very word "development" obviously doesn't even address the question of justice, which invariably must be raised when millions of people are being forcibly imprisoned/deprived of their most basic liberty in some fundamental way regardless of the word we choose to use. Of course this goes back to the larger narrative question, the CCP DOES try to define justice merely as economic development (albeit development for some, and with the most significant benefits going to the CCP elite), with no discussion of other questions traditionally associated with justice (getting what one deserves, freedom and liberty, autonomy and choosing one's own path, choosing the right laws and form of government, daily questions of right and wrong and having the power to organize to correct them, etc). And as I've tried to make clear, I think those of us in the West who care deeply about the question of justice should also be willing to discuss the failures of our own society, while also constantly asking the CCP why it won't allow its own people to do the same.
But on the pure economics, and I'm expanding this beyond Xinjiang/Tibet/Qinghai to include the southwestern provinces and the northeastern ones, i.e. all the low GDP provinces, at this point, any new government "proposals" or "policies," with the exception of investment/subsidies for new tech research, development and entrepreneurship, are more or less meaningless in my view.
In other words, if you think about China's grand development since 1978, you've had the unleashing of private incentives in about half (give or take etc etc) the economy, plus dramatic reform in the state sector combined with partial use of market pricing mechanisms there to increase efficiency. But the state sector is really only good at one thing--massive construction projects which require huge capital expenditures and regulatory approvals at the highest level to overcome any political obstacles. That was awesome for a very long time (the 80's, 90's, and 2000's basically) as the country built up all the modern technological and infrastructure apparatus and improved everyone's lives incalculably of course! But as I've said elsewhere, the problem in most low GDP places in China isn't that they don't have cell or internet service ("mobile network infrastructures" as you noted) or buildings usable as schools or hospitals (although these could always be better, hospitals in the vast majority of Chinese cities aren't lacking in basic medical equipment). Those things are relatively straightforward to build (once you have the political economy set up in the right way, which the party to its credit managed to do after 1978), and they've already done that.
So every new "policy" which promotes more of that is more or less a waste of resources. Imagine an alternative world in which "reform" actually meant... reform! In other words, what if the government announced it was dissolving 80% of the SOE's in a given 县 and transferring the assets to private families. Depending on the areas, you could be looking at a few thousand extra RMB per month, per family (obviously it depends on the area and the extent of SOE/gov't reform). This would provide a massive new market for better housing, better education, better health care, better food and food safety, and so forth--in short, an economic boom! How much better would it be for the local people in China to have all those sectors booming with growth (obviously, there are many opportunities in these areas simply because China is a massive economy, but not because the government has massively increased the share of income going to the average person/household in China). Or what if the government suddenly announce that the judiciary for business law would be truly independent, and that to register a business in nearly any industry you simply registered online and away you went, without having to kiss the ring of the head of the local relevant government department in order to get a license, and figure out which private companies he (almost always) is secretly supporting, and who his enemies are, and therefore how you can finagle your way in to getting the license, or getting the subsidy, etc, i.e. all the things all of us who have operated successfully in China know we actually have to do. How much less tired, and more successful, would we all be if we could focus merely on the business, not on the politics, and let the best man win! Those kinds of reforms would be massively exciting. The US equivalent for someone like me would be not listening to f*cking Wall Street so much anymore as they sell the country down the river and actually create a more equitable economy at home with less inequality and therefore greater domestic demand to the benefit of all Americans. That's the kind of economic talk that gets me going (personally)!
Thank you for the warm and kind reply. Very educational and thought evoking. Let me share a few things from my personal experiences -
- camp vs development: There are 8.4 million Han Chinese in Xinjiang. If the great and lovely Uyghur people (10.0 million) set up their own nation state, I think China still has a legit cause to develop the Han majority area. There are 18 other ethnic groups (3 million in total) residing there as well.
- private business and CCP manipulation: I would argue that CCP is quite pro business in general. But the environment varies a lot in different parts of China. As you mentioned, low GDP growth areas are in general not very business friendly.
- recent provincial exchange of officials: For 6-7 decades, the CCP officials usually will be granted a cross-province position when they are above city level (厅局级正职以上方可跨省任职）, after 2016, they are allowing county level and will gradually lower to village level. This will gradually change the local government administration atmosphere.
- business registration and ring-kissing: Zhejiang province put out a 'one-time at most' scheme in 2016 (最多跑一次）, that all business registration and any other government related approvals can be done by one visit to the town hall (every county level government will concentrate all business related functions to a same building). This scheme is pushed to almost every province now. I opened a small firm in Dalian last year, and it is done by one visit. I hope the business environment will get better and better.
- local SOE privatizations: China is quite keen on this front, they put out PPP reform in 2015, after a set back in 2017, the newly adjusted reform is doing quite ok. the accumulated PPP projects are more than 10,000 and the total investment surpassed 14 trillion. Most of the new projects have to involve private investors.
- school&hospital in the west: this also means they will hire more people from China-proper.
Many very fair points. To me, China's biggest growth potential lies with its still-to-be urbanized population and human capital. On urbanization, China is now 60% compared to OECD's average 80%. China's higher education obviously isn't world-class and it may never be, but the university graduates do carry way significantly more skills than the previous generation. In TFP terms, a Chinese worker is now about 2/5 as productive as their US counterparts; if you think Chinese workers could reach 3/5 with the increasing human capital, then China still has lots of growth potential to sustain China's rise but not necessarily catching up.
Hi Owen, Thanks for the nice engagement. These discussions are really honing my thoughts as well and I'm grateful for the opportunity to have them. I agree a lot of people have been predicting China's decline since the 90's, both for political reasons (people like Gordon C. Chang who make strong pro-freedom arguments but without an understanding of the underlying economic situation, imo) and economic reasons (lots of free marketeers with no understanding of the ability of government to successfully invest in massive infrastructure projects in developing countries). But I would say, simply dismissing macro arguments doesn't appear to me to be feasible, because even in your thoughts, macro data like urbanization still must be used, so I don't see how we get away from it. We just need to choose the right data, and have the right/best understanding we can.
As you can probably tell from my arguments above, I'd tend to agree with Dan Berg on this one, "urbanization" in and of itself just means people moving from the country to the city, but the decisive question is, what do they do once they get there? Just having people live in closer proximity to one another doesn't automatically create growth, it's a question of what economic activity they do, so the macro data doesn't capture the real situation (as it often doesn't and as you noted).
Gains in education certainly make the population's POTENTIAL much higher, but in an economy where 50% of resources are controlled by the state and deployed very inefficiently at this point (mainly in infrastructure projects), and just 40% of money ends up in private hands (household consumption), the question is will the country be able to USE the great potential of its people. That's precisely the issue, if the CCP actually were to transfer a massive amount of state-owned assets to average people, and dramatically raise incomes, well you would have an absolute boom in demand for education, better (affordable) housing, better food and food safety, better health care, and on and on, and that would provide incredible opportunity for the educated young people (who are ready and raring to go as you noted). In addition, if laws, monopolies, corruption etc were much improved in the poorest rural areas, combined with dramatically growing income, people could urbanize in their booming local areas rather than moving to the top cities (the difference in GDP per capita between the poorest Chinese provinces and the richest is like around 7 I think, where as in the US Mississippi is about only half as poor as the richest state, excluding DC, and that has to do with better institutions in Mississippi as compared to the poorest Chinese provinces, i.e. even the poorest US states still have reasonably uncorrupt government and enforcement of business law).
But with only 50% of the country's resources being used efficiently, and far too high a % of the economic gains going to the government and business and the ultra-rich for savings and investment rather than the average person for consumption for a better basic material life and opportunity and health for their children, the country is massively hamstrung. Sure, migrant workers can go to the cities and get jobs in construction building more needless infrastructure (which is what they do, of course you can be a kuaidi xiaoge, and then a waimai xiaoge, the 50% private is incredibly innovative, but it's crushingly just half the economy or so), which isn't productive so shows up as debt, so debt explodes, and then you need more stimulus for more needless infrastructure, and around and around it goes until the GDP growth target can't be reached anymore and everyone realizes building more is futile and the economy stagnates. That's the basic economic situation, which of course coexists with an innovative and thriving and exploding internet and tech sector, but that is severely limited in its impact by the massive state involvement in the economy and the unequal distribution of final income between gov't/business/the ultra rich saving and the average person consuming.
Thank you David for engaging with me constructively as well. I also learned a lot from your writing. I’d certainly agree that macro structural conditions matter a great deal—my response was a reaction against swinging too far to the macro direction to the extent we ignore the micros—because ultimately it is action (taken by specific individuals) not just conditions (all the structural ones) that propel social change. But if I were to analyze China’s political economy seriously, I’d at least do it in three-levels, namely the structural (demographics, public finance (debt), infrastructure, etc.), the institutional (property rights, IP, private&public economy, etc.) and individual (human capital, work ethics, etc.). All three levels are interlinked and exerting influence on one another. All three are important. I think we often tend to exclusively take a top-down perspective (structural to individual) but dismiss the bottom-up avenue exists (better educated individuals could drive institutional, even structural changes; think of, say, Jack Ma). My comment was meant to push back on that but in no way to reject the other.
I agree with Mr. Peng and Fukuyama that urbanization without industrialization is problematic. The most salient examples are in Africa. People moved to cities en masses and slums emerged as a result. In China’s case, I think the government is aware of the risk and does not want slums to appear in cities. Unlike Africa, they also have the state capacity to regulate the migrant flow and force people out as they deem necessary (“the low end people” in Beijing). But I think rapid mass immigration to cities only happened in a few mega cities; in the rest of China urbanization mostly took place gradually and naturally. Of course, there are exceptions, particularly when the local government wants to grab land from famers for real estate development or to achieve some quick poverty reduction goals (moving people from mountain top to townships). Those people face real problems finding jobs. But overall, I think China’s urbanization proceeded orderly and gradually. That is good because they allow the job markets to develop. More people do create more demands. That is the lump of labor fallacy I warned against. But only if the process happened gradually can labor market develop. You really want the new migrants to mingle and be employed by non-migrants otherwise you risk having a enclave economy like in slums.
I totally agree with the institutions. China needs to improve its institutions to continue to release its people’s potential. Yet institutions can’t get the work done alone and can’t really sustain itself. There are people like Deng and Trump who can change institutions from above and countless policy entrepreneurs at the local and central level (Tightening party control is not gonna help such entrepreneurship for sure). Not to speak of SMEs and middle class that have pushed and will continue to push for better governance and institutions. My point was that if these people become more educated and cosmopolitan-minded, the chances for better institutions will increase.
Better infrastructure, especially of transportation and telecommunication, will facilitate connecting creative minds. China’s e-commerce would not be where it is today without the excellent logistics infrastructure. It may have decreasing returns but overall I believe it is better than debt-sponsored consumption.
The very smart Larry Summers has an interesting answer when asked about building airport in China (cited in full below). The same can be said about industrial policies. Larry's answer is more nuanced than the much-teased popular memes such as "bridge to nowhere" or "picking winners." The problem with reading only macro data and newspaper articles is people may never get to appreciate such nuances.
" You’re a rapidly growing Asian country, and you decide to build an airport somewhere where there aren’t very many people. You do that because it’s going to be cheap to build it now, when there aren’t a lot of people around, and it’s important to establish the land. Then 15 years later, if you’ve grown fast, you’re a brilliant hero of masterful long-term planning, and if you’ve grown slow, you’re an idiot who’s building an airport where nobody wanted to go. It’s hard to know which is the case. The Japanese probably look stupider than they really were because they built in anticipation of more growth than they, in fact, were able to generate. I don’t know quite what’s going to happen with respect to China. It’s not unlike Dulles Airport. Today we think of Dulles Airport as an important strategic stroke that cemented and made possible a hugely vibrant technological economy in Northern Virginia. I’m old enough to remember in the late ’70s or early ’80s when it was a generation after Dulles Airport was built. It was a ridiculous idea, built a million miles from anywhere, and like, “Why did we build that?” So it’s very difficult to judge some of these infrastructure investments except in the very, very long run. Even when you judge them in the very, very long run, you can make a judgment ex post as to whether they were a good idea, but even then, it’s going to be even more difficult to make a judgment about whether they were ex ante sensible or ex ante not sensible"
Great Analysis! I read Fukuyama's book on Greece, he also mentioned urbanization without proper industrialization will usually lead to stagnation and political decay. Things will go worse if poor provinces don't enhance business friendly environment, since the central government is subsidizing these provinces and the urbanization there will look more like Greece or Southern Italy. Local officials get lazier and more corrupt by distributing the free subsidies or relentlessly raise debt.
- Maybe some of the westward development policies are encouraging these provinces to nurture more meaningful export oriented manufacturing businesses. But again this goes back to your earlier comment on exporting to a poor neighboring country will make no sense at all.
- Enriching the laobaixing ( Bannon is using this term very often :-)
-- I wouldn't entirely agree that CCP cadres are just greedy m*f*ers. They are gradually transferring SOE assets or their profits to fund the retirement fund and healthcare insurances.
-- Split the SOE and give each citizen a fraction. This is discussed quite vividly in 80-90s, which to my understanding is one of the suggestions in Washington Consensus. CCP may think that didn't work really well in Russia/Eastern Bloc post USSR. Part of those fractions was somehow purchased by Tycoons at very low price. Or is this just a misinformation campaign by CCP? Never got a chance to study well.
----- This can be better executed now with 2020s tech. Maybe every citizen can get a digital currency wallet and contains a piece of SOE stock portfolio and no super rich can exploit them easily? But if they can't sell it immediately that is quite similar to gradually transfer those to pension accounts.
- In all, am still a bit confused by how to effectively dissolve these SOE assets. They are huge. Maybe sell it to private owners by auction and then distribute the cash to 1.4 billion LBX? It will be about 10,000 USD for each citizen using 2018 National Assets Report (to the NPC) number.
I've never understood the continuing urbanization argument; another 200-300 million poorly educated people wander into the cities - and do what? That's assuming the hukuo system is abolished - which I dont think is going to happen. How would they go about raising workers' productivity 20%? How long would that take? Sounds like a good idea - why dont we (and everybody do that?
It almost has nothing to do with Hukou. Urban Hukou is only 40% now but urbanization is already 60%. I'd suggest you look at the micro-level because macro only can tell you so much: consumption, investment, government spending, exports... it's static and boring. I've worked with many migrant children and in cities and in rural areas, the strong urge of rural youth to go to cities is what may continue to drive urbanization. Please don't fall to the lump of labor fallacy. As for worker's productivity, again, with more human capital of at the individual level (not "everybody" has witnessed such a huge increase of education attainment) it is not entirely unthinkable. The macro people had long predicted China's decline since the late 90s.
Precisely. Thank you for this cogent, grounded response to David's pipe dreams. Especially on the point of infrastructure.
wow, you're right; it wasn't there. Infrastructure: building hi-speed rail to no-where (oops: remote communities) results in higher debt, no return on investment; solar power farms and wind generators for subsistence farmers?! Result? (see first example) Rail routes to no where (oops: Pakistan, Iran, Afghanistan) (see first example). My favorite: "If you . . .look at any number of propaganda docs . .. (one learns that) the Chinese govt (i.e. CCP) do put their people first."
Oh my; I'm afraid we are looking at 2 different countries
You have no idea how the US west was won (sic!). You may scoff but the railroad opened up the American west, same as will happen in China.
As to higher debt in China. This is easier to overcome than public debt in the US which to China's disappointment it foolishly financed for 20 years and will no longer be doing it. Chinese backing US Treasury notes made for the US invasion and war in Iraq and the war in Afghanistan and pays Mike Pompeo's salary. It seems you overlooked that.
So for me, the sad thing for America is that if you haven't already started up your business in China, American investment will likely miss out due to US foreign investment laws from now on. A pity that.
Hi David, The American west is often brought up as a counterexample, but when I looked at this issue originally, the essential difference which convinced me it wasn't a good comparison with China's current situation is that in the American west, you had a bunch of productive land with no people (post-Native American genocide) or infrastructure, so simply by having people go there to farm, and building infrastructure (railroads), you could create huge economic activity. In China, however, all the arable land is already in use, and there is already infrastructure to every major population center, so they can't really use the US strategy (have lots of unpopulated arable land and send people to it and build infrastructure to it).
On the debt issue, China's own internal organs (the IIF, for instance) calculate its debt-GDP at over 300%, up from around 150% in 2008--roughly doubling in a decade (again, I don't say that to be negative, it's just the situation). The question is, why the dramatic increase? From what I've been able to find out by reading the different views of the world's top macroeconomists on this issue, the answer is that the CCP has borrowed heavily to finance infrastructure investment (with the Beipanjiang Bridge in mighty Guizhou province being a poster child :) for this ), which hasn't been productive for the most part since the financial crisis which is when debt started exploding (since every population center in the country already had excellent infrastructure). So that implies a need for rebalancing away from putting so many resources into that area of the economy, but that's been politically difficult despite very frequent statements of intent from Beijing (as evidenced by the fact that consumption as a % of GDP has barely budged since Wen Jiabao's 2007 speech about unbalanced growth, from 33% to just 40%, not nearly fast enough to avoid the dramatic increase in debt or create sustainable domestic demand).
As for the US debt situation, I agree Mike Pompeo is an idiot, but China owns only about 5% of US debt and interest rates are at historic lows, so China not buying any more debt wouldn't have a big impact just based on the proportions. And I agree that it was foolish for the CCP to buy so much US debt since at best it pays out only 3%, whereas the Chinese economy was growing at 17% nominal for decades. They did it probably because it was politically easier to export to the US market than to transfer resources from CCP factions to the laobaixing and use domestic demand to support employment.
Again: agree; West in US led to California (8th largest economy in the world, Oregon, Washington, Alaska and a Golden Gate to the Orient. West in China leads one out into the desert and a hard border.
But my question to you:why is high and rising debt not a major problem ?
ref US Treasuries: given the export led economy they had no choice; what else could they do with the dollars?
Great Analysis. West-ward development also has a unique historical resemblance of '3rd line development' (三线建设) back in 60s when Chairman Mao tried to relocate certain industrial capabilities and populations to the western area, fearing a war with both USSR and USA, causing loss of the entire eastern area. This is when President Jiang was directly involved building a new Electronics 'facility' in Wuhan, and when President Xi was a middle school student. I think some of the previous and current westward development strategy has a thing linked with this memory.
- But also I heard the modern US nuke missiles will all come from the Arctic, so it might mean nothing whether you go west or go anywhere else.
A good enough Chinese infrastructure system leading west is to Iran+Pakistan+Afghanistan+5 Central Asian states. Altogether 420 million people lives in that region, that is 80+% of 10 ASEAN countries. But GDP per capita of Pakistan is now only around 1/3 of ASEAN economies（slightly better than Myanmar/Cambodia). China's westward strategy would be no match to the US' for sure. But it should be better than nowhere.
But there are great challenges -
- Islamism and the mainstream Atheism or at least Secularism in China. Can these two cultures work well enough? I have a high school classmates working in Iran, and he said the cultural challenge is quite tough. This should be a great topic to dive in. How is US business community coping this in Middle East market? Please kindly share some insights if anyone knows it well.
- Regional Stability. Both USSR/US retreated from Afghanistan. Can peace be finally restored?
- Economic development: Can Pakistan grow its economy to Indonesia level? How? Both countries have similar population and similar religion.
Premier Li announced last Thursday a 6 trillion stimulus plan, 2 for tax cut and infrastructure spending, 4 for cost cut for SMEs (pension fee/housing fund reform/electricity/gas/water/rent). The details for the stimulus package is not announced and probably won't be available for general public. But the investment analyst community in China have made some estimates:
- there will be around 500 billion tax cut and consumer coupons
- 1.2 trillion infrastructure spending (5G, Data Center, Cables, subway, roads)
- 300 billion spending on public education and medication
- the 4 trillion cost cut is not as well estimated because it is a fresh new announcement. But after the re-opening, some local governments directed the local SOE who owns ample commercial properties to cut the rent to 1/3 or 1/4 for small businesses.
Further expand/develop domestic demand is a long term task, but I think trying to re-distribute and invest in commoners, help them to get out of absolute poverty, enhance their sense of social security will in general encourage them to spend more. I do agree that relying on infrastructure spending won't be enough.
China is the biggest market now for Chilean cherries（88% of the total export). I think gradually people in China will consume more products all over the world.
Dan. You are right to question how China is going to "expand and develop its domestic market." When export prospects diminish Chinese consumers don't spend. China is still sitting on a huge asset bubble (real estate) which can't expand any more. When the asset bubble pops or fails to appreciate consumers will tighten their belts. On the supply side China's plan is a lot of infrastructure in the West an area with few people and little water not well connected to large markets. Xi's economic policies look like some of the worst economic policies from China since the Great Leap Forward era.
Trump is setting the tone for the election. He wants to use China to distract from his domestic failures. He's pinning Biden in this. If Biden doesn't mention China, Trump will calim Biden's weak on China. It will become a race between who can manage China better and not about good goverance for the United States. Either way, US-China relations will sour.
I don't believe China is too worried about this. By imposing the HK law, the government signaled that they are ready for whatever consequences may approach. The Chinese view on this is long term. They know that US policies can change over presidencies. Furthermore, I don't believe that this is the death of one country two systems as others believe. The law is China emphasizing that HK is, well, part of China. It's a reminder to HK and the world.
Beijing has done the sums. More to be gained from integrating HK into the mainland than losing HK's special trading privileges. HK is a big cog in the development on the Greater Bay Area but Beijing does not want a volatile city-state.
You are absolutely correct! Hongkong is a domino that China cannot permit to fall over. Already, we see that the HK resistance has emboldened Taiwan. While we can't gauge the impact, the massive rallies in HK must have strengthened the resolve of Uyghur and Tibetan nationalists as well. That, Xi cannot afford.
To me, it seems this is just the opening rhetoric of the beginning of what will be the darkest phase in US-China relations since the 1970s. The US and China will pursue their own course in what will start a process of decoupling in economic terms - while it won't be a complete decoupling, it will certainly spur a rethink on both sides on how to insulate themselves from the other in part.
Again I will say that Beijing has already prepared its plans more doubling up on BRI and acceleration of development of the 19 city clusters which involves bringing into the mainstream the 1bn odd who have hardly prospered from 40 years of growth. Plenty of room here to maintain a healthy growth rate. Should the world get through 2020 without conflict either over HK, Taiwan, Russia or Iran and should Trump get back into the WH then Trump will first clean-up Washington and then focus on how he sees America's role in the world; one of three superpowers living in peace by divvying up spheres of interest. Remember April 2017 in Helsinki.
Trump clean up Washington? Now thats a joke. Toxic does not clean up toxic.
All good points, Mr. Hunt. I would add that internal growth challenges are paramount for Xi. The government has to find jobs for 20 million-plus young people every year and that dictates the continuous expansion of his economy. (I taught 1-semester courses in international marketing and cross-cultural communication to university seniors in China for 10 years - employment was the number one subject of discussion for those young people!)
Good point which just adds to the argument of domestic growth - thanks
Agree
Concur. In his own inept way, DJT has set in motion the quiet reversing of those outsourcing areas that currently appear to make us vulnerable. That outsourcing was always based on maximizing US/Foreign profits and has taken place over many decades. It will take a lot of national policy willpower to sustain and I don't see that even getting started during the present administration.
You are spot on.
I actually don't think Beijing cares what the USG response is, as they know the hardliners are in charge in DC, in both parties, and probably will be as far as the eye can see: the constant decoupling talk, the apparent determination to crush Huawei, the rumblings about restricting Chinese students intent on pursuing STEM studies and so on all make this completely clear. I think Beijing has always known that a day of reckoning was in the offing, the whole "韜光養晦" notion（"biding our time," for lack of a more nuanced translation), so bruited about in China over the last two decades, was a tacit acknowledgement of that. Beijing well knows it is playing the weaker hand, and that this condition will be the case for some time to come, so they have been trying to put off the ultimate declaration of outright enmity for as long as they could; but US policy is making that increasing difficult. With the timing of their new policy, Beijing is simply taking advantage of two current weaknesses: 1) Trump's incapacity for follow-through and 2) Covid-19 paralysis, to deal with what is to their mind and open-sore of a problem, that is Hong Kong verging on anarchy for the second half of last year and the real prospect that it might continue. HK's advantages to China are far less now than what they once were, and most of the place's "irreplaceable" functions can go either to Shenzhen, Shanghai, or Singapore, to little disadvantage to anyway save HK. To my mind, the HK opposition is not sufficiently aware of their Achilles heel.
This is a good analysis. Also, the CCP is taking advantage of the changes in domestic public opinion caused by the radical actions by HK protesters and recent US policies. Because of those things very few in China will criticize the HK National Security Law. If China tried this gambit one or two years ago I think there would have been heavy criticism within Chinese policy and academic circles, saying it is unnecessary, overly provocative and damaging to HK. Similarly, Trump's reaction to the new law also plays into the CCP's narrative. Chinese will ask why would the US be so upset by a National Security Law covering Hong Kong, a part of China? The obvious answer is that the US has in fact been using HK as a base to launch clandestine operations against China and this law thwarts those operations.
I agree with you completely on this. I was in HK last year, arriving Oct. 2 (thinking that by avoiding 10/1 any activity would have subsided, which it did, until the no-mask law came down that Friday and all hell broke loose--by the way one would never have realized the extent of the vandalism of public property by reading the Western media). I went to Changsha about 2 weeks later, then on to Shanghai and Hangzhou, and no one I talked to had anything good to say about the HK disturbances (so much for the US media reports that the HK activity was going to stir up anti-gov't activity on the mainland), even the liberals who normally have absolutely nothing good to say about Beijing. To the extent that the US is stirring the pot in HK, I'm not sure they have thought things through very clearly.
Taking advantage of “1)trumps incapacity 2) covid” + 3) 2 new Chinese aircraft carriers set sail 4) chinese/russian hypersonic missiles. I’d say the huffing and puffing about a military grab of Taiwan is likely and will likely occur before the US develops ubermensch (uberwomensch(political correctness(Pardon my french(i know it’s german))) missiles. How many war games has the US lost over the Taiwan objective? The argument against the the military objective of Taiwan is the expense which in my opinion may be subordinate to the timing with all inputs factored in. I’ll give it a 76% chance.
Classic Trump speech and policy. Mostly garbage bluster that will result in nothing of note. The only substantive actions he will take will harm the innocent and do nothing to advance the interests of the US. Add in some US isolationism and self-pity and that checks all the boxes for a Trump policy speech.
Threw a big fit about China making him look bad and blaming the WHO first, then said he would look into things about market and basically gave HK over to China. Nothing in defense of HK, it’s people or anything else. He gave in to markets and Xi. Tough on China president is Not tough on China
The scale of China’s production of goods and trade with the rest of the world dwarfs that of any other nation. Disengaging from China is rhetoric, for now, as no one else has the industrial capacity or skills to replace it. Any other country will also need to bear the pollution, upgrade its education system, and mobilize massive capital inflows to do so. Long haul.
Edward, I work in finance, the damage that the pandemic has done to demand is vast, we are only getting business financial data now. In Australia we didn't really have a hard lockdown, I the State I'm in at the moment, no lockdown at all really with zero cases currently. Still businesses have been ravaged the upper middle class who have the money to spend on "things" rather than just existing have seen their income imploding. I had a surgeon literally crying in my office that his income had fallen from $2 million a year to $100K. Rents are not being paid killing the wealthy classes income. The consequences will be that "decoupling" has already happened as the demand for China's manufactured goods is just evaporating.
Not unlike the depression there is a lot of manufacturing capacity, but not the demand to buy it.
that's exactly right; without demand, China's industrial capacity will sit and rust, as in China's northwest today
(dongbei. - northeast)
Trump's speech failed on many fronts. As you noted Bill, it will not deter the Chinese to change course - they had conducted considerable scenario planning ahead of time before moving on Hong Kong. But what is even worse is that this speech will also fail to unite more countries from the Western world behind the US - especially the withdrawal from the WHO. Let me offer an illustrative example. Earlier today, when the foreign ministers from all member states of the EU met, Sweden was the ONLY country that made reference to the question of sanctions against China because of the move on Hong Kong. Yet less than an hour after Trump's speech ended, the Swedish foreign minister Mrs. Ann Linde has already issued a statement expressing how regrettable she and the Swedish government views the US:s action to leave WHO. That became the main takeaway - the abandonment of American global leadership - rather than focusing on productive countermeasures towards CCP:s action on HK. 适得其反。Sensible Americans, like yourself Bill, ought to reflect on that for a minute. It is not China's rise that now looks staggering, but rather the fall of American civility and rejection of global leadership. This is profoundly regrettable. As a European who has always admired America, it is deeply troubling to see turmoil you are in at the moment.
Ignoring Trump's bluffing words, one can only conclude this is NOT a strong response; a "proportional" one at best.
Trade is a separate issue, but so far it appears China is only purchasing half of what they are supposed to purchase. At some point in the near future, this will need to be addressed, but now I have realized that other than tariffs, there seems little Trump can do to cause real damage to China in this arena, because the CCP almost always deviates from "agreements" whenever there is a chance to cheat (so do NOT assume there is a strong "social contract" between the CCP and the Chinese people either, because it would be much easier to just trick them into believing "it is all the US' fault" should the Chinese economy tank).
I believe a next sensible move would be to put those tariffs back as soon as possible, but the myopic stock market would not like it, and as people know, when it comes to the stock market, Trump's hands are tied (at least for as long as his re-election campaign is going on).
Regarding Beijing's "heads I win, tails you lose" mindset in terms of the intensity of the USG's response, I think it is just a rhetoric device that justifies China's one-sided, unconstrained actions. I don't think it is a valuable point of discussion because what could ultimately restrict Beijing's behaviors would be counteracting economic and military forces in a realpolitik sense, not mere rhetorics.
What advice would Sun Tzu offer..
"Smile broadly while your enemy walks off a cliff backwards"??
Racist.
I don't know who wrote the passage on Hong Kong but I thought it was very good. Especially the part on how hopes were high that China would open up and develop to be more like Hong Kong rather than HK getting freedoms closed down to the mainland level.
I also agree with the points about now having one-country-one-system and about the moves from Beijing being 27 years premature and the breaking of the Sino-British Treaty. It is a shame he has said some of these things before the British government given it is our treaty, but perhaps we will be willing to speak out now standing safely in the shadow of the US response.
The markets seemed to be fearing something worse, but perhaps the onshoring of key supply chains and the expectation that Chinese firms' market shares may be up for grabs soon is a bigger factor? If the US could successfully decouple from China and not depend on them economically then there would be no reason for the market to fall even if these restrictions do bite on China.
China has pursued multiple policies with the effect of making other countries reliant on it so they can wield power in abusive relationships. From buying huge amounts of FX to making a lot of key items very cheaply and flooding the markets with them. Also belt and road policies involve building unnecessary infrastructure and then loading huge debts on places that cannot repay it. They always threaten neighbours with turning off the tourist taps that put a lot into their economies, its a constant modus operandi and the only way to avoid it is to be self sufficient or at least not be reliant on Chinese supply chains.
i think Mitch McConnell wrote it
Jesus Christ. Sir, please read up on some basic economics and trades...God bless America. It really does need it atm.
well argued Mr JMB
While Trump's language may have been strong, his actions are weak. His entire America First would by it's very nature would dictate a weak response. With his decoupling from China will only make China stronger. If he tries to make the rest of the world choose between the USA or China, dont be surprised if they choose China.
Trump has only shortened the time until China becomes the dominant economic force on the planet. My concern is that there is a very real possibility of war as we sink to second place. It will be critical that the next president have a deft hand to counter the damage this one man has created.
Lets see: debt/gdp ratio around 350% of gdp, rising capital/output ratio, gdp growth falling, consumption stagnant, working age pop falling, retired pop rising and living longer, unemployment rising, exports falling, rmb falling, environmental degredation rising, water shortages increasing . . . How does this model create "the dominant force on the planet?"
Dan, i dont know which line of work u r in or how old u r. Those thing habe been cited for decades to Make predictions...everyone betting against China based on those seemingly obvious 'facts' has since died career wise (except the lucky few who can just talk for a living). Every single thing u cited is arguable and not what it appears. This IS not the place for a proper debate. But as a shorthand, isnt it self evident that the model has created a, if not dominant certainly equally powerful, force, on the planet? If youbfind yourself resisting that fact, then all other rationalisation and analysis would be a waste of time. And it s precisely why we are where we are today, having got China wrong fron at least 40 years, if not longer.
Hey Ken, I had a longer answer, and I agree we don't all want to be Gordon Chang's here (god bless him haha), but as you acknowledged this isn't necessarily the best format for a proper debate, so to go shorthand as you did, it turns out the the model China has wasn't "created" by the CCP as you said, but has been used by about 2 dozen countries throughout the 20th century. In every case, the key to growth was the government increasing the investment share of gov't and business and decreasing the household share of national income in order to goose growth by starting from very little and then building a ton of stuff, and this led to massive growth for about 30 years. During this time, the groups/families that controlled the major gov't and business investment vehicles became incredibly politically powerful, so when the things they built weren't needed anymore--for instance, on infrastructure, China already has excellent infrastructure essentially everywhere--the rational economic thing to do is to redeploy resources from this companies back to households so that they can spend it on other things (for instance, health care, education, better quality food, better quality housing, etc). That's politically difficult though, of course, because powerful and wealthy families aren't generally interested in giving up their power and wealth (and of course, China has completely failed to rebalance the past half generation, since Wen Jiabao's 2007 unbalanced speech consumption as a % of GDP has gone from 33%, the lowest in history for a major economy, to just 40%). So instead, they keep their resources and just keep building infrastructure (in the case of that particular sector, as in China), debt starts exploding, and growth grinds to a halt because a majority of national resources aren't being deployed in useful ways.
So the fact that China has had a generation of growth doesn't mean it will have another one, in fact, from the available evidence, they will follow the path of the other 24 countries who have used this growth model and stagnate, unless they can achieve the politically very difficult feat of transferring massive resources from elite CCP families in Beijing and in provincial governments back to the laobaixing.
At the same time, stagnation now still means they're the #2 economy, and they seem to be doing a good job of staying up with the US and possibly passing the US in some of the most advanced technologies, and are aggressively anti-liberal, so this isn't a prediction of a Chinese collapse or anything like that, just a description of what their economic reality looks like so we can have a clear understanding of what's going on over there.
Thanks David for a thoughtful answer. Sorry i cant do it justice with a proper reply. Suffice it to say that i find it useful and thank you. It is a bewildering subject. I just find confident pronouncements based on cliches frustrating, after so many years of listening to them. Time will tell in any case. All we can do is our best, to be slightly more right than wrong.
China is most certainly large, growth has been the largest in Chinese history, so of course it is a "force." Given that, which of my "facts" (your scare quote marks) are "not what it appears?"
trump is killing Americans.
Personally, I thought the language was very strong and some of my Hong kong friends are in tears. the market relief seems misplaced to me.
I think US needs to appeal directly to HK people with both rhetorical and material (visas) support. Trump seems personally incapable of doing this, and America First seems unfortunately to make this strategically sound move (that more traditional Bush/Reagan conservatives should love) impossible.
Yep. That s the crux of the matter. Global Leadership and America First are in many ways contradictory. Only the most ideological fantasists think it s the the same thing. The rest of the world doesnt quite agree with them.
1. If we assume there is a sense of proportionality with regards to what is unwittingly inflicted on Hong Kong as a result of normalising its status with the mainland on the US side, that must mean what the US should be prepared to deliberately pursue against Beijing should at least be equivalent, or more powerful.
2. So, the price Hong Kong will have to pay will be high, but the US, in order to make their displeasure meaningful, will have to make Beijing pay more still. The critique that the US, by raising its stakes, accelerates the return of Hong Kong, thus playing into Beijing's hands, misses the mark - the US will go over the top, and demonstrate that doing so will be painful to Beijing directly. Punishing Hong Kong for being dissatisfied with Beijing makes no sense.
3. The joint statement with the UK, Australia and Canada, by definition a multilateral approach, hints at how a robust response to Beijing might be done. If you want to go fast, travel alone. If you want to go far, travel together. To the extent this is possible, a long term engagement seems likely to involve other actors.
4. Accordingly, the depth and scale of these sort of measures seem likely to go far beyond what we have seen in 'peacetime', and this will bring the relationship to new lows. How far it goes, and implementation, these policy differences are so big and important, that lasting and credible decision making should be done with the election in mind. Statesmen make tough decisions that last, so President Trump has his work cut out for him - whether or not he wins the election.
5. What does this mean for markets? For Chinese markets, as an emerging market, where political stability is usually more important, I think it is positive, because nothing focuses attention better than a common enemy, consolidating Xi's position. More fiscal spending in order to ensure a post-virus recovery will be good for the economy, and can be justified as a temporary salve to soothe things over with the vested interests. However, it also increases the debt burden, building further on an imbalance that will have to be reckoned with, down the road.
For the US, as a developed market, where corporate earnings is usually more important, this isn't my wheelhouse... so I, uh, don't know*. To the extent that US-China matters, it will depend on the extent of policy differences between Biden and Trump. The more they disagree, the more the uncertainty this creates, and so the higher the related stock market volatility, and risk to valuations. This first round will eventually be resolved once we know the election result, kicking off a second round aligned to the winner's preferences.
Well, the stock market did just fine during World War II, didn't it.
*investing legend Warren Buffett has been cautious, the younger hedge fund manager Bill Ackman, who is having a good year, is buying American, and the macro guru Stanley Druckenmiller + 'Finance Twitter consensus', as far as I can tell, thinks this is bad risk/reward, in that the stock market recovery has far outrun the underlying fundamentals - hopefully this gives a flavour of the range of opinion.
Long ago Xi has pegged Trump. He never would have proceeded against HK on extradition if he thought there was any chance of a substantive response from the US on his current move, which was certainly planned in advance.
In the long annals of Chinese imperial history, Xi must think the gods have cut him a major break by offering Trump as an adversary.
Naive.
And so who do you think Xi prefers? Trump or Joe B?
Without a doubt, Trump. No one divides the western alliance like Trump.
Sigh
President Trump would be wise to realize that, in spite of his throng language and proposed policy actions, Xi (and the CCP) will never, and can never afford to back down. The opposite of rejuvenation is humiliation. And Xi has likely pulled off the HK legal change due to perceived political vulnerability on the part of President Trump. But Xi would be remiss if he underestimates either President Trump’s resolve or America’s resilience. This is thereby the next step in a long-term strategic battle for influence and economic power.
The only resolve that Trump has shown is getting away from consequences for the crimes he commits. Unfortunately Xi seems to be mistaking Trump's personal weakness for America's. This mistake will have bad long term consequences for China and the world.
Face it. We're heading toward a cold war with China. Perhaps we're already there.
https://www.linkedin.com/pulse/maybe-cold-war-us-china-entering-new-type-mike-kersmarki/
The policy debate will now focus on how tough the USA needs to get weighed against the potential for severe economic damage to BOTH countries and, by proxy, the world.
Of course, some people here spout nonsense like 'garbage bluster' or simplistic trolling such as 'trump is killing Americans'. In other words, they have nothing substantive to say.
So, I'll instead quote someone from today who actually knows what he's talking about:
“Frankly the U.S. government is -- I’ll use the word ‘furious,’ at what China has done in recent days, weeks, and months,” White House economic adviser Larry Kudlow said Friday. “They have not behaved well and they have lost the trust, I think, of the whole Western world.”
Headed? We've been in one for over one year now. Our US Cybercommand is already engaged in pitched battles with the CCP. And we will bury them.
I'd be curious to hear if there are any rumblings in the U.S. about allowing some sort of "asylum" arrangement for Hong Kongers who'd like to flee (bringing their wealth with them) similar to the way the US, UK and Canada got a lot of investment/immigration from the uncertainty surrounding the 1997 handover. The British government seems to be dangling this as a possibility at least for about 300K who hold special passports. This would obviously be a highly inflammatory move if the U.S. were to undertake it, but it also seems to be a natural extension of the pullback on special trade privileges and could be a source of leverage, that is if the U.S. is sincere about trying to get China to back off versus resigning Hong Kong to being swallowed up by Xi prematurely.
As strong a symbolic move as this would be, there is simply no way in hell that the current administration would open the floodgates for Hong Kongers. Even though I expect not many would actually take the offer, it's simply not tenable for this POTUS to be seen advocating for increased immigration of any kind, given the way he's stoked his base over the past four years.
Only they stay at Trump Hotels.
Looks like WSJ is thinking the same way: https://www.wsj.com/articles/visas-for-hong-kong-11590792802?emailToken=296fa25f7ddc79020215e0d5bc3b630b5ygnsSJUvKFu8x4J+WPUNIAIRD5k9jo6WLPv06YlvY2FOYGN+zwdztzdhYD3d99N&reflink=article_copyURL_share
The WSJ plagarized me!!!!!
I'll sue the bastards!!!
I am also interested in this. There has been some chatter in the UK, US and Taiwan about providing immigration paths for political activists, but I worry that given the current global trend to nationalism any kind of "refugee" arrangement is only going to benefit the Hong Kong elites who anyway wouldn't have too much trouble escaping to the west.
The people who are the least able to weather the storm of these crackdowns are the poor and working class. From a humanitarian perspective I think (comparatively) free countries around the world should prioritize opening the doors to them.
From a cynical perspective, I think it might also be politically advantageous to open the door to poor and working class migrants from China and Hong Kong, because seeing relatives who are just ordinary people legitimately doing alright for themselves in a foreign country is far better propaganda than having exiled billionaires or high brow academics go on political rants.
How much more in taxes are you willing to pay for these poor persons to come to America? Please answer with dollar amounts. And how many years are you willing to pay these extra taxes? In years. Thanks.
Whatever it takes and how ever long it takes, but I suspect these freedom fighters will be a net positive in months.
HA!!! You are gutless to answer my SIMPLE and 4th grade questions. WHY????
I agree this seems like a smart move from US perspective—visas and path to citizenship for HK people. As others have said, battle for both talent and ‘hearts and minds’ is very significant. If Trump hadn’t been elected on such strong anti-immigration rhetoric he might have been able to consider this more seriously. Are there other downsides I’m not seeing?
India tech talent is deeper, better, and more loyal to US than Chinese talent.
HK talent and general Chinese talent not the same. Also, there are sectors other than tech, ex. finance.
financial sector is already been infiltrated by mainland talents. for more information, you can always visit Simon Shen's page on different platforms or this facebook page called Liberate Central: https://www.facebook.com/Liberate-Central-%E5%85%89%E5%BE%A9%E4%B8%AD%E7%92%B0-110259503785884/
The first indicator of emerging markets as an asset class is offshore yuan trading. On Wednesday the dollar traded as high as 7.1963 against the offshore currency. All other discussions about the future will take time. I am watching the yuan being sold to buy the dollar simply on fears of a poor economic performance by China and its massive budget deficit this year. There will be collateral damage if the trend continues.
1. It’s time for Boris to offer asylum to all HK students, offer them a swift transfer into Russell Group universities and transfer of credits.
2. Any remaining British citizens still working in the HK Police should be investigated and if possible stripped of their citizenship.
3. HK Government officials and members of the CPPCC who hold British passports should have their citizenship taken away. The children of these people should be denied access to British universities.
Thanks for this Bill. Despite not much caring for the US president's approach to doing business, one thing you cannot say is that he doesn't try to do what he has set out in his original manifesto. At the time of the last presidential elections, I was living in the west and a friend pointed out that DT was actually taking part in the debates and process. But differently. I watched some 'debates' and thought he was actually taking the piss. I could not believe he was serious. Every other candidate would earnestly talk about employment, the economy and all that. DT would just say loudly 'look at him. He's got a huge nose! How can you take him seriously?' He may not have been but that was how it seemed to me at the time. By the end of the campaign, everyone else had changed to try to be like him. Of course, they were so much less practiced than him and so pretty useless at it. Remember, "You're Fired!!!" on the Apprentice?? As for his tweeting, it was and remains a total joke but look what has happened to Twitter! Just after DT started tweeting regularly and invited the top 50 US businessmen for a sit down, I read Jamie Dymon from JP Morgan had taken on board what DT was doing on Twitter and said that he thought it a great idea and that he'd do the same.
Being an investment strategist it was my job to determine whether or not the next US president would have a harmful effect on financial markets. So being a nerd, I looked behind the headlines, admittedly not very far as I stopped at his website. The first item was ... China. It said that on day 1 of his presidency he would declare China to be a currency manipulator which carries automatic sanctions (not sure what they are). So all this focus on China is set out very clearly on his website (I haven't looked lately but it was there in 2015 and 2016). It really shouldn't come as a surprise to anyone. For me, its not only the fact that he was pretty much the first person to call a spade a spade regarding China in the public domain, but he is also the first person to actually do something too.
Totally weak response and equity markets are likely to rip higher in the weeks ahead.. Other than invoking sanctions on the big 4 chinese banks or coming up with a bill to subsidize US MNC for ripping apart supply chains and reshoring them either in the US or friendly countries, dont think the Chinese are going to care much. In my opinion, the weakest link for the Chinese is the USD, i.e. the reserve currency. In a world where they are a current account deficit country, their ability to project power outside the country will be limited to their access to USD reserves. To that end, the trade pact served an important strategic purpose. Acting against the big 4 chinese banks or actively rupturing supply chains will accelerate this problem.
Trump's hands are tied wrt HK. On one hand, he needs to show toughness for Nov. On the other hand, he knows China will react with like4like countermeasures. Right now is definitely not the best time to create more chaos given Covid and the George Floyd mess. Plus, can you imagine what sanctions for the Big4 will mean? They are the payment rails for a big chunk of imports from China. LT decoupling makes sense. But can we do it tomorrow? What will that do to our already sparse store shelves and its resultant consequences?
As for the reserve currency, China knows that and has been working to circumvent. This video has a reasonably decent summary of what has happened so far and their ongoing efforts: https://youtu.be/LB7e-anNfaQ
btw its not a recommendation of a course of action that i am referring to. With respect to supply chains, actions taken now will have impact over the next 5-10 years. Thats why it is called a strategic course of action. As for the Youtube video, its a bit shallow in its analysis. When a developing country borrows from China, its in USD and when they default, who will bear the USD impact of the loss? As for internalisation of the renminbi, this started a few years ago but has stalled in the last 18months or so.
Grasshopper, his point on the developing country borrowing is that now they are more beholden to PRC and their influence of currency for payments. Rather than relying on the SWIFT hub and spoke, China is slowing setting up individual point to points with countries across the world, ala Southwest vs United
Lets keep the discourse civil? As for your internationalization of RMB comment, if you were in the markets, you would know that its a non-issue. What has been the growth of offshore RMB deposits, What has been the growth of trade payments in RMB, and what has been the growth of capital market activity in offshore RMB.. Suggest you check that out before you arrive at any conclusion on the success of this project. FWIW, i was closely involved in this project when it was initiated many years ago. With regards to your comment on holding the debtor country hostage, i agree that it works in the short run but in the long run, there is only so much any country will be subject to forced colonization. Besides if there is a default, china does not have the ability to print USD and that is the point that i am making. Also i doubt that IMF and the Paris club would be willing to bail these countries without a commensurate haircut from China.
Also, if you have had conversations with project finance bankers involved in this, you would know that Chinese banks have lent massive amounts of USD to fund infrastructure projects (with Chinese SOEs taking the equity stakes) in frontier emerging markets with the domestic infrastructure companies and governments taking the currency risk. If you had been trading during the 1998 asian financial crisis, you would know that most of these offtake agreements ended in tears with the local companies and governments defaulting or restructuring on it. These USD loans by the chinese banks are 20-25 year loans funded by shorter term debt in commercial markets - they have no natural USD deposit base. This ALM mismatch coupled with the enhanced possibility of a default cycle in these frontier emerging markets makes me wonder how the Chinese banks will fund the USD deficit that will ensue. Further the Youtube video has incorrect statement about Unallocated reserves. Pls see the link below for the correct definition.
https://data.imf.org/?sk=E6A5F467-C14B-4AA8-9F6D-5A09EC4E62A4&sId=1408202647052
Grasshopper, my goodness, you seem obsessed. 3 replies since yesterday AM, including one that you seem to have deleted. Oh dear, that’s not good. Hope you don’t get too worked up over this.
I never said that China will replace the US as the reserve currency. Go back and reread my comments, junior. However, they are trying to circumvent it by creating bilateral agreements with nations across the world. The threat of the US leveraging its reserve currency status to sanction China, similar to what it has done with some countries, is very low, at least in the near to medium term, given that we trade with China a lot and so does rest of the world. Nonetheless, no country feels comfortable with that threat. It is akin to giving up sovereignty. And this is not just felt by the Chinese, Russians, etc. but also the EU and other friendlies.
FWIW, I don’t think China is aiming for the RMB to replace the USD as the reserve currency. They must know that’s not gonna happen. And it also will not happen for any fiat currency. Now that they have seen what the US has done with it, the world will not accept another country holding jurisdiction over them. Fool me once, shame on you; fool me twice, shame on me. If and when the USD loses its status as the global reserve currency, and it will happen, either a basket or something else non-fiat will replace it.
I hope you enjoy the rest of your Sunday. Do something relaxing instead of getting all uptight over an online forum. I am taking my kids fishing :)
It is not Trump viz China or even Trump viz XJP. The UK, Canada, Australia are active in declaratory policy. France took the firmest line with "Wolf" disinformation re the origin of the virus. The Germans will not allow the EU to stray into the domain of principle, but if there is resistance rather than submission in HKG once the new measures come into effect, Chancellor Merkel will not hold the line. In Japan also the option of silence would be untenable. India, Vietnam, Indonesia will do nothing for HKG but they are resisting physical expansionism & will continue to do so--especially if USA does not rush in ...
All I can think of is this timely quote from The History of the Peloponessian War: “[some states’] over-mastering desire for victory makes them neglect their own best interest”. At the risk of mixing my metaphors, I would call this Pyrrhic although that would imply Trump will get a victory.
Trump has taken the strategic rivalry strategy and eaten it with a lump of e-coli.
This was with respect to the WHO decision...
But it certainly can apply to the entire reaction. Most Trump policy towards Chins is like this - hurts the American economy and long-term US power, but it is done just to spite China and try desperately to cause a collapse of the Chinese state. The Huawei ban hurts American companies and damages America's long-term technological dominance (by forcing an end to American monopolies in certain industries). Tariffs hurt the American consumer and business profitability. Restricting academic collaboration hurts American universities and America's technological leadership. Leaving the WHO damages America's global standing and ability to respond to future epidemics. It is primarily driven by ideology, fear and spite rather than rational self-interest. Of course "winning" is self-interest, but these policies actually won't help the US "win" in the long run unless the Chinese state collapses, which seems highly unlikely. As a result, I don't think China's leadership dislikes these policies. They just want to stop the US from poisoning China's relationship with other countries.
I don't think the Chinese state needs to "collapse" (what does that even mean in real terms) for some of these trade/tech policies to be effective. By setting them back for X number of years, you can increase your relative advantage very quickly in a battle for influence - remember its not easy to catch up on advanced tech across the entire breadth of the spectrum, especially when it requires enormous amounts of time and money, two resources that China (and to be fair every country) is running short of. The difference is that the US has had a long time to build that reservoir of power, technology, money, etc
Its not like China isn't trying to independently develop these technologies anyways - so the US is not sacrificing long term tech dominance (which is determined by long term economic growth regardless of any other factor) but instead trading short term corporate profits for a strategic blow to set the Chinese back. Is it worth it? Debatable, but at least it should be framed correctly
Yeah it will be interesting to see what comes out over time about what has been happening with the WHO and the US in the last couple months. I suspect the funding cut-off was a bit of a bluff, and they went straight to the WHO with a list of demands (Taiwan observer status, mea culpa from Tedros, install US compliant staff or oversight) and they were rebuffed completely. Backed into a corner Trump had to deliver on his threats, so it's flick a match over the shoulder and walk out the door.
Is China running away scared?
China is a paper tiger. We (the west) will destroy them.
You GOP Dip Tihs, American NEEDS China. Look at EVERYTHING that is MADE IN CHINA. 45% of all medicines Americans take are MADE IN CHINA. You complete trump Idiot!!!!
Childish behavior noted. Enjoy your echo chamber.
I report the truth. Now climb back into trump's butt. And enjoy dinner.
Only thing made in China I want is my wife.
Respectfully thank you for the invitation to comment Bill. US actions towards China, and the latter’s responses to it. Your points of view were most informative and interesting. So were the views of those who commented here.
English is not my native language, so sincere apologies in advance for inevitable errors in grammar and syntax, especially if those errors come across as culturally impolite. Cultural protocols having been dispensed with, allow me to define the “promontory” from which I will base my thoughts re your request for a comment about US and China relations today.
Economic, cultural, political growth is an invisible but powerful undercurrent similar to the main undercurrents underneath our oceans. For lack of a better term, the outward nature of this undercurrent is political and economic but its main force is religious and ideological. And it dynamically alive. One cannot physically see it on the economic radar, but its location and destination can be tracked by the sound and heat waves it radiates in its wake.
This invisible undercurrent started way back, about 2,500-3,000 years ago. The direction it took followed the path of the moon- from the west to the east. Originating from India, it flowed towards China, then Korea, until it reached Japan. On its path disasters and calamities preceded order and prosperity that came afterwards. Approximately 60 years ago, this current started to move to the opposite direction. From the Asian east, starting in Japan, it is moving back to the western side towards India. It is like a stealth jet.
This shift and its path is characterized initially by economic and political turmoils but followed by prosperity. It seems political and economic forces cannot stopped this undercurrent but can only benefit from it. This undercurrent acts like an economic magnet that attracts benevolent forces from without or a plow that brings up to the surface benevolent economic forces.
From Japan and moving towards India, major economic shifts sprouted unsuppressed. Western economic entities gravitate towards it or native economic forces become strengthened by it. The times pan, though measured in decades, is apparent.
I can only surmise, the foundational force that propels this invisible current is very primal and humanistic in nature. This is my promontory. Having defined it, here is my brief view of your request.
The four countries - Japan, Korea, China, India, and beyond say Africa will benefit economically from this irreversible undercurrent. There will be inevitable hiccups along the way like this covid19 virus. But the benefits will occur, regardless of what the US will do. Perhaps, regardless also of what the internal power structures of China or even India will do as well.
But there is a catch. For this “living, benevolent and humanistic dragon” to march on and benefit all, it must be fed, or must feed on “inclusive” and “compassionate” actions.
Of course that is just a hunch. But there is a basis for that hunch.
Imagine if the Roman Empire, did the opposite in their governance. Instead of insisting on being “exclusive” and aggregating all the resources of their client states to themselves, what if they pursued equal prosperity and inclusiveness towards everyone including the barbarian states? What if?
Would the Germanic tribes invade and destroy them if these tribes are just as prosperous or even more prosperous than Rome? Would South Americans migrate up North, if they are more prosperous than the those up North? Water seeks its own level. But what if, by humanistic and collective choice, one make the water stop seeking other levels? What if we can make “water” be content at the level where it is now? This is inclusive economic growth.
If Japan, Korea, China, and India, learned from the Romans and does the opposite, like making their neighbors just as prosperous, or even slightly more prosperous than them, what would the world look like, 50 years from now? Instead of constructing expensive border walls, one can utilize that same money for more beneficial ventures.
Perhaps this is the direction that China is going with its infrastructure expansion. Ambitious but so far sighted. An improved variation of the European Union.
Moreover, the traditional model of export growth is exporting goods. But nobody ever tried exporting “utilities” on a massive scale. Natural gas yes, but how about energy? Energy industries, even if regulated in their profits are profitable ventures, done well.
What if one can create an enormous power grid spanning an area as big as Asia? The new Silk Road is already in place reaching up to Africa. The maritime silk road will soon be for Asia pacific islands. That is for transport. Imagine if High-Tension energy follows the same route.
It’s like expanding Rome’s walls, making it so wide and inclusive, it includes the Gauls, Germania, Asia Major and Minor, the Asian Steepes, and even Britannia. The only purpose of that wall is to protect the people inside it against the fierce northern icy winds.
If this is where China and possibly India is going, wow! If the four - Japan, Korea, China, India can only work together peacefully like long lost brothers, wow! That invisible undercurrent will expand beyond the Asian shelf to benefit the entire humankind. Peacefully.
That’s it! Thank you Bill for the invite. Apologies if my comment was too long and have abused your hospitality.
good grief! (that's an American bit of slang meant to convey amazement and disagreement): "Perhaps this is the direction China is going with its infrastructure expansion": direction seems to be towards Xinjiang, not an "improved European Union."
I see.... A haiku for your grief...
A brown bird
pecking at a mango
keeps looking everywhere... but me.
Trump‘s irrational policy makes it difficult for European leaders to do what would be extremely necessary towards China: stand united. The West‘s division will leave China as the only profiteer - as we can see now regarding Hongkong.
Playing poker with Trump is an easy task. He loves to bet his opening cards, and then double down regardless of what the next cards bing to his hand, noticing that he bluffs with impunity, all Xi has to do is stay with Trump, don't fold unless his hand is pairless, but hold until that last card, the River card shows up and leaves Trump with nothing but a high pair. You can call his bluff, for he will waste money in order to bluff for he wants to win every hand and of course that's impossible. China will end up outplaying and outmaneuvering our moronic bluff of a President, that is unless Xi is not good at cards and calling bluffs.
what happens when the "moronic bluff" is holding a much stronger hand and knows it?
His history is the bluff. I call raise and call him. His analytical powers are sophomoric. His thinking is predictably reactionary, dull, morose, and prosaic. Thus far US Companies have suffered a 1.7 Trillion dollar loss in company value. His understanding of the international global economy is non-existent. China has the manufacturing capability of which the US lacks. The country that manufactures wins wars.
Lets assume your characterization of his personal characteristics are true (I dont think so, but . . .). My guess is that the country with the aircraft carriers and the allies (Japan, View Nam, Australia, India, Singapore) wins. But we certainly dont want to find out!
Several conservative online sources have stated that during war games with China around Asia, China has beaten US most of the times. Welcome others who may have more reliable info as "online" has risks of being "fake".
Your suggestion that Japan, VN, Aus, India and SP to aid the US, especially if they fight in the Asian theater, is highly doubtful. Maybe moral support.
Singapore? Are you kidding?!
Nothing new under this son hete.
Brinksmanship is how Trump sustains the illusion of being thr Great Negotiator - actially Great Illusionist.
As Xi knows he'll come back to the table and the endless one upmanship will restart post COVID I
A circular game only ended when Mr.T trips on his own rhetoric and implodes once the Pandoras Box of horrors that's been.brewing springs open in early Fall.
November will be bloody - hopefully only metaphorically, since the Republic trully faces Civil War II whatever the election result.
It's that bad.
trump is killing Americans.
Is the Leader of China afraid to go to sleep tonight?
not!!!!!
trumpie is going to send Eric over there.
ALL IS WELL!!!!!!!
wrong...
Bill, you’re on the money. Thanks.
Weak sauce. If it's not sanctioning the big 4 banks, forced removal of all US/Western supply lines/manufacturing from China, sanctioning/freezing/seizure of assets of top PRC officials and their families in the West, or banning of PRC propaganda from Western platforms they don't care.
None of these (other than vague sanctions mention) were put on the table today, but do people think they could be should things escalate? What would come first? What would never happen?
Our policy should be to defend liberal democratic values at all costs. The question should always only be what actions can we take best to further that goal. Any commentary or position which fails to address this question head on without attacking the person asking this question is a fail.
supply chains are BILLIONS of dollars, constructed over decades, financed by the hedge funds and investment bankers who decide the daily movement of the stock market. clearly globalization, going back to the Clinton-Blair era, failed to foresee the consequences of the off-shoring of this, but now it's done. In the absence of a war, I'm not sure that any president, even one less besmitten by Wall Street than Trump, could reverse this. Yes, most of the huge corporations that have set up shop in China have lost money, but they are still betting both on cheap Chinese labor and the growing Chinese middle class for the next 50 years...
Cheap labor? Highly doubtful. Skillful labor yes. Nobody is moving to Manila are they?
that's correct; Mexican labor is now cheaper than Chinese; is this the same "middle class" with the lowest consumption/gdp in recorded history? average income around $4-5,000/yr?
Yes but unlikely have the skills to assemble iPhones. Vietnam does.
Mexicans cant assemble iPhones but rural Chinese peasants can?
Respectfully reposting. It seems the previous comment didn't get through the thread.
Respectfully thank you for the invitation to comment Bill. US actions towards China, and the latter’s responses to it. Your points of view were most informative and interesting. So were the views of those who commented here.
English is not my native language, so sincere apologies in advance for inevitable errors in grammar and syntax, especially if those errors come across as culturally impolite. Cultural protocols having been dispensed with, allow me to define the “promontory” from which I will base my thoughts re your request for a comment about US and China relations today.
Economic, cultural, political growth is an invisible but powerful undercurrent similar to the main undercurrents underneath our oceans. For lack of a better term, the outward nature of this undercurrent is political and economic but its main force is religious and ideological. And it dynamically alive. One cannot physically see it on the economic radar, but its location and destination can be tracked by the sound and heat waves it radiates in its wake. Like a slow stealthy vehicle.
This invisible undercurrent started way back, about 2,500-3,000 years ago. The direction it took followed the path of the moon- from the west to the east. Originating from India, it flowed towards China, then Korea, until it reached Japan. On its path disasters and calamities preceded order and prosperity that came afterwards. Approximately 60 years ago, this current started to move to the opposite direction. From the Asian east, starting in Japan, it is moving back to the western side towards India.
This east-to-west shift and its path is characterized initially by economic and political turmoils but followed by prosperity. It seems political and economic forces cannot stopped this undercurrent but can only benefit from it. This undercurrent acts like an economic magnet that attracts benevolent forces from without or a plow that brings up to the surface benevolent economic forces.
From Japan and moving towards India, major economic shifts sprouted unsuppressed. Western economic entities gravitate towards it or native economic forces become strengthened by it. The times pan, though measured in decades, is apparent.
I can only surmise, the foundational force that propels this invisible current is very primal and humanistic in nature. This is my promontory. Having defined it, here is my brief view of your request.
The four countries - Japan, Korea, China, India, and beyond say Africa will benefit economically from this irreversible undercurrent. There will be inevitable hiccups along the way like this covid19 virus. But the benefits will occur, regardless of what the US will do. Perhaps, regardless also of what the internal power structures of China or even India will do as well.
But there is a catch. Suffering and misery awakens this dragon. However, for this “living, benevolent and humanistic dragon” to march on and benefit all, it must be fed, or must feed on “inclusive” and “compassionate” actions. Otherwise, it buries itself back and the suffering, and the prevailing sense of powerlessness stays.
Of course that is just a hunch. But there is a basis for that hunch.
Imagine if the Roman Empire, did the opposite in their governance. Instead of insisting on being “exclusive” and aggregating all the resources of their client states to themselves, what if they pursued equal prosperity and inclusiveness towards everyone including the barbarian states? What if?
Would the Germanic tribes invade and destroy them if these tribes are just as prosperous or even more prosperous than Rome? Would South Americans migrate up North, if they are more prosperous than the those up North? Water seeks its own level. But what if, by humanistic and collective choice, one make the water stop seeking other levels? What if we can make “water” be content at the level where it is now? This is inclusive economic growth.
If Japan, Korea, China, and India, learned from the Romans and does the opposite, like making their neighbors just as prosperous, or even slightly more prosperous than them, what would the world look like, 50 years from now? Instead of constructing expensive border walls, one can utilize that same money for more beneficial ventures.
Perhaps this is the direction that China is going with its infrastructure expansion. Ambitious but so far sighted. An improved variation of the European Union.
Moreover, the traditional model of export growth is exporting goods. But nobody ever tried exporting “utilities” on a massive scale. Natural gas yes, but how about energy? Energy industries, even if regulated in their profits are profitable ventures, done well.
What if one can create an enormous power grid spanning an area as big as Asia? The new Silk Road is already in place reaching up to Africa. The maritime silk road will soon be for Asia pacific islands. That is for transport. Imagine if High-Tension energy follows the same route.
It’s like expanding Rome’s walls, making it so wide and inclusive, it includes the Gauls, Germania, Asia Major and Minor, the Asian Steepes, and even Britannia. The only purpose of that wall is to protect the people inside it against the fierce northern icy winds.
If this is where China and possibly India is going, wow! If the four - Japan, Korea, China, India can only work together peacefully like long lost brothers, wow! That invisible undercurrent will expand beyond the Asian shelf to benefit the entire humankind. Peacefully.
That’s it! Thank you Bill for the invite. Apologies if my comment was too long and have abused your hospitality.
Speaking of Taiwan ... Despite the Wuhan coronavirus (COVID-19) pandemic, Taiwan registered 1.54 percent economic growth during the first quarter, the highest of any of Asia's Four Dragons and one of the highest in the world. https://www.taiwannews.com.tw/en/news/3941096
A source told London's Sunday Express “don’t be surprised if we end up recognizing Taiwan and joining others in defending it with military assets.”
https://www.express.co.uk/news/world/1289273/china-news-taiwan-britain-military-aggression
James Roger. Editor in Chief of British Interest. Very hardcore. Also the son of Captain America. :-)
We are at the beginning of June. Elections are in November. New term starts in January. Even if ultimately reelected, Trump is a lame duck for now, and China will not even need to respond, whatever he says.
He wasn’t specific. However, whatever the specifics may be, if they follow the scheme and broader actions he listed, they’re set to be very harsh, even without factoring in retaliation and counter retaliation. He said clearly HK status will be revised. He doesn’t look like he will backtrack from that. Looking at November, China turned into the pillar of his re-elections campaign. Above all, it is crystal clear to anybody that China is ‘enemy’ number one. China is on target.
Heard rumors that the administration had been considering using IEEPA to declare a national emergency. If that's true, what was announced is a significant scale-down.
Hong Kong does not pay taxes to China’s treasury.