From our 15 August LDESP Asia-Pacific News Update.
Although politics and tension between the U.S. and China are usually unpredictable, relations between the two powers have been seemingly on the rise this past summer. In June, President Obama and Chinese President Xi Jinping hit the reset button. CNN reports “U.S., Chinese Leaders Talk of Forging ‘New Model’ in Relations”:
Even after months of tensions over alleged cyberattacks, the leaders of China and the United States struck positive tones in a two-day summit that ended on in the sweltering heat of the California desert as both talked of forging a “new model” for their relations going forward.
“We’re meeting here today to chart the future of China-U.S. relations,” Chinese President Xi Jinping said. “…We need to think creatively and act energetically so that working together we can build a new model of major country relationship.”
The summit at the Annenberg Retreat at Sunnylands, just outside Palm Springs, comes less than three months after Xi rose to his current post. Both he and U.S. President Barack Obama pointed out their meeting is happening sooner than some expected, a testament they said to both men’s recognition of the importance of solid relations between the two countries.
And both heads of state, who met last year in Washington when Xi was China’s vice president, spoke of pursuing policies that furthers their nation’s respective interests.
“It is in the United States’ interest that China continues on the path of success, because we believe that a peaceful and stable and prosperous china is not only good for Chinese but also good for the world and for the United States,” he said.
The U.S. president did allude to the fact “areas of tensions” are inevitable, highlighted his nation’s commitment to human rights, and its support for “an international economic order where nations are playing by the same rules.”
“And … the United States and China (can) work together to address issues like cybersecurity and the protection of intellectual property,” he added.
That comment — tucked in the middle of Obama’s opening remarks — was the closest the U.S. president got to referring to the rhetorical skirmishes of late over whether U.S. servers and secrets have been targeted from China.
Such allegations were made in a Pentagon report that points to “the Chinese government and military” as the likely culprits of cyberintrusions in American institutions, to allegations that even the presidential campaigns of Mitt Romney and Barack Obama were hacked by Chinese operatives in 2012.
(…) Robert Pastor, founder and director of the Center for North American Studies at American University, said the two nations have different perspectives.
While the “U.S. is focusing on acts of violence and terrorism,” Pastor said, China is “utilizing the Internet and other mechanism in order to steal commercial or military secrets.”
(…) Meanwhile, the American public sees China as much as an ally or, at least, a “frenemy.”
The latest Gallup poll shows 55% of Americans asked think China is either an ally (11%) or a nation friendly to the United States (44%), while 40% say it is either unfriendly (26%) or an enemy (14%).
For the most part, the different experts said, the early June meeting was primarily an opportunity for the two leaders to get to know one another, while also addressing major issues. (CNN)
In response to the early June summit between the U.S. and China, Isaac Stone Fish, associate editor at Foreign Policy Magazine, had an interesting analysis of the significance of the summit in relations between the two countries and the U.S.’s relations with Japan. “Realpolitik and Spinning the U.S.-China Summit” (excerpted from the New York Times):
According to a Chinese article widely circulated on the Internet, the Obama-Xi summit meeting in early June has made Prime Minister Shinzo Abe of Japan jealous. Published in People’s Daily, the mouthpiece of the Communist Party, the article crows that President Xi Jinping got a two-day informal meeting with President Obama, while Abe’s visit to Washington in February resulted in only a “lunch reception.”
The People’s Daily is not the only Chinese media outlet to play up the angle of Japan losing ground after the summit. Du Ping, a prominent Chinese commentator, told Phoenix TV of Hong Kong that the meeting in California made Japan worried that Obama and Xi “would reach a secret” agreement on the fate of the disputed islands in the East China Sea that Japan administers but Beijing claims as Chinese territory. An article on the Chinese news Web site The Observer was even blunter: “Japan worries the United States will betray it,” and change its stance on the islands, which China calls the Diaoyu and Japan calls the Senkaku.
Of course, Chinese media commentary needs to be taken with a big dose of skepticism. Nevertheless, behind the speculation about Tokyo’s miffed feelings over American-Chinese relations lie the realities of diplomatic horse-trading and the evolving demands of realpolitik. Japan has reason to be concerned that the Obama-Xi summit weakened the U.S. commitment to defending Japan, especially over the tiny islets.
In recent years, China has become increasingly aggressive in the waters to its south and east, areas that are outside of what has traditionally been its territory. Beijing has claimed ownership over a wide area of the South China Sea, including maritime and island territories claimed by five Southeast Asian nations and Taiwan. Chinese military ships have come dangerously close to firing on a Japanese naval vessel in waters near the Senkaku. The U.S. pivot to Asia, announced in late 2011, reassured many of China’s neighbors of America’s dedication to the region, yet China seems unwilling to back down on its territorial claims.
(…) After the summit, the outgoing U.S. national security adviser, Thomas Donilon, told reporters that Obama pushed Xi to de-escalate tensions in the East China Sea, stating that “the parties should seek to have conversations about this through diplomatic channels and not through actions.” That’s far less encouraging than reiterating that the islands fall under the U.S.-Japan security treaty obligations, as Defense Secretary Chuck Hagel did in April. (Hagel also repeated that the United States “does not take a position on the ultimate sovereignty of the islands.”)
(…) The Chinese media, like the American press, used this summit as a chance to reminisce on the short list of past breakthrough meetings between the two countries — Richard Nixon’s historic visit to China in 1972, for example, and Deng Xiaoping’s goodwill visit to the United States in 1979. The People’s Daily article, however, focused on how these summits lessened American support for Japan. (New York Times)
Since the informal summit between Presidents Obama and China’s Xi Jinping, there have been other signals of improving relations, for example another round of talks in early July. The Wall Street Journal reports “Next Up after U.S.-China Talks”:
“Chinese and U.S. officials hailed the summit that concluded 8 June on the Sunnylands estate in Rancho Mirage, Calif., as a historic moment that would help to avert future conflict, saying the two leaders found common ground on issues including North Korea and climate change, and they pledged to talk about their differences more often, including during a similarly informal summit in China at an unspecified date.
Chinese experts and state media on 9 June portrayed the meeting, the first with Mr. Obama since Mr. Xi became president in March, as a victory for the Chinese leader’s signature foreign-policy initiative: a proposal to form a “new type of great power relationship” with the U.S. as a way to avoid conflict between a rising power and an established one.
U.S. and other foreign observers were more skeptical, welcoming the attempt to recalibrate the relationship, but cautioning that the results would become clear during more-detailed talks such as the next round of the regular China-U.S. Strategic and Economic Dialogue, that took place July 8-12.
(…) While the two leaders didn’t produce a specific plan or reach a substantive agreement in the realm of cybersecurity, they did provide guidance to the cyber working group, National Security Adviser Tom Donilon said. And the group is expected to report back to the two presidents after the July discussions.
The wide-ranging and high-level talks will be the fifth set between the world’s two biggest economies under the current format. The talks replaced an earlier set of bilateral meetings begun under the administration of George W. Bush, and involve hundreds of top government officials from both countries. The talks often focus on resolving trade disputes between the two countries.
The high-level series of dialogues have been criticized as long on talk and short on accomplishments. Seeking to counter that perception, the U.S. State Department trumpeted 26 separate achievements following the 2010 powwow in Beijing, though some didn’t seem like diplomatic breakthroughs. No. 17, for example, read: “Continue working toward a successful construction of a Chinese garden at the National Arboretum in Washington, D.C.” (Wall Street Journal)
A month later in August, China and the U.S. took part in a military exercise together and boosted tourism between the two countries. Nonetheless, tensions over cyber-security, nuclear issues with Iran and North Korea, and the constant power-balancing in the South China Sea continue to plague relations between the great powers.
The Risk of Cybersecurity Spillovers
In the recent U.S.-China Strategic & Economic Dialogue (S&ED), the inaugural cybersecurity session preceded the actual summit. Following the Snowden disclosures, the idea was to insulate the S&ED core tracks from cyber controversies. While President Xi has advocated “a new type of great power relationship,” strategic cybersecurity issues may soon spill over into bilateral economic relations. (…) In the past few years, assertive U.S. voices have advocated increasing reciprocity vis-à-vis China. In matters of strategic and economic friction, the U.S. should reciprocate in kind, or so the argument goes. What such reciprocity games in the U.S. ignore is the increasing probability of mirror-like measures to protect economic and strategic interests in China. Chinese observers have already noted that the Chinese government has not paid adequate attention to the safety of the Internet infrastructure and information systems in the past. In the early years of the reform and opening-up policies, China was largely dependent on foreign technology. But that status quo is history. In the nascent multipolar world, Chinese companies will have a central role nationally and internationally. While many Chinese recognize the great contribution of U.S. companies to China’s growth, others argue now that many of these companies are subject to efforts to leverage U.S. global military dominance into the cyberspace. What could be done to minimize the adverse impact of these cybersecurity conflicts? By its very nature, the web is open, collaborative and global. Alone, neither the United States nor China may be able to contain all potentially devastating cyberthreats. However, working together, the two could rally the international community behind effective cybersecurity, without inflated security measures or excessive economic protectionism. That, in turn, would pave way to true strategic trust and multipolar cooperation. (China Focus)
Global Insights: China Balances between Iran and U.S.
Having discussed Russia’s policies toward Iran in my last column, I thought it would be instructive to analyze China’s policies toward the Islamic Republic to highlight the similarities and differences in their approaches, which are often overlooked. Beijing shares many of Moscow’s concerns, both regarding Iran’s nuclear program and the West’s reaction to it. But Chinese policymakers are often more timid than their Russian counterparts in defying Western preferences, even as they are at times bolder in seeking advantage from the crisis.
During the past decade, China has joined Russia in opposing Iran’s efforts to acquire sensitive nuclear technologies but concurs with Moscow that Tehran’s nuclear program has now developed too far to be entirely reversed. Chinese policymakers still oppose Iran’s acquisition of nuclear weapons, however, so they want Iran to limit the magnitude of its nuclear activities as well as make those efforts highly transparent to foreign monitoring to ensure their peaceful nature. Chinese officials also agree with their Russian counterparts that the best way to dampen any Iranian nuclear weapons ambitions is through dialogue, negotiations and reassurance rather than threats or sanctions. Nonetheless, due to concerns over Persian Gulf oil supplies, China is more willing than Russia to explicitly describe Western policies toward Iran as hypocritical and to support Tehran’s ballistic missile program, even as Beijing seeks to hide behind Moscow’s lead in blocking Western sanctions against Iran. Beijing’s main fear is that Iran’s obtaining a nuclear weapons capability would increase the risk of war in the Middle East, the source of about half of China’s imported oil.
Even without a war in the Gulf, the spread of nuclear weapons capacity to additional countries in the region would generally weaken Beijing’s influence, since it would dilute China’s status as one of the few nuclear-armed states.
(…) Western unilateral sanctions and the subsequent withdrawal of many European and Asian firms from the Iranian market have allowed China to become Iran’s most important economic partner. Even Russia has cooled on Iran, as illustrated by Moscow’s wariness about selling Iran Russia’s most advanced military or civil nuclear technologies. While commercial ties between Russia and Iran have stagnated, China has become Iran’s No. 1 oil purchaser, and bilateral trade has been surging. Chinese officials have defended their country’s trade with Iran as normal commercial relations that do not harm other countries or violate United Nations sanctions. In partnership with their Russian colleagues, they have repeatedly sought to block or soften U.N. Security Council sanctions. However, China has at times supported modest multilateral sanctions to avert more severe Western actions, such as the use of force or Western supplementary sanctions imposed outside the Security Council. (World Politics Review)
Biden Says U.S. to Push China for South China Sea Code
Vice President Joe Biden said the U.S. is pushing China to negotiate quickly with Southeast Asian nations on a code of conduct for the South China Sea, an area that’s a “major, major, major highway of commerce.” China agreed during an Association of Southeast Asian Nations-hosted forum in Brunei in late June to meet with the 10-member group in September to develop rules to avoid conflict in the waters. Nguyen Tan Dung, prime minister of Asean member Vietnam, warned in May that miscalculations over territorial disputes could disrupt commerce, with two-thirds of all maritime trade moving through the area. “We’re doing everything to encourage that to be done, but it has to be done,” Biden said in a Bloomberg Television interview on July 27, as he wrapped up a six-day trip to India and Singapore. “It’s in everyone’s interest, including China’s, to have it happen that way, through negotiating a settlement.” Biden is the third senior Obama administration official to visit Asia — following Secretary of Defense Chuck Hagel and Secretary of State John Kerry — since May, as the U.S. seeks to assure its allies it is committed to a pledge to build its military and economic presence in the region. The U.S. has close ties with the Philippines, which has its own maritime dispute with China, a tussle that has also prompted the Asean member to bolster its relations with Japan. President Barack Obama will travel to Malaysia for a summit October 11-12, Deputy National Security Adviser Ben Rhodes said on 27 July in a message on the social networking site Twitter. China’s neighbors reject its map of the South China Sea, first published in the 1940s, as a basis for joint exploration of oil and gas. Spats involving fishing and exploration boats have raised tensions as countries vie for resources. (…) China National Offshore Oil Corp. estimates the South China Sea may hold about five times more undiscovered natural gas than the country’s current proved reserves, according to the U.S. Energy Information Administration. China, the world’s second-biggest economy, rejects U.S. involvement in South China Sea matters. While it has said it wants a code of conduct in the waters, it also seeks to resolve territorial disputes on a bilateral basis. It views the other countries as aggressors, accusing them of breaching a previous agreement on operating in the area. Biden didn’t offer specifics on how the U.S. would prod China for a quick resolution of a code of conduct.
(…) A year after the Pentagon said it would focus more on Asia after a decade of wars in Iraq and Afghanistan, the U.S. Defense Department faces as much as $500 billion in cuts over the next nine years. The U.S. military rebalance will mean that 60 percent of the Navy’s fleet will be based in the Pacific by 2020, from about 50 percent. “One of the reasons the region has been able to succeed so well economically for long is the stability and security the United States’s presence in the region has provided,” Biden said. “We’re a Pacific power. We’re not going anywhere.” (Bloomberg)
Eyeing China. Philippines Gains U.S. Ship in Military Upgrade
The Philippines took possession of a former U.S. Coast Guard ship on 6 August, part of its biggest military upgrade in decades, as a stronger economy allows it to raise spending to counter China’s growing assertiveness in disputed waters. The military build-up, which is heavily focused on maritime capability, is likely to add to tension over the South China Sea that has threatened to draw in the United States as it refocuses its military attention on Asia.
President Benigno Aquino and senior ministers watched as the frigate, BRP Ramon Alcaraz, sailed into the Philippines’ Subic Bay, a former U.S. naval base, after a two-month voyage from South Carolina, where its 88 Philippine crew trained for a year. The 46-year-old Hamilton-class cutter, the second of its type the Philippines has received from its U.S. ally, will be used to patrol areas of the South China Sea near the Philippine coast that have become a major source of tension with Beijing. “It’s very clear – real growth is possible only if there’s genuine stability and peace in our nation,” Aquino said in a speech, adding the country needed to “erase the image” of a poorly equipped military. Aquino is determined to modernize the navy and air force after three past administrations failed to implement a 330- billion-peso ($7.6-billion) spending plan passed in 1995, after the Chinese occupation of the half-submerged Mischief Reef. But a weak economy and two long-running insurgencies by Maoist and Muslim rebels drained the country’s funds and left it with one of Southeast Asia’s weakest militaries. When Aquino took over in 2010, just 10 percent of the 1995 plan’s budget had been used. He won congressional approval to extend the plan 15 years and spend $1.7 billion to upgrade the military over the next five years, helped by robust economic growth that hit 7.8 percent in the first quarter this year, the fastest in Asia. China, Taiwan and Vietnam claim the entire South China Sea while Brunei, Malaysia and the Philippines have partial claims on areas believed to have rich deposits of oil and natural gas. Last year, China added to Manila’s alarm by occupying the Scarborough Shoal just 124 nautical miles off the Philippine coast, following a tense stand-off with Philippine vessels. The Philippines received the latest cutter for free under Washington’s foreign military financing program, but spent about $15 million to upgrade its weapons and radar systems. (Reuters)
Beijing Bites Lip over Taiwan President Ma’s U.S. Stopover
Taiwan’s President Ma Ying-jeou wrapped up his low-key but diplomatically significant stopover in New York and headed for Paraguay and the Caribbean on 13 August, without having triggered any protest from rival Beijing. Neither the Foreign Ministry in Beijing nor the cabinet-level Taiwanese Affairs Office commented on Ma’s activities. Beijing once opposed any overseas visits by officials from Taiwan, which it still regards as a renegade province. Washington switched diplomatic recognition from Taipei to Beijing in 1979. Former president Lee Teng-hui’s stopover in the US and his high-profile visit to his alma mater Cornell in 1995 set off a crisis across the Taiwan Strait. Beijing protested to the United States when then-president George W. Bush approved a stopover in New York in 2001 by Ma’s predecessor Chen Shui-bian. In 2006, Chen was asked to transit in Alaska rather than a major continental US city and nearly called off his trip following a protest from Beijing. Taiwanese media said Ma had made it a principle in relations with the US “to be low profile” and advised the media corps with him not to carry reports on his visit to New York. George Tsai Wei, a professor with the Sun Yat-sen Institute of Globalisation Studies at Chinese Culture University in Taiwan, said Beijing’s mute reaction reflected an increased understanding between the political rivals. “The development indicated that both sides have reached a mutual understanding over how to handle such an issue after years of consultation,” Tsai said. (South China Morning Post)
China to be World’s Biggest Oil Importer
CHINA is set to overtake the United States as the world’s largest net oil importer from October. Next year, China’s net oil imports will exceed those of the United States on an annual basis and the gap between them will continue to widen, the US Energy Information Administration (EIA) said. China is already the biggest energy user in the world and the second-largest oil consumer after the United States. The shift has been driven by steady growth in Chinese demand, increased oil production in the United States, and stagnant or weakening demand in the US market, the EIA said in a report on 13 August. A graph on the EIA’s website shows China’s net imports steadily rising, with those of the US falling at a faster rate, and says the crossover point comes in two months’ time. US annual oil output is expected to rise 28 per cent between 2011 and 2014 to nearly 13 million barrels per day, while Chinese production is forecast to grow by six per cent over the period, and will stand at just a third of US production in 2014, the EIA said. Meanwhile, China’s liquid fuels use will increase 13 per cent over the period to more than 11 million barrels per day while US demand hovers close to 18.7 million barrels per day. That is below the US’s peak consumption level of 20.8 million barrels per day in 2005, the EIA added. China imported 26.11 million tonnes (186.5 million barrels) of crude oil in July and its exports were a mere 0.17 million tonnes, according to official Beijing figures. (AAP)
China to Launch Fresh Pharmaceutical Bribery Probe
China is intensifying its investigation into rampant bribery in the pharmaceutical and medical services sector with a fresh three-month probe slated to begin on 15 August, the official Xinhua news agency reported. The investigation by the State Administration for Industry and Commerce (SAIC), a regulator in charge of market supervision, is aimed at stamping out bribery, fraud and other anti-competitive practices in various sectors, Xinhua said. It comes as other Chinese regulators such as the National Development and Reform Commission (NDRC) and the police conduct multiple investigations into how foreign and domestic companies do business in the world’s second-biggest economy. Much of the focus has been on the pricing of items from medicine to milk powder and whether companies are violating a 2008 anti-monopoly law. “It seems that the NDRC and SAIC have learned from their recent experience that they have the power to force companies to change their practices and bring prices down,” said Sebastien Evrard, Beijing-based partner at law firm Jones Day, which specializes in anti-trust law. “They seem to be willing to exercise their powers in even more sectors that directly concern consumers.” The SAIC would hand down severe punishment for bribery found in the bidding process for drugs and medical services as that hurt the interests of the Chinese people, Xinhua said. Corruption in China’s pharmaceutical industry is fuelled in part by the low base salaries for doctors at the country’s 13,500 public hospitals. “Commercial bribery not only leads to artificially high prices, it undermines market order in terms of fair competition and corrupts social morals and professionalism,” Xinhua said. The NDRC, which oversees pricing, is already investigating 60 foreign and domestic pharmaceutical firms over their pricing practices. This investigation has yet to conclude. (Reuters)
China Heat Wave: Beware of ‘Spontaneously Combusting Trees and Billboards’
Now I remember why I normally take my summer vacation long before mid-August. For the past few weeks Beijing has been either a furnace or a sauna, depending on the rain, as China endures its hottest summer in more than half a century. The press is full of the most alarming stories as the country sweats through its second major heat wave this year. In the southern city of Wuhan, witnesses in August reported seeing a willow tree spontaneously burst into flames, “which rarely happens under normal circumstances,” according to a local forestry expert. In the eastern province of Zhejiang the same thing happened to a billboard, which presumably is equally unusual. I myself have sometimes felt I was about to go up in flames recently, and I am not alone. The Chinese National Meteorological Center announced in August that temperatures had exceeded 95 degrees Fahrenheit in eight provinces on more than 25 of the previous 41 days. It hasn’t been that hot here since 1961. For the first time ever the government has declared the heat to be a level two weather emergency – a warning normally reserved for typhoons and floods – amid reports that more than 40 people have died from the high temperatures. There is not much to be done about it, of course, except stay indoors as much as possible if you have air conditioning, which most city-dwellers do nowadays. Those that don’t have been flocking to malls – not for the shopping but for their cool air. (…) Some brave entrepreneurs have been profiting from the soaring temperatures. Near the city of Turpan in the far-western desert province of Xinjiang, a stall holder at a popular tourist spot at the foot of Flaming Mountain has been baking eggs in the 108 degree Fahrenheit heat and selling them for 90 cents a pop. Farmers, of course, are taking a different view of the record-breaking heat, especially in southern provinces where drought is taking its toll. They have suffered losses of $760 million, according to the Ministry of Civil Affairs, as their crops have shriveled. (Christian Science Monitor)
China Plans Faster Capacity Cuts Even as Growth Slows
China will push ahead with efforts to cull excess industrial capacity a year earlier than planned even as economic expansion slows, and will promote spending on information products to stabilize growth, an official said. The government will complete by the end of 2014 its overcapacity reduction plan for the five years through 2015, and will seek to cut further outdated capacity, China National Radio said on 12 August, citing Industry Minister Miao Wei. Premier Li Keqiang has avoided economy-wide stimulus and instead issued targeted policies, including tax breaks and support for small companies, while curbing overcapacity and reining in financial risks to aid economic restructuring. Industrial output rose more than economists estimated in July, the National Bureau of Statistics said 9 August, adding to signs the economy is stabilizing. “One of the long-term issues that China has faced is excess investments in some segments, and this results in having too much productive capacity, and it’s inefficient,” said David Hensley, director of global economic coordination at JPMorgan Chase & Co. in New York. Government efforts are “important as part of a larger effort to provide a stronger foundation for long-term growth in China, and stability.” The process is in its earlier stages, and it “remains to be seen how far they’ll go with this,” Hensley said in a phone interview on 12 August. Still, the government is doing more than was expected, he said. (…) Industrial growth “remains in a reasonable range,” although economic growth faces pressures to slow and small businesses may experience larger difficulties in the second half, Miao said, as cited by the official broadcaster. “Economic growth will be driven more by consumption,” he said. (Bloomberg)
The Economics of China’s One-Child Policy
Rumblings in China’s state media suggest that Beijing is considering a move to relax its deeply unpopular one-child policy, a change that could significantly alter demographic trends in the world’s second largest economy. Since its introduction in the late 1970s to control China’s rapid population growth, policymakers have carved out some exceptions to the rule, including a provision that allows rural residents to have a second child if the first was a girl.
But for hundreds of millions of Chinese, the one-child policy remains a powerful force in their daily lives. Couples who violate the rule face heavy financial penalties, and the deterrent has proved strong enough to drive fertility rates lower in China. The slowdown in birth rates is especially pronounced in major cities like Shanghai. Efforts to enforce the policy have also spawned a huge bureaucracy, with officials from the family planning agency stationed in towns and villages across the country. Demographic results have been dramatic. China’s work force shrank last year for the first time in decades, and that trend is likely to continue. Few details are known about Beijing’s plans, but if changes are coming, it is possible they will be announced at soon as later this year. Incremental changes appear to be more likely than a wholesale elimination of the policy. Equally uncertain is the effect that any rule change will have on China’s economy. (…) “The main reason why we expect growth to slow over the coming decades is not that the labor force will soon start to shrink but that the pace of productivity growth is likely to slow, as the room for catch-up with richer economies diminishes,” the economists said. China policymakers face what is perhaps a more pressing problem at the other end of the age spectrum. China currently has more than 185 million citizens over the age of 60. The elderly now account for around 12% of China’s population, a figure that is predicted to swell to 34% by 2050. According to a recent study, large numbers of the elderly are living before the poverty line and suffering from physical problems or depression. (CNN)
Investing in China: Is the ‘Oriental Pearl’ Losing its Luster?
For a long time, China has served as a sustained growth engine for the world’s economy. However, after a decade of miraculous expansion driven by exports and investment, China’s economy is slowing, and is moving away from the model that has served it so well. Is the “oriental pearl” losing its luster? Or is it appreciating in value? Jing Ulrich is especially qualified to answer these questions. Ms. Ulrich is the managing director and chairman of global markets, China at J.P. Morgan. She is one of the most prominent advisors to some of the world’s largest asset management companies, sovereign wealth funds and multinational corporations. Ulrich recently sat down and had an in-depth conversation in Beijing with Zhenyu Li, the editor-in-chief of the business channel at China’s People’s Daily. In the first part of this series, Ulrich breaks down the major economic trends and the next big growth engine in China. In the second part, the “Oprah Winfrey of the investment world” reveals the under-the-radar investment opportunities in China and shares her exclusive insights on the much-anticipated financial reform in the world’s largest developing economy. (…)
Jing Ulrich: Yeah, from my personal experience, I have seen enthusiasm toward China among some investors drop over the last several months, but I think global investors shouldn’t overlook the opportunities in the world’s second-largest economy because of its slowdown. On the contrary, the on-going consumption transition might well create some of the best opportunities to invest in the ever-changing developing economy. For example, the continued rapid urbanization in China will unlock a new wave of opportunities. China needs at least $6.4 trillion to bring 400 million people into the cities over the next decade. As more people move into the city, and with the increasing living standard of the average Chinese people, a lot of new opportunities will emerge from such sectors as education, e-commerce, media and other service industries. (…) Global investors are obviously watching the Chinese market very closely. Despite China’s slowing economy, it is still growing very rapidly in comparison to developed markets. However, China’s financial markets are also quite volatile. Many global investors would like to increase their exposure to China, but they are trying to find the suitable ways to invest in China, which involves equities, fixed income and also private equity. Investors looking at China can also consider multinational corporations as good proxies for China’s growth. For example, if you look at auto, luxury goods and industrial companies, a lot of them are Fortune 500 companies. They are global companies, but they have significant exposure to China. So, from a global investor’s standpoint, they will find the best investment opportunities whether they are in China or overseas to get the best exposure to China’s growth story. Of course, they also need to take into account risks involved. So, I think many investors we talk to around the world are trying to diversify their risks. They are investing across sectors, across asset classes and they are watching the Chinese markets with a great deal of interest. (Global Post)
China to Invest in Energy Saving Industries to Tackle Pollution
China is to fast-track expansion and investment in energy saving technologies in an attempt to tackle its worsening pollution problems. China’s cabinet, the State Council announced plans on 11 August to make the energy saving sector a “pillar” of the economy by 2015. In a statement the council said that under the new plan the environmental protection sector will grow by 15% on average annually, reaching an output of 4.5 trillion yuan (£474 billion).
China’s massive economic growth has come at a major cost to its environment and even its environmental ministry has described the country’s environmental situation as “grim”. Under the plan, environmental protection industries will receive funding from the government in an effort to stimulate technological innovation. The funding will cover a wide range of technologies that address air, water and soil pollution including energy saving products, waste disposal, electric vehicles and pollution monitoring. Many analysts welcomed the plan and some were quoted in the Chinese media as saying that it will create opportunities for investors and will give direction to the industry. “It’s good to see this and it’s an indication that development of environmental protection and energy saving industry is a priority, since it’s coming from the State Council,” said Alvin Lin, China Climate and Energy Policy Director with the Natural Resources Defense Council in Beijing. The plan also includes policies, standards, pilot programmes, financing mechanisms and incentives, emissions and carbon trading said Lin. However Lin believes that the plan is “vulnerable to being so broad as to be lacking focus and hard to implement. “I think it could discuss more on the importance of implementing standards and policies in order to create the demand for the energy saving and environmental protection market, and the importance of accurate measurement and public reporting to ensure standards are met,” he said. (The Guardian)
Annual Report to Congress: Military and Security Developments Involving the People’s Republic of China 2013
From the Office of the Secretary of Defense
THE PEOPLE’S REPUBLIC OF CHINA (PRC) continues to pursue a long-term, comprehensive military modernization program designed to improve the capacity of its armed forces to fight and win short-duration, high-intensity regional military conflict. Preparing for potential conflict in the Taiwan Strait appears to remain the principal focus and primary driver of China’s military investment. However, as China’s interests have grown and as it has gained greater influence in the international system, its military modernization has also become increasingly focused on investments in military capabilities to conduct a wider range of missions beyond its immediate territorial concerns, including counter-piracy, peacekeeping, humanitarian assistance/disaster relief, and regional military operations. Some of these missions and capabilities can address international security challenges, while others could serve more narrowly-defined PRC interests and objectives, including advancing territorial claims and building influence abroad.
To support the Chinese People’s Liberation Army’s (PLA) expanding set of roles and missions, China’s leaders in 2012 sustained investment in advanced short-and medium-range conventional ballistic missiles, land-attack and anti-ship cruise missiles, counter-space weapons, and military cyberspace capabilities that appear designed to enable anti-access/area-denial (A2/AD) missions(what PLA strategists refer to as “counter-intervention operations”). The PLA also continue to improve capabilities in nuclear deterrence and long-range conventional strike; advanced fighter aircraft; limited regional power projection, with the commissioning of China’s first aircraft carrier, the Liaoning; integrated air defenses; undersea warfare; improved command and control; and more sophisticated training and exercises across China’s air, naval, and land forces.
During their January 2011 summit, U.S. President Barack Obama and then-PRC President Hu Jintao jointly affirmed that a “healthy, stable, and reliable military-to-military relationship is an essential part of [their] shared vision for a positive, cooperative, and comprehensive U.S.-China relationship.” Within that framework, the U.S. Department of Defense seeks to build a military-to-military relationship with China that is sustained and substantive, while encouraging China to cooperate with the United States, our allies and partners, and the greater international community in the delivery of public goods. As the United States builds a stronger foundation for a military-to-military relationship with China, it will also continue to monitor China’s evolving military strategy, doctrine, and force development and encourage China to be more transparent about its military modernization program. In concert with its allies and partners, the United States will continue adapting its forces, posture, and operational concepts to maintain a stable and secure Asia-Pacific security environment. (Office of the Secretary of Defense)
China Military Puts Best Foot Forward, Plays Down Tensions
With handshakes and smiles, China’s military put its best foot forward on 29 July as it opened a secretive base to a rare visit by journalists, in an effort to allay Asia’s growing fears about the country’s strategic intentions. China has advertised its military ambitions with displays of new hardware, from its first test flight of a stealth fighter jet in early 2011 to its launch of a fledgling aircraft carrier – both technologies that need further years of development. The moves come as China jangles nerves in Asia and the United States with increasingly bold moves to assert territorial claims in the East and South China Seas. But on an annual trip to a Chinese military base — this year, for the first time, one outside of Beijing — officers were at pains to show they had nothing to hide and the world had nothing to fear. “The Chinese people and the People’s Liberation Army are peace loving,” said Chen Xifeng, the gruff commander of the base in Lintong, which is close to the northern tomb where the famed Terracotta Warriors were discovered. “China does have territorial disputes with some neighbors but the government and military are quite restrained in dealing with them,” Chen, whose base houses an air defense brigade, told reporters. “As soldiers, we are happy to see the development of our military, but we love peace even more.” The base is grouped under the Lanzhou Military Region, one of China’s seven military regions, and is strategically important because the restive far western region of Xinjiang falls within its boundaries. Xinjiang itself borders Central Asia, Pakistan and Afghanistan. Chen’s base is also home to a detachment of advanced HQ-7B short-range anti-aircraft missiles, though they were not put in front of the cameras as they were off-base at a training exercise, the commander said. (Yahoo News, Reuters)
China Army Urges Vigilance over Japan’s Defence Plan
China’s Defence Ministry on 27 July urged international vigilance of Japan’s military plans after it unveiled an interim report calling for strengthened armed forces, including the possible acquisition of the ability to hit enemy bases. Japan’s proposal – its latest step away from the constraints of its pacifist constitution – is part of a review of defence policy by Prime Minister Shinzo Abe’s government, which released an interim report on the issue on 26 July. Final review conclusions are due by the end of the year. Japan’s Defence Ministry also said it would consider buying unmanned surveillance drones, create a force of Marines to protect remote islands, such as those disputed with China, and consider beefing up the ability to transport troops to far-flung isles. “The sections about China in this report by Japan are playing on the same old themes, exaggerating the military threat from China, and have ulterior motives,” China’s Defence Ministry said in a statement on its website (www.mod.gov.cn). “This year, Japan has come up with all kinds of excuses to continue to expand its armaments … creating tensions in the region. These moves deserve the highest vigilance from neighboring countries in Asia and from the international community,” it said. The hawkish Abe took office in December for a rare second term, pledging to bolster the military to cope with what Japan sees as an increasingly threatening security environment including an assertive China and an unpredictable North Korea. Meanwhile, PM Shinzo Abe pledged to strengthen the Philippines’ maritime defence capabilities on 27 July, while reassuring neighbours about Tokyo’s intentions amid growing territorial disputes with regional rival China. “For Japan, the Philippines is a strategic partner with whom we share fundamental values and many strategic interests,” Abe told a joint news conference with Philippine president Benigno Aquino after their meeting in Manila. (The Nation, Pakistan)
Japan Scrambles Jets after China Military Place Flies by Southern Islands
Japan scrambled fighter jets on 24 July after a Chinese military aircraft flew for the first time through international airspace near its southern islands out over the Pacific, in a move seen by Japan as underlining China’s maritime expansion. Ties between China and Japan have been strained by a territorial dispute over uninhabited East China Sea islets and hawkish Japanese Prime Minister Shinzo Abe won a decisive victory in upper house elections on 21 July. Japan’s Defense Ministry said a Chinese Y-8 airborne early warning plane flew through airspace between Okinawa prefecture’s main island and the smaller Miyako island in southern Japan out over the Pacific at around noon and later took the same route back over the East China Sea. “I believe this indicates China’s move toward further maritime expansion,” Japanese Defense Minister Itsunori Onodera told reporters, in comments carried on public broadcaster NHK. Chinese government spokesmen were not immediately available for comment. The waters around the disputed islands, called the Senkaku in Japan and Diaoyu in China, and which are to the west of Okinawa’s main island, are rich fishing grounds and the sea floor around them could hold big oil and gas reserves.
Tension between China and Japan escalated last September when Japan bought three of the disputed islands from a private Japanese owner. Since then, patrol ships and aircraft from both countries have been shadowing each other in the sea and skies around the islets. That has raised fears of an unintended collision leading to a broader clash. Abe has pledged to take a firm stance in the territorial dispute, but said in his news conference following the upper house election win that Japan’s door was open to dialogue. (InterAksyon, Reuters)
Chinese Online Game Lets Players Fight Japan over Disputed Islands
In “Glorious Mission Online,” China’s first online game co-developed by the People’s Liberation Army and released to the public, players join the ranks of the country’s military to take on the enemy. The game was originally developed by China’s military as a training and recruitment tool and featured Chinese forces taking on American soldiers. But the game drew massive nationwide attention because of one level, which pits Chinese soldiers against a different enemy — Japan. This level is set on an island chain disputed between China and Japan. The game asks players to defend the Diaoyu Islands in the East China Sea, known as the Senkaku Islands in Japan. Both countries claim sovereignty over the remote, rocky islands, which are near important shipping lanes, rich fishing grounds and possible mineral deposits. Japan currently administers the area, but since late last year, China has mounted a concerted campaign to try to change the situation. So popular was the game in stoking nationalism amid growing tension between the East Asian neighbors over the islands, developers have officially changed the name of the island mission level to “Defending the Diaoyu Islands.” (…) A press release from Giant Interactive Group claims that the game presents a full picture of the PLA’s daily operations and calls upon youths to join the army, defend their country, and strengthen the “Chinese Dream.”
Chinese Troops Stop Army Personnel from Patrolling in Indian Territory
Amid a spate of incursions by China in Ladakh, its troops are also resorting to tactics like preventing Indian Army from patrolling posts in the sector along the border which is well within India’s territory. In what is being described as an aggressive approach by China, the tactics have come to the fore in the wake of yet another incident in late July when Indian troops launched its patrol “Tiranga” from Trade Junction area in North of Ladakh for two posts located 14 kilometres up in the higher reaches along the Line of Actual Control(LAC). Indian Army personnel were stopped by Chinese troops who came mounted on heavy and light vehicles, official sources said on 4 August. The patrol party was shown a banner, saying it was Chinese territory and that the former could not proceed to the posts, the sources said. Sources also said the Chinese troops were aggressive in their approach while stopping the Indian patrol party who were at their posts. These posts are well inside Indian territory, the sources said, adding that from April this year, the patrol for these forward bases were launched 21, of which only two could be completed. The Chinese have erected an observation post which keeps a vigil on the movement of Indian troops and as soon as an Indian patrol party is ready to leave, they are intercepted midway and sent back, the sources said, adding the matter would be taken up during the next Border Personnel Meeting (BPM) at Chushul. In the same North Ladakh sector, there were instances when Chinese military vehicles were spotted in Depsang Bulge and Daulat Beg Oldie (DBO) sector where the two armies had witnessed a 21-day stand-off in April this year. Indian troops comprising mainly Indo-Tibetan Border Police (ITBP) immediately swung into action and prevented the ‘free-run’ of Chinese military vehicles in the Indian territory. (NDTV, Press Trust of India)
Chinese Military Tests Heavy, Modular Configuration Bridge on Brahmaputra
Chinese army has tested a new-type of heavy-duty pontoon bridge on the Brahmaputra river in Tibet during a military exercise. The bridge was tested at a wartime river-crossing support drill organised by an engineer regiment of the Chinese People’s Liberation Army this month on the Yarlung Tsangpo River (Brahmaputra), according to a report in the state-run website. During the drill, the officers and men of the regiment conducted the drill on pontoon bridge erection with new-type heavy pontoon bridge equipment. The new-type heavy bridge equipment adopts modular configuration and its structure can change at any time. With a great load capacity, the new-type box-type raft of pontoon can ferry heavy weaponry and equipment across great rivers, it said. Besides, the bridge uses electronic control means, thus its degree of mechanisation and automation improved significantly. It can effectively solve problems arising from accurate positioning and docking by means of satellite navigation and positioning and fast connection of nano-anchor steel, the report said. (India Today)
South Africa welcomes Chinese Military Assistance
THE South African National Defence Force (SANDF) would benefit from Chinese military training, discipline and expertise if an exchange programme were initiated, Maj-Gen Ntakaleleni Sigudu of the Department of Defence said on 31 August. Addressing diplomats and military representatives on the 86th anniversary of the Chinese People’s Liberation Army, Maj-Gen Sigudu said had it not been for China’s contribution to the military training of cadres of the African National Congress and other liberation movements in Africa, the continent’s freedom could have taken much longer. He said China’s role in South Africa’s liberation should be celebrated as it did not start between 15 and 20 years with the change of China’s expansionist economic policy but dated back to the colonial era. He said although modern Chinese policy seemed focused on economic ties and trade, the presence in South Africa of a new military attaché of China, Senior Col Xu Jianwei, was testimony to the need to broaden ties to include agreements that could improve military training and expertise to help the African Union build a formidable Africa-based peacekeeping force. (…) He congratulated China for the more focused and value-adding economic development programme in Africa that had led to roads and rail infrastructure development in some African states as well as the construction of the AU headquarters in Addis Ababa. China offered a genuine partnership unparalleled by the contributions in the past of Africa’s colonial masters. (Business Daily South Africa)