Business Confidence of German Companies in China Reaches Historic Low; US and Taiwan Sign Trade Deal
The 'Eye on China' newsletter features this week's most important developments on India-China relations, Chinese Domestic Politics and Foreign Policy, Economy and Tech, and the military!
Hi folks, sorry for the long break! This week, our newsletter covers developments after May 28, 2023. Happy reading!
Section A: India-China Relations
- Anushka Saxena
To begin with, Indian External Affairs Minister S. Jaishankar, speaking at an event commemorating ‘9 years of the Modi Government’ in New Delhi, make remarks about India’s position in the world, and its confidence in facing China under the government of incumbent Prime Minister Narendra Modi.
Some excerpts from his speech, and his answers to some questions from media-persons surrounding the China issue, are as follows:
As indeed is the Voice of Global South, you know, we are the first G20 President who have actually made an effort to consult other people and 125 countries responded because they believed we are an independent voice. So when I say how does the world look at us...there can be no bigger endorsement of our standing than the manner in which 125 countries respond during the Voice of Global South. But it can also be on the ground, you know, when we stand up on our northern borders, vis-a-vis, China, when we take a clear stand on Belt and Road; those two are examples of our independence that we are not swayed by, either coercion or by inducement or by false narratives.
[There] is a confidence in handling multi-polarity and multi-alignment. Because one of the long-standing dilemmas for Indian foreign policy is, if the world is polarized or there are multiple centers of power, how do you deal with all of them? And I would suggest to you that we have done it, especially in the last nine years, with a great deal of confidence, with results to show for it. And if you look at the major power centers, with the exception of China, for reasons which all of you are aware, I would say almost every one of these accounts has progressed, some of them in actually very challenging circumstances.
Answering a question on how India has expanded its relations with all other countries but not China, he said: “I said our relationship with all the major power centers, you can say, have evolved, because that is the record. I mean, you look at the US, look at Russia even with all these challenges, look at UK, France, look at EU, Germany, Japan, or if you take regions, Gulf, ASEAN, each one of these have advanced. And why have they advanced? They didn't advance by gravity and, you know, by nature. They advanced because people worked very hard… Now, why the exception? Well, in a sense, that answer can only be given by China, because China consciously, for some reason, chose in 2020 to, you know, breaking agreements to move forces to the border areas and seek to coerce us. So, I think, you know, it's been made very clear to them that until there is peace and tranquility in the border areas, our relationship cannot progress. So, that is the obstacle which is holding that back.”
Answering a question on India’s ‘neighbourhood first’ policy, Jaishankar reiterated India’s position vis-a-vis its relations with Pakistan and China. He said:
“I can show you a lot of success in the progress report. But where there are challenges, one is with Pakistan. And this is not a new issue. From the beginning, this was the challenge of cross-border terrorism. And the difference is that we are not ready to tolerate it. So either you say that because of the neighborhood, we should keep terrorism aside and increase the cooperation with Pakistan. This is neither the sentiment of the country nor the view of the Modi government. So if Pakistan wants to take the relations ahead, they know what needs to be done? I mean, they know, the world knows.”
“In our efforts with China…it is our neighbour, the biggest economy in the world. And we want the relations to be good. But the relations can only be good until there is peace and tranquility in the border area. And when there is an agreement, it should be followed. So if there is a violation of the agreement and you have left peace and tranquility somewhere, then you tell me how to take the relations ahead.”
Finally, answering a question about the future of India-China relations, Jaishankar said (and this is a good summation of the meetings and high-level dialogues the two sides have had in the past few months):
“We are talking. It is not that communications have broken down. The point is that with China, in fact even on the day, even before Galwan happened, we were talking to the Chinese saying that look, we are seeing movements of your forces, which in our view is violative of our understanding. The day after Galwan happened, in fact the morning after, I actually spoke to my counterpart. Since then, we have engaged, the military commanders have engaged, our embassies have engaged, I have engaged with my counterpart, and I continue to do that.”
“When Foreign Minister Qin Gang was here in Goa, we had a long discussion. Even when I was in BRICS, he did not come. His deputy came. We had a chat on the side. Look, we have to, you know, the two of us have to find a way of disengaging, because I don't believe that this present impasse serves China's interests either. The fact is the relationship is impacted, and the relationship will continue to be impacted. If there is any expectation that somehow we will normalize while the border situation is not normal, that's not a well-founded expectation.”
“At multilateral events, we will, obviously the Chinese are there and we are there. You know, it is likely that we would, there would be a conversation between us. Bilaterally, I mean, since Galwan happened, we have had one visit by Mr. Wang Yi to India. And, but I think the main mechanisms, we have a mechanism called WMCC, and we have a mechanism called Senior High Level Commander's Meeting. One, you know, one is a kind of military-led with MEA in it, the other is MEA-led with military in it.”
“These mechanisms continue to do the work, because at the end of the day, disengagement is a very detailed process. You know, it's not something which is a kind of, I mean, obviously you have to have a leadership level by it, but the details of it have to be worked out by people, people on the ground. So I think all of this would continue to happen.”
Thoughts: I think it is interesting that Jaishankar expressed the kind of optimism he did in this question about consultative meetings and high-level dialogues working, and about how disengagement takes time but it will eventually happen. This is especially odd considering the mentioned in the statements above that India’s relations with China aren’t improving and the latter is a rule-breaker. Moreover, the idea of ‘disengagement’ beyond the Galwan-related friction points, that is in Depsang and Demchok, isn’t even on the Chinese agenda.
This is perhaps a part of India’s show of confidence, which he was referring to in his speech, or an assurance to the media and audience that there is still some hope that dialogue will work.
Speaking of dialogue and consultation, on May 31, 2023, the 27th Meeting of Working Mechanism for Consultation and Coordination (WMCC) on India-China Border Affairs took place in New Delhi.
Director-General of the Department of Boundary and Ocean Affairs of the Foreign Ministry Hong Liang, and Joint Secretary of the East Asia Division of the Indian Ministry of External Affairs and the External Affairs Minister’s Office Shilpak Ambule, co-chaired the meeting.
India’s press statement on the matter read: “The two sides reviewed the situation along the LAC in Western Sector of India-China border areas and discussed proposals for disengagement in remaining areas in a frank and open manner. Restoration of peace and tranquillity will create conditions for normalising bilateral relations.”
The Chinese press statement said:
“The two sides fully recognized the achievements of previous diplomatic and military communication, had an in-depth exchange of views on current issues of mutual concern and the plan of work for the next stage, and reached the following common understandings:
First, the two sides fully exchanged views on implementing the common understandings reached between the two foreign ministers recently, and agreed to settle relevant issues in the western section of China-India border areas, among others, at a faster pace.
Second, the two sides agreed to continue to maintain diplomatic and military communication, promote the de-escalation of the border situation, and further defend peace and tranquility in the border areas.
Third, the two sides agreed to hold the 19th Round of Corps Commanders Level Meeting, and the 28th Meeting of WMCC at an early date.”
Thoughts: As can be understood from a joint reading of S. Jaishankar’s speech, as well as the Indian and Chinese statements on the 27th WMCC meet, for India, the priority is the resolution of the border issue for stability in the overall India-China relationship. Without peace at the border, there can be no improvement in ties. However, for China, the resolution of the issue in a quick manner is essential, and cannot be compounded with other aspects of the relationship.
There was also no mention of ‘disengagement’ in the Chinese statement, as opposed to the one released by India, which says that the two sides discussed means to achieve ‘disengagement’ in a ‘frank and open’ manner. China just referred to the topic of discussion as ‘current issues of mutual concern’.
The 19th round of CC-level talks is expected to be held soon. The previous, 18th round of such talks took place in April of 2023.
Before you go further, for interested readers and listeners: My colleagues Saurabh and Amit from the Takshashila Institution, and myself, have discussed recent developments in India-China relations, including tensions on the LAC, rivalry at the UNSC, and the expulsion of journalists from each others’ countries, on a recently published podcast episode of ‘All Things Policy’. Do tune in:
Then, there are two Indian media reports of interest pertaining to the India-China Line of Actual Control situation, and border infrastructure construction on either side:
First, on 7 June, India Today has come out with an investigative/ intelligence report that claims that satellite imagery obtained by the platform provides irrefutable evidence confirming the recent claims of construction of military villages in the middle sector, directly facing Uttarakhand. It reads:
Analysis of commercial satellite pictures suggests these structures were built at a rapid speed. In some cases, about 100 structures were raised over a period of one month.
Almost 40 km away from the Pulam Sumda in Uttarkashi, such structures started showing up between April and May 2022. Incidents of increased activity in another region towards the east near Barahoti have been reported in the past too.
Barahoti has frequently reported face offs between Chinese and Indian troops but these new structures are in different areas. This would suggest the Chinese are enhancing their military presence across the sector.
Pulam Sumda and Bara Hoti vis-a-vis LAC | Via Google Earth Pro According to Indian military sources, the lack of migration by civilians from the mainland to these border villages suggests that they are primarily intended for China's military purposes. These facilities are capable of accommodating an increased deployment of troops with minimal notice. Leveraging the advantageous topography of the region, the Chinese army possesses the ability to swiftly mobilize its forces at any given moment, thanks to the strategic positioning of these facilities.
New construction activities opposite Uttarkashi | Via Planet Labs/ India Today Secondly, The Tribune has reported that in a move significant for the improvement of Indian border infrastructure, the Border Roads Organisation (BRO), on 8 June, issued a tender to start making a 4-km-long concrete road near Saser La, a 17,800-foot-high pass in the Karakoram mountains in eastern Ladakh.
The report reads:
This concrete portion will be part of the 56-km military-usable road connecting Sasoma, Saser La, and Murgo. The tender uploaded on the website of the BRO, which comes under the Ministry of Defence, seeks to get the work done within 180 days. Since the terrain is unforgiving, the BRO aims to get pre-fabricated and inter-locking concrete blocks for the construction.
The new road proposed by BRO is shown in Red, and it is intersecting with the Darbuk Shyok-DBO road shown with a blue line | Made by Anushka Saxena via Google Earth Pro for ‘Eye on China’ The new alignment is an alternative axis to reach Depsang and Daulat Baig Oldie (DBO) in the vital Sub-Sector North (SSN) along the Line of Actual Control (LAC) in eastern Ladakh. A dirt track was activated on the Sasoma-Murgo route in August 2020 during the peak of military standoff with China. Since then, the BRO worked to widen the track.
Two months ago, it sought bids to black-top 43 km of the Sasoma-Saser La-Murgo stretch. The bids invited today are for laying concrete road on the 4-km stretch. The remaining 9 km of the 56-km road is already in a usable condition. The work on making the alignment usable militarily kick-started after May 2022, when the National Board for Wildlife allowed the road through 55 hectares of Karakoram Wildlife Sanctuary.
The road is vital as the existing alignment towards the SSN in Ladakh hinges on the 255-km Darbuk-Shyok-DBO (DSDBO) road. Supplies to the area come through the DSDBO road or are air-supplied. The Indian Army has considered a scenario that the People’s Liberation Army (PLA) of China could make a westward thrust into the 16,000-foot-high Depsang plains in the SSN.
Thoughts: This road would provide a massive boost to Indian troop positions in the crucial Ladakh sector of the LAC. It can enable easy movement of troops, tanks and artillery, and is connected with Sasoma, which also happens to be a check post of the Indian Army.
However, it is also important to give attention to disasters that may occur in the elevated territory during road construction. Last year, in October, a GREF Tipper toppled in the same Saser La-Sasoma area in Ladakh during road construction, killing two defence personnel and injuring ten. Road planning should align with safety standards and availability of medical support.
Finally, interested readers may want to refer to this report by SCMP on comments by Senior Colonel Zhao Xiaozhuo and Senior Colonel Chi Zhang on India’s defence modernization, and how, despite all efforts, India’s defence industrial complex will never be able to match China’s.
Section B: Economy and Tech
- Amit Kumar
China scales up efforts to build a unified domestic market
In an executive meeting of the State Council held last week on June 2, a decision was taken to “roll out more targeted and effective measures to improve its business environment at a faster pace, in an effort to bolster economic recovery,” Xinhua reported. It further reads:
The measures will focus on fair competition, intellectual property rights protection, a unified market, and easing market access.
As the foundation of economic recovery is not yet solid, the meeting stressed the significance of building a market-oriented, law-based and internationalized business environment to stabilize expectations further, build up confidence and stimulate market vitality.
China Daily reported the attendees as agreeing that:
Localities should fulfill due responsibilities with a bigger picture in mind. Resolute steps should be taken to break the fixed mindset and guard against silo mentality.
A targeted rectification campaign will be launched to address such pressing concerns as local protectionism and market fragmentation in key areas. Sustained work will be made to ensure concrete benefits.
Highlighting the need for a unified domestic market, the Ministry of Commerce on June 5, said, “China's pursuit of a unified domestic market will provide various market entities, including foreign-invested enterprises, with a better environment and a bigger arena.”
Xinhua quoted Zhou Qiang, a ministry official saying, “The unified domestic market we are constructing will be a global-oriented and fully open market.” He added that “more efforts will be made to make full use of China’s super-sized market and promote high-level opening-up.” Zhou further stated:
The country will relax market access further for foreign investors and take measures to appropriately shorten the country's negative list for foreign investment and align with high-standard international economic and trade rules to deepen reforms and steadily advance institutional opening-up.
Economic expos, trade expos and special working mechanisms for major foreign investment projects will be leveraged in an improved manner to provide more platforms and better services.
Efforts will also be made to protect the legitimate interests of foreign investors better, building a market-oriented, law-based and internationalized business environment.
While highlighting the role of fair competition in supporting the growth of the unified national market, Zhu Jianquio, Director of the comprehensive planning department of the State Administration for Market Regulation, said that “China will strengthen supervision and law enforcement against market intervention behaviours and consolidate the institutional and regulatory foundation for fair competition.”
China Daily reported Zhu as saying:
The country will accelerate the revision of the Anti-Unfair Competition Law, promote the introduction of the regulation on fair competition review, and optimize the registration system for enterprises moving from one region to another.
Just an ‘FYI’ for interested readers: The unified domestic market plan was floated in 2013 for the first time but has become a subject of greater focus lately in China as it battles weakened external demand and slump in exports. China envisages creating a unified domestic market by enabling a free, fair, and efficient flow of goods, labour, and capital to boost demand and relieve supply-side constraints. The plan aligns with Beijing’s dual circulation strategy that seeks to leverage domestic consumption (internal circulation) without giving up on exports (external circulation) as the major driver of economic growth.
China’s monthly export data for May adds worry
China Customs released the export figures for the month of May on June 7. According to the data, China’s exports fell by 7.5% in May from a year earlier to US$283.5 billion, thus recording a sharp decline. The decline comes against an increase of 8.5% in April.
Other key data sets as reported by the SCMP:
The year-on-year fall in China’s shipments to the United States accelerated to 18.24 per cent in May, compared to 6.5 per cent in April, marking the 10th straight month of decline;
China’s trade surplus fell to US$65.8 billion in May, narrowing from US$90.2 billion in April and US$78.4 billion a year ago;
Exports to the European Union returned to negative growth by falling 7.03 per cent compared to the same time last year, after two months of brief uptick;
Shipments to the Association of Southeast Asian Nations, which were the major driver of China’s robust headline exports in March and April, fell by 15.92 per cent in May. The 10-nation bloc is China’s largest trade partner;
Trade with Russia, however, remained strong last month, with Chinese exports increasing by 114.32 per cent year on year, although the trading volume between the two countries is much smaller;
In May, the export orders subindex of China’s official manufacturing purchasing managers’ index fell further into contraction, dropping to 47.2 from 47.6 in April, after showing an expansion in February and March; and
Imports, meanwhile, declined by 4.5 per cent in May from a year earlier to US$217.7 billion, narrowing from a fall of 7.9 per cent April.
Coupled with the worrying export figures, China’s official manufacturing PMI figures for May have also failed to inspire confidence. SCMP reports:
China’s official manufacturing purchasing managers’ index (PMI) fell to 48.8 in May from 49.2 in April.
The May reading was the lowest level since the index dropped to 47 in December.
Within the official manufacturing PMI, the new-orders subindex fell to 48.3 in May from 48.8 in April, while the new-export-orders subindex fell to 47.2 from 47.6
The non-manufacturing PMI figures however continue to be above 50 (indicating expansion) despite recording a decline from a month before.
China’s official non-manufacturing purchasing managers’ index (PMI) fell to 54.5 in May from 56.4 in April
Within the official non-manufacturing PMI, the services index declined from 55.1 to 53.8, while the construction index also fell from 63.9 to a four-month low of 58.2.
The SCMP reported economists from Greater China as saying: “The disappointing May NBS PMIs show signs that the recovery momentum has continued to fade. While policymakers have reiterated a pro-growth stance, more needs to be done to help instill more confidence for households and businesses alike, and to set the growth recovery back on track.”
In light of weakening exports, which contributed one-fifth of China’s annual economic growth between 2020-22, the leadership and experts have reiterated the need to rely on domestic demand to support the economic recovery. To spur up domestic demand, experts are anticipating that the People’s Bank of China to further cut the reserve requirement ratio - the amount that banks must set aside for deposits. China had last cut the reserve requirement ratio in March by 25 basis points.
Meanwhile, China’s five leading banks have already reduced their current account deposit rate by 5 basis points to 0.2 percent on June 8. They also reduced their three-year and five-year deposit rates by 15 basis points to 2.45% and 2.5%, respectively.
Interested readers may refer to: Why are doubts about China’s export data increasing amid a stalling economic recovery?
German Chamber of Commerce in China Survey
The German Chamber of Commerce in China is the latest to come up with its own survey on business sentiment in China following the AmCham, EUCham, and British Chamber of Commerce in China.
The full report can be accessed here.
Below is the executive summary of the Report.
I. ROCKY ROADS AHEAD - BUSINESS CONFIDENCE OF GERMAN COMPANIES IN CHINA REACHES HISTORIC LOW
China’s recent pivot away from the zero-COVID-19 policy is a much-welcomed development and will help restore business confidence. However, the disruption of business operations relating to China’s zero-COVID-19 policy has left deep tracks: 2022 marks a historical low in business confidence and perceived attractiveness of the Chinese market for German companies, with 41% of the companies expecting a decrease in profits for 2022. Localization and diversification are the prevailing response by German companies to mitigate the risks associated with the continued zero-COVID-19 policy and the shifting geopolitical framework.
II. BUSINESS CONFIDENCE REACHES HISTORIC LOW
49% of German companies find China’s attractiveness to be diminished compared to other markets. 58% of respondents say that China’s attractiveness as an investment location is decreasing compared to other markets. Only 51% of German companies plan to increase their investment in China in the coming two years, compared to 71% last year – a drop of 20 percentage points. Also, views on business opportunities are more pessimistic. Only 30% of German companies rate growth in domestic consumption as a significant business opportunity - compared to 68% in 2019.
III. CHINA’S ZERO-COVID-19 POLICY WAS DETRIMENTAL TO BUSINESS SUCCESS IN 2022
This year, 66% of German companies named China’s zero-COVID-19 policy as their top operational business challenge and as the main reason to decrease investment or exit the market entirely, which 10% of respondents were considering. 61% of companies that did not plan to invest or decrease investment over the coming two years in the Chinese market named the expected continuation of the zero-COVID-19 policy as the main reason. Out of the 10% of companies contemplating a market exit, 72% said it’s because of COVID-19-related restrictions.
IV. REGULATORY HURDLES REMAIN A CONCERN
The leading regulatory business challenges are legal uncertainty (33%) as well as cyber and data security regulations (31%), which are tied to the unclear implementation of China’s Cyber Security Framework. More than half of the surveyed companies consider the cross-border data transfer legislation as challenging. Policy initiatives such as ‘Made in China 2025’ and the country’s pursuit of self-reliance give local competitors a leg up, resulting in 29% of German companies reporting about unfavorable treatment. Out of the 29%, 64% say they experience unfavorable treatment in the context of market access
V. DIVERSIFICATION AND LOCALIZATION ARE STRATEGIC DIRECTIONS
The headquarters’ response to the extended zero-COVID-19 policy and rising geopolitical tensions is a combination of increased diversification outside of China and intensified localization inside China. 77% of German companies’ headquarters have already adapted their strategy in response to China’s continued zero-COVID-19 policy. 70% are taking steps to mitigate the risks tied to geopolitical tensions, such as an international sanctions regime. To build resilience, companies are localizing operations and supply chains inside China, diversifying in South-East-Asia, or simultaneously doing both. Building up parallel structures and diversifying outside of China is posing a bigger obstacle to smaller companies.
VI. CAUTIOUS OPTIMISM FOR 2023
German companies’ expectations for 2022 were adversely affected with 45% of the companies expect a decrease of the industry development. Only 24% of companies report that the development of their industry has improved in 2022, while 51% were forecasting a positive development when asked last year. Optimism returns in 2023, where 38% of German companies are expecting to see a positive development in their industry. 50% expect an increased business turnover and 37% forecast higher profits. Also, 77% of German companies expect an increasing annual growth in their industries for the next five years.
VII. CHINA’S POLICYMAKERS NEED TO ACT NOW
The German Chamber welcomes the Chinese government’s pivot away from the zero-COVID-19 policy. The new regulations must be well-planned and implemented swiftly on all levels throughout the country. German companies are committed to doing their share in managing the transition. Combined with leveling the playing field for domestic and foreign companies and a more transparent legal framework, this will help restore predictability and business and investment confidence across all market players.
China’s semiconductor equipment purchases drop in the first quarter: SEMI
Recently released data by SEMI indicates that sales of semiconductor equipment to China dropped 23% year-on-year in the first quarter amid US export controls, reports SCMP.
The drop in sales came in sharp contrast to a 50% surge in sales to North America during the same period this year. The report however informs that China continues to be the world’s second-largest market for semiconductor equipment behind Taiwan and South Korea despite the drop in purchases.
The SCMP report further adds:
For comparison, semiconductor equipment sales to China in the first quarter of 2022 surged 27 per cent year on year to US$7.6 billion, SEMI data showed. At the time, the country was the world’s largest market for semiconductor equipment.
Under expanded trade restrictions imposed by the Biden administration last October, Chinese companies are barred from buying advanced chip-making tools from the US without special permission. Japan is set to impose similar export curbs in July to restrict the sales of 23 types of advanced chip-related equipment and materials.
While companies in China have been scrambling to stockpile chip-making equipment ahead of the Japanese ban and potential curbs by the Netherlands, the country logged a fall in semiconductor equipment imports from key supplying nations in recent months, according to Chinese customs data published earlier.
From January to April, China bought US$1.05 billion worth of chip-making and other machines from the US, down nearly 50 per cent from the same period last year. They included tools used for manufacturing wafers, semiconductor devices, integrated circuits, or flat-panel displays.
Shipments from Japan, currently China’s largest semiconductor equipment supplier, declined 12 per cent to US$3.5 billion, while those from Taiwan and South Korea dropped by roughly half during the same period.
The export restrictions have impacted China’s largest chip maker, SMIC’s operations as well. The report continued:
Difficulties in securing vital equipment..China’s largest chip maker warned in February that mass production at its new plant in Beijing could be postponed by one to two quarters because of procurement challenges.
The company’s investments in properties, plants and equipment fell by about a third in the first three months of the year from the previous quarter, its financial statements showed.
Sales to other parts of the world however registered growth. The SCMP reports:
In Taiwan, where the majority of the world’s most advanced semiconductors are made, billings increased by 42 per cent year on year, despite a 13 per cent decline from the last quarter.
Sales to Europe rose 19 per cent in the first quarter. Countries such as the UK, home to major chip designer Arm, have been pushing for more security in the semiconductor supply chain.
With Japan’s export control measures that seek to restrict 23 types of chip-related equipment and materials to any country not listed as one of the 42 ‘friendly’ markets, coming into effect from July onwards, China’s situation is likely to worsen. Chinese authorities have urged Japan to not go ahead with the curbs.
Highlighting Japan’s significance, another SCMP report adds:
Japan is a key player in the global chip supply chain, with a monopoly in certain niche areas, which Tokyo has used in the past in its rivalry with South Korea. In July 2019, Japan tightened controls on exports to South Korea of three key materials – fluorinated polyimide, resists and hydrogen fluoride – for chips and display production, disrupting South Korea’s downstream industries.
According to UN Comtrade data, Japan was the top exporter to China of semiconductor manufacturing equipment in 2022, hence Beijing’s diplomatic pressure on Tokyo to reverse course. Last week commerce minister Wang Wentao told his Japanese counterpart Yasutoshi Nishimura that Japan must halt the curbs as the policy represents “wrongdoing” that violates international trade rules.
Additionally, according to China’s General Administration of Customs official data, the country’s Integrated Chip (IC) imports have also slumped by 19.6% year on year to 186.5 billion units in the first five months. Although, the number has slightly narrowed down from the 21.1% drop in the first four months. This drop comes against a low base as in the same period in 2022, the total volume of China’s IC imports dropped 10.9% to 232.1 billion units.
In terms of value, the chip imports fell by 24.2 % to US$131.9 billion in the five-month period. In contrast, the figures in 2022 for the same period had surged by 9.1% due to an increase in prices owing to global chip shortages.
China’s exports of chips also fell in the same period by 11.7% to 103.4 billion units in terms of volume and by 17.2% in terms of value.
Section C: Military Developments in China
- Anushka Saxena
In the past two weeks, Chinese defense officials have had three crucial bilateral and multilateral military-diplomatic engagements, beginning with the 2023 Shangri-La Defence Dialogue (SLD’23), which took place at the Shangri-La Hotel in Singapore from 2 to 4 June, 2023.
Chinese Minister for National Defence Li Shangfu made a speech at the fifth plenary session of the SLD, and there was some interesting albeit usual narrative building regarding China’s idea of the existing and emerging security architecture in Asia-Pacific, and who is the real actor disrupting peace and stability in the region.
Some excerpts of importance from his speech are as follows:
To begin with, Li began by reiterating Xi Jinping’s flagship Global Security Initiative (GSI)’s vision for common comprehensive, cooperative and sustainable security. This idea was first broached by the then-Chinese State Councillor Yang Jiechi at the 51st Munich Security Conference in 2015, and subsequently described in the GSI Concept Paper released in February 2023.
Li then presented his four-point proposal on what the GSI aims to achieve on priority. He said:
First, mutual respect should prevail over bullying and hegemony. Facts have proven that where there is hegemonism and power politics, there will be instability, chaos, and even worse. We, in China, believe that the key for countries to live in harmony is mutual respect and treating each other as equals. We are strongly opposed to imposing one’s own will on others, placing one’s own interests above those of others, and pursuing one’s own security at the expense of others.
Second, fairness and justice should transcend the law of the jungle. All countries, big or small, strong or weak, rich or poor, are equal members of the international community. International affairs should be handled by all countries through consultation rather than be dictated by one or a few countries.
China advocates and stays committed to improving justice and equity in the world, and firmly upholds the UN-centred international system, the international order underpinned by international law and basic norms governing international relations based on the purposes and principles of the UN Charter. We practise multilateralism and pursue win–win cooperation. Some countries, however, take a selective approach to rules and international laws. It likes forcing its own rules on others, and even attempts to constrain others with a convention itself has not acceded to (this is probably a dig at the US for not having signed the UN Convention on the Law of the Seas or UNCLOS).
Third, eliminating conflicts and confrontation through mutual trust and consultation. It is natural for countries to disagree with each other. But there are two approaches to addressing differences. One is exacerbating tension and adding fuel to flames, while the other is seeking consensus and promoting reconciliation and negotiations. It is quite clear which one is the right choice.
Fourth, preventing bloc confrontation with openness and inclusiveness. The cold-war mentality is now resurging and greatly increases security risks of bloc confrontation in the Asia-Pacific. Some big power continues to promote its so-called Indo-Pacific strategy. China holds that no strategy should be based on ideological grounds and aim to build exclusive military alliances against imagined threats, as this could easily lead to a self-fulfilling prophecy.
Li then presented some emotion-laden narratives surrounding the success of the Belt and Road Initiative in enabling countries to have 24-hour access to drinking water, and about how PLA soldiers lay their lives down in peacekeeping initiatives in conflicted areas. He said:
The Belt and Road Initiative, or BRI, has become a well-received international public good and a platform for international cooperation.
Thanks to the BRI, many countries now have access to cross-border railway cargo transportation. Some are able to build their first subway line. Some no longer need to transport their goods for domestic consumption via a third country. And people in some countries now have 24-hour supply of drinking water. More and more countries have benefited from the BRI. China will continue to pursue a mutually beneficial opening-up strategy and pursue high-standard opening up and deliver more development benefits to people of other countries.
Chinese modernisation has contributed significantly to safeguarding world peace. Peaceful development is enshrined in China’s constitution. We firmly pursue a national-defence policy that is defensive in the first place and have endeavoured to safeguard world and regional security.
Since 2008, China has sent over 139 naval vessels in 44 groups, providing protection to over 7,000 Chinese and foreign ships. In April this year, People’s Liberation Army (PLA) Navy ships evacuated from Port Sudan 940 Chinese citizens and more than 230 foreign citizens. Over the years, China has sent over 50,000 peacekeepers to UN peacekeeping operations, making it the largest troop-contributing country among the permanent members of the UN Security Council.
Also, to our great sorrow, 16 PLA service members never came back home from their peacekeeping missions. Right at the moment, more than 2,000 Chinese peacekeepers are on duty in seven peacekeeping mission areas. I once read a line written by a Chinese soldier on his mission. And here I quote: ‘If people ask why go into such dangerous places to keep peace, please tell them someone must step forward to safeguard the fundamentals of human civilisation.’ This is a simple wish of a Chinese soldier. It is also a solemn commitment made by the Chinese military to the world.
The great focus of Li’s comments was upholding Chinese defence ties with the Association of Southeast Asian Nations (ASEAN) countries, and how regional security can be managed by the China-ASEAN partnership and consultation processes, without interference from an external party. He said:
China firmly supports Association of Southeast Asian Nations (ASEAN) centrality and its strategic autonomy. We are committed to promoting cooperative, collective and common security in our region on the basis of mutual respect.
We have maintained exchanges and cooperation in peacekeeping with more than 100 countries and international original organisations including ASEAN.
The ASEAN way, which features fundamental principles of mutual respect, consensus through consultation and accommodating each other’s comfort level, is a successful practice of the Asian wisdom. China will continue to deepen military exchanges and build stronger security partnerships with other countries.
We will follow the guidance of high-level engagement between defence and military leaders, enhance personnel exchanges at different levels and establish various direct hotlines to expand the communication channels. We are committed to resolving maritime and land border issues in a peaceful manner through negotiations and consultation and to strengthening friendly ties with our neighbours.
Together with ASEAN countries, we will continue to accelerate consultations on the Code of Conduct in the South China Sea, or COC. We will manage risks and crisis by advancing air and maritime security talks and strictly following and continuously improving the Code of Unplanned Encounters at Sea, or CUES.'
We actively participate in multilateral security dialogue and cooperation mechanisms, including the ASEAN Defense Ministers’ Meeting Plus (ADMM–Plus), the ASEAN Regional Forum, the Moscow Conference on International Security and the Shangri-La Dialogue and hold the China–ASEAN Defense Ministers’ Informal Meeting on a regular basis.
China and ASEAN countries are connected by geography, culture and family bonds. People in this region treat each other like brothers and sisters. It is natural for neighbours to disagree with each other from time to time. While countries in the region are engaging in communication and consultation for proper settlement of differences, some countries outside the region keep sowing discord among us and fanning the flame. We need to stay clear-eyed and level-headed over the benefits and risks.
This sentiment relating to keeping US interference out of the region was also reiterated by Cui Tiankai, former Chinese foreign affairs vice-minister, at his engagement during a special session of the SLD. When he was asked whether Europe has something to learn from or avoid, looking at how countries have resolved disputes in the South China Sea, Cui said:
Well, I think this is a very complex issue again, and it has a long, long history behind it. However, I think so far, between China and other countries, we have engaged in serious communication and negotiations. We already had the DOC (Declaration on the Conduct of Parties in the South China Sea), and we are now working on the COC (Code of Conduct). Hopefully, we will conclude it. I think we will continue with this kind of approach.
No country, no regional country wants to resort to force on this issue, and we will continue our search for a political and diplomatic solution.
If others, if our European friends, or if our American friends want to help us, you are most welcome. The best you can do is to refrain from interfering into our regional affairs. Leave it to ourselves. We know how to address it. The best thing you can do for us, is do nothing on that.
I would also like to point our readers’ attention to how the Chinese PLA delegation pushed back on other speakers’ arguments at the SLD.
For example, after US Defence Secretary Lloyd Austin’s speech at the first plenary session, PLA Senior Colonel Chi Zhang, who is an Associate Professor with the National Security College of the Chinese National Defense University asked: “The theme of our plenary session here is US leadership, but how to play the role of leadership? On the one hand, you claim to support the centrality of ASEAN in the region. On the other hand, the US has established multilateral institutions such as Quad and AUKUS. Is there any contradiction between US-led institutions and the centrality of ASEAN in the region? How to guarantee ASEAN centrality?”
The answer he received was dismal, both for his own sake and that of this international community. But it was also in keeping with how leaders usually mitigate controversy. Austin said: “I do not think I got the entire gist of the question. But I think your question was centred on AUKUS and whether or not that either promotes security and stability in a region or drives us to conflict. It absolutely promotes greater stability and security. It provides a valued and highly capable ally with additional capability that I think will be a generational capability. And so, I am confident that this will add greater stability and security to this region. I am proud of the work that we are doing with AUKUS. I know my good friends, my colleagues from Australia and the United Kingdom are here and I look forward to having additional discussions with them about AUKUS and updating our progress. But I think this will add significantly to our efforts to maintain peace and stability in the region.”
Then there was a ‘lost in translation’ mishap at the second plenary session of the SLD. Anita Anand, Canadian Defence Minister said in her speech: “Our strategy seeks to open up new opportunities with North Pacific partners like South Korea and Japan. It recognises and supports Association of Southeast Asian Nations (ASEAN) centrality. And it is forthright about our relationship with China. China is an increasingly disruptive global power that increasingly disregards international rules and norms.”
In response, during Q&A, PLA Major General Tang Yongsheng, who is a Former Deputy Commandant at the National Security College of the Chinese National Defense University, said: “Just now, Madam Anita Anand said that China is a destructive force in the region. As a matter of fact, what we’re doing is to the contrary to this. We have been making great efforts to maintain peace and the stability in the region. Most of the countries in the region have already become – or, to put it another way, China has become the biggest trading partner to most countries in the region. And in terms of security, we have also made great progress, be it from a bilateral-relationship point of view or multinational-relationship point of view. So, Madam Minister, you said that China is a destructive force. Actually, what you said is destructive by itself. China’s force has never been extended to anywhere near Canada for any operation. We are not monitoring or supervising any national leader’s speech or dialogue.”
The air was then cleared by Dr. John Chipman, Director-General of the host institution International Institute for Strategic Studies (IISS), who said: “I think it might have been disruptive. The word that might have been used by the minister. So, that might help to sort of lower the level of anxieties in the room and allow for the dialogue to continue on that basis.”
Overall, tensions in the US-China relationship were simmering, with almost every speaker mentioning them in their remarks. Li Shangfu conducted eleven bilateral meetings with representatives from various countries but left Lloyd Austin with just a handshake, suggest that SLD could not provide for the thaw in US-China relations the international community was hoping for.
Apparently, he denied US request for a bilateral between himself and Austin because of the sanctions placed against Li in 2018, under the ‘Countering Americas Adversaries Through Sanctions Act (CAATSA)’, for his role in Russia’s transfer to China of Su-35 combat aircraft and S-400 surface-to-air missile system-related equipment.
Before you go further, for interested readers and listeners: My colleague Manoj Kewalramani and I have discussed recent tensions in US-China relations, including their engagement at the SLD, their encounters in the South China Sea, and more, on the latest episode of ‘All Things Policy’. Do tune in:
The second engagement Li Shangfu had this week was his meeting with Thai Army Commander Nalong Phan in Beijing on the morning of June 10, 2023.
At this meeting, Li Shangfu said: “Under the strategic guidance of the leaders of the two countries, China-Thailand relations have changed from "China-Thailand family" to "community of shared future", endowed with new connotations of the times, and full of strong vigor and vitality. As an important part of the relationship between the two countries, the relationship between the two militaries of China and Thailand has a good momentum of development.”
He added: “China is willing to work with Thailand to implement the important consensus reached by the leaders of the two countries, hold important cooperation projects such as the "Assault-2023" army joint training between China and Thailand, and the "Peace and Friendship-2023" multinational joint exercise, so as to promote the cooperation between the two militaries, especially the pragmatic cooperation between the armies of the two countries, has achieved more results. At present, the security of the Asia-Pacific region is facing some challenges. China is willing to work with Thailand to maintain regional stability and ensure long-term peace and stability in the Asia-Pacific region.”
Narompan said: “Thailand and China are good neighbors, good friends, good relatives and good partners, and have achieved fruitful cooperation in high-level exchanges, economy, trade, culture and other fields. The Thai side thanks the Chinese side for its strong support and valuable help in all aspects, and appreciates and firmly supports China's important role in maintaining regional security and stability. We are willing to work together with China to continue to carry forward the special friendship of "Thailand and China as one family", and continue to write new chapters in the relations between the two countries and the two militaries.”
Thirdly, Chinese MoND reported that on June 9, Liu Zhenli, member of the Chinese Central Military Commission (CMC) and Chief of Staff of the CMC’s Joint Staff Department, held a video call with Gerasimov, First Deputy Minister of Defense of Russia and Chief of the General Staff of the Armed Forces.
During the video call, they exchanged views on implementing the consensuses reached by the two heads of state (Xi and Vladimir Putin), and deepening cooperation between the two militaries.
The two sides jointly confirmed that Russia will be invited to participate in the "Northern Joint-2023" exercise organized by China.
From the Russian side, SCMP reported: According to the Russian Ministry of Defence, Gerasimov told Liu that cooperation between Beijing and Moscow had had a “stabilising effect on the world situation… I am convinced that today’s talks will serve to further strengthen the Russian-Chinese strategic partnership in the defence sphere,” Gerasimov said, adding that the two countries’ joint operational and combat training would “continue to be a priority.”
Next, the PLA Navy (PLAN) participated with around 35 other naval forces in the 2023 Multilateral Naval Exercise Komodo (MNEK), held in Indonesia from 5 to 8 June, 2023.
The exercise is held every two years in and around Indonesia since 2014, making the 2023 edition the fourth iteration. The theme for the exercise this year is "Partnership to Recover and to Rise Stronger.”
The exercise is referred to as a “non-warfighting” operational endeavour, aimed at sharing knowledge and capacities among militaries of “friendly countries.”
On June 4, the PLA Navy's Type 052D guided missile destroyer Zhanjiang and Type 054A guided missile frigate Xuchang arrived at the designated assembly waters for the exercise.
The 2023 MNEK was held in Makassar, South Sulawesi, Indonesia for four days, and included on-shore activities and maritime drills.
The participating naval ships of various countries arrived as scheduled at the anchorage on June 4. In the next few days, they participated in the fleet review and conducted drills on search and rescue, maritime interception, damage control, aerial photography, and so on.
According to the staff officer of the Chinese participating naval troops, besides the joint training drills with multinational navies at sea, the Chinese naval troops also took part in the on-shore activities of maritime exhibition, civil medical service, civil engineering program, exchanges and lectures, among others in 2023 MNEK. In addition, they carried out military and cultural exchanges with multinational navies to further deepen understanding, mutual trust and practical cooperation.
Next, after a forty-day ‘friendly tour’ of four countries in the ASEAN, namely Vietnam, Thailand, Brunei, and the Philippines, the Chinese naval ship Qi Jiguang (Hull no. 83) is soon to return to China.
At the end of its trip, Qi Jiguang and its crew of 476 navy students and officers would have passed through the Yellow Sea, East China Sea, South China Sea, Gulf of Thailand and West Pacific.
This week, the Chinese military media reported:
On 8 June, the Brunei side held a grand farewell ceremony for the ship at the port of Muara. More than 200 people, including Chinese Ambassador to Brunei Xiao Jianguo, military attache Dai Qilin, embassy staff, representatives of local Chinese-funded institutions, representatives of overseas Chinese, and representatives of Brunei Navy officers and soldiers, saw it off at the pier.
After the Qi Jiguang ship left the pier, it arrived at the designated sea area to meet with the Brunei Navy's Darussalam ship to jointly conduct a sailing drill.
When Qi Jiguang arrived in Brunei for its goodwill visit on June 5, in the evening, the ship was lit up with lights, and a grand deck reception was held. More than 200 people from both Chinese and Chinese sides attended. At the reception, Chinese officers and soldiers brought martial arts, classical dance and other performances to the guests.
On the morning of the 6th, Princess Masina, Ambassador-at-Large of the Ministry of Foreign Affairs of Brunei, and his wife boarded the ship for a visit and exchange, accompanied by Ambassador Xiao Jianguo and Military Attaché Dai Qilin.
"China and Brunei are close neighbors across the sea, mutually trusted friends and partners with common development goals. I hope both sides can continue to deepen cooperation in the future," the princess said during her visit.
Qi Jiguang’s first stop was Da Nang, Vietnam, where it stayed from May 23 to 25, 2023, and was host to various trainee exercises, games, and dinner parties. We covered this in our 28 May edition of ‘Eye on China’.
Currently, the ship is based in the Philippines, which is its last stop and where it is bound to encounter tensions amidst growing ties between Philippines and the US and its regional allies. Recently, not only has the Philippines granted four extra ECDA sites as bases to the US, it has conducted joint coastguard naval exercises with the US and Japan in the South China Sea, on June 6.
Officials said over 500 coast guard personnel from the three countries joined the exercise aimed at practising countering piracy and intercepting vessels carrying weapons of mass destruction.
Moreover, as per the official Twitter account of the US 7th fleet, between June 5 and 9, their naval forces have also been conducting various preparedness exercises in the Philippine sea.
For example, sailors aboard the US Navy’s only forward-deployed aircraft carrier, USS Ronald Reagan, conducted night flight operations while in the Philippine Sea on 7 June.
Before that, on June 6, sailors assigned to USS Ronald Reagan (CVN 76) also conducted an underway replenishment with the Military Sealift Command dry cargo and ammunition ship USNS Wally Schirra (T-AKE 8) in the Philippine Sea.
Then, on 7 June, Chinese military media reported that Xi Jinping investigated border control and the construction of border defense forces in the northern Chinese province of Inner Mongolia.
There, “he emphasized that it is necessary to implement the party's thinking on strengthening the military in the new era, implement the military strategic policy in the new era, grasp the characteristics and laws of border defense work, strengthen the overall construction of the army, improve the ability to control border defense, and strive to forge the Great Wall of Steel for the defense of the country and the border defense. Make greater contributions to the century-old goal.”
Additionally, Xi “emphasized that to govern the country, one must govern the borders. Frontier defense work is a major event in the governance of the country, which is related to national sovereignty and territorial integrity, to the overall situation of reform, development and stability, to the overall situation of foreign affairs, to the building of a strong country, and to the great cause of national rejuvenation. We must fully understand the importance of doing a good job in border defense, strengthen our mission, and defend the border and defense for the party and the people.”
Xi Jinping further pointed out that “we must attach great importance to the ideological and political construction and control of the troops, unremittingly use the party's innovative theories to build the soul, strengthen political discipline, mass discipline, foreign affairs discipline, and ethnic and religious policy education to ensure that the troops are pure, consolidated and highly centralized.”
Finally, he highlighted: “The joint efforts of the party, the government, the army, the police and the people to strengthen the border defense is the unique advantage of my country's border defense. The military must proactively communicate and coordinate with local governments. The central and state agencies, relevant departments, and local party committees and governments at all levels must care about and support the construction of border defense forces. A new situation in frontier defense work.”
Reportedly, he also listened to briefings from the PLA Northern Theater Command, the PLA Ground Force, the border defense brigade stationed in Inner Mongolia, and the Inner Mongolia Military Area Command.
An ‘FYI’ for interested readers: Inner Mongolia is home to the PLA Northern Theatre Command’s largest training base by size, the Zhurihe Combined Tactics Training Base. The NTC is home to a large number of diverse facilities that also give the Army room to conduct large scale unit exercises covering a wide variety of combat scenarios. As with the 11th Armored Cavalry Regiment at the NTC, Zhurihe also has its own dedicated units to play the role of enemy forces during drills. These are known as the "Blue Army," a play on the Western term "Red Force" to refer to Opposing Forces during exercises.
SCMP has created a succint and insightful multimedia webpage on the evolution of Zhurihe, which can be accessed here.
Finally, some more tense developments took on the US-China military competition front in the Taiwan Straits, between June 3 and 5:
On June 3, the US 7th Fleet Public Affairs Department announced that Arleigh Burke-class guided-missile destroyer USS Chung-Hoon (DDG 93) and Royal Canadian Navy Halifax-class frigate HMCS Montreal (FFH 336) are conducting a routine Taiwan Strait transit June 3 (local time) through waters where high-seas freedoms of navigation and overflight apply in accordance with international law.
The media release added: “The ships transit through a corridor in the Strait that is beyond the territorial sea of any coastal State. Chung-Hoon and Montreal's bilateral transit through the Taiwan Strait demonstrates the commitment of the United States and our allies and partners to a free and open Indo-Pacific. Cooperation like this represents the centerpiece of our approach to a secure and prosperous region where aircraft and ships of all nations may fly, sail and operate anywhere international law allows.”
On the same day, Colonel Shi Yi, spokesperson for the PLA Eastern Theater Command, through the Command’s official Weibo account, released a statement saying:
“On June 3, the destroyer USS "Chung Hoon" and the frigate "Montreal" of Canada sailed across the Taiwan Strait and were publicly hyped. The eastern theater of the Chinese People's Liberation Army organized sea and air forces to monitor and guard the whole process, and dealt with it in accordance with laws and regulations.”
He added: “Relevant countries deliberately create troubles in the Taiwan Strait region, deliberately provoke risks, maliciously undermine regional peace and stability, and send wrong signals to "Taiwan independence" forces. The theater troops maintain a high level of alert at all times and will take all necessary measures to resolutely respond to all threats and provocations and resolutely safeguard national sovereignty and security as well as regional peace and stability.”
That same day, US Indo-Pacific Command Public Affairs Office made a statement that read:
In accordance with international law, USS Chung-Hoon (DDG 93) and HMCS Montreal (FFH 336) conducted a routine south to north Taiwan Strait transit June 3 through waters where high seas freedoms of navigation and overflight apply.
During the transit, PLA(N) LUYANG III DDG 132 (PRC LY 132) executed maneuvers in an ‘unsafe manner’ in the vicinity of Chung-Hoon. The PRC LY 132 overtook Chung-Hoon on their port side and crossed their bow at 150 yards [about 137 meters]. Chung-Hoon maintained course and slowed to 10 kts [knots] to avoid a collision.
The PRC LY 132 crossed Chung-Hoon’s bow a second time starboard to port at 2,000 yards and remained off Chung-Hoon’s port bow. The LY 132’s closest point of approach was 150 yards and its actions violated the maritime ‘Rules of the Road’ of safe passage in international waters.
Chung-Hoon and Montreal's transit through the Taiwan Strait demonstrates the combined U.S.-Canadian commitment to a free and open Indo-Pacific. The U.S. military flies, sails, and operates safely and responsibly anywhere international law allows.
On June 5, the US Navy reportedly also released a video of the close-call between the warships of the two sides.
Via Inquirer.net on Youtube
The incident on Saturday is the latest in a series of close encounters between U.S. and Chinese warships in the Taiwan Strait. In December 2022, a Chinese warship came within 45 yards (41 meters) of a US destroyer.
During his regular press conference on June 5, Chinese Foreign Ministry Spokesperson Wang Wenbin was asked a question on this unsafe maneuver by an AFP reporter. He replied by saying:
The fact is the US side made provocations first and the Chinese side only responded by handling the incident in accordance with relevant laws and regulations. China respects the freedom of navigation and overflight all countries are entitled to under international law. The actions taken by the Chinese military are necessary steps in response to the provocations by the country concerned. These actions are completely justified, lawful, safe and professional. China resolutely opposes the country concerned stirring up trouble in the Taiwan Strait and is firmly determined to defend its sovereignty and security and regional peace and stability.
To read more on developments concerning Chinese military forces, please refer to :
A Xinhua report on a meeting between Chinese State Councilor and Minister of Public Security Wang Xiaohong met with South African Police Minister Bheki Cele in Beijing on June 8, where the two sides pledged to strengthen cooperation in security and law enforcement;
A brilliant Research Report released by RAND Corporation on ‘Chinese Next-Generation Psychological Warfare‘, which explores Chinese military thinking about next-generation psychological warfare and its implications for the US;
Spacebattles (a more informal channel for public discussions).
Section D: Foreign Policy Watch
- Kingshuk Saha
US and Taiwan sign new trade deal
On Thursday (8 June), U.S. and Taiwan signed an agreement under the US-Taiwan Initiative on 21st-Century Trade. The agreement was signed by Ingrid Larson, managing director of the American Institute in Taiwan and Hsiao Bi-Khim, head of the Taipei Economic and Cultural Representative Office in the U.S.
Taiwan and the US yesterday signed an initial agreement under the US-Taiwan Initiative on 21st-Century Trade. The agreement was signed yesterday morning by Representative to the US Hsiao Bi-khim and American Institute in Taiwan (AIT) Managing Director Ingrid Larson in Washington, the Office of Trade Negotiations in Taipei said.
The ceremony was witnessed by Minister Without Portfolio John Deng and Deputy US Trade Representative Sarah Bianchi. Taiwan and the US started talks under the initiative in August last year after Taipei was left out of the Washington-led Indo-Pacific Economic Framework. “The deal that will be signed tonight is not only very historic but also signals a new beginning,” Cabinet spokesman Alan Lin told reporters in Taipei yesterday.
“Relevant tasks are yet to be completed... Taiwan will continue to move toward a comprehensive FTA [free-trade agreement] with the United States to ensure Taiwan’s economic security,” Lin said. Officials from both sides have conducted two rounds of negotiations to finalize the initial agreement, which covers customs and trade facilitation, regulatory practices, domestic regulation of services, anti-corruption practices, and small and medium-sized enterprises.
The two sides are committed to working to facilitate bilateral trade and investment flows, improve regulatory practices, promote anti-corruption measures, and minimize unnecessary border formalities, the office said. It does not cover tariff reductions or exemptions but instead outlines practices and procedures aimed at streamlining and strengthening trade relations.
The hope is that the initial agreement would be expanded to include other topics mandated in the initiative, such as agriculture, standards, digital trade, labour, environment, state-owned enterprises, and non-market policies and practices, the office said. Business groups in Taiwan welcomed the deal but urged both sides to resolve the issue of double taxation to reduce business costs.
Sam Michel, United States Trade Representative (USTR) spokesperson, said: “Deputy United States Trade Representative Sarah Bianchi attended the signing of the first agreement under the U.S.-Taiwan Initiative on 21st Century Trade. This agreement, which was signed by representatives of the American Institute in Taiwan and the Taipei Economic and Cultural Representative Office in the United States, is intended to strengthen and deepen the economic and trade relations between the United States and Taiwan.”
Chinese Foreign Ministry Spokesperson Mao Ning, retaliating against this move, said during a regular press conference on June 1: “China strongly opposes official interaction of any form between China’s Taiwan region and countries that have diplomatic relations with China. That includes negotiating or signing any agreement of sovereign implication or official nature. The US’s move gravely violates the one-China principle and the three China-US joint communiqués and contravenes the US’s commitment of maintaining only unofficial relations with Taiwan.”
This trade agreement will aggravate the already tense relationship between U.S. and China. In the coming days, China may impose some sanctions on Taiwan or military exercises near it to show its strong disapproval of the agreement.
Chinese Foreign Minister Qin Gang met Tesla CEO Elon Musk
Elon Musk on Tuesday (6 June), arrived in China for the first time in three years.
Chinese Foreign Minister Qin Gang and Tesla founder Elon Musk met in Beijing on Tuesday, with the latter saying that Tesla objects to "decoupling" and is willing to further expand its business in China, according to a statement published on the website of the Ministry of Foreign Affairs.
Qin said that China will continue to steadfastly promote high-level opening-up and is committed to building a market-oriented and international business environment for enterprises from various countries, including Tesla. "China's development is an opportunity for the world. A healthy, stable and constructive China-US relationship is not only beneficial for China and the US but also for the whole world," Qin said.
He also used Tesla cars as a metaphor to describe the relations between Beijing and Washington, saying that the two countries should sometimes "hit the brake" to avoid "dangerous driving" and should push win-win cooperation. Musk also said that Tesla objects to decoupling, and is willing to continue expanding its business in China and share the country's development opportunities."Chinese people are diligent and wise, and, naturally, China can make such development achievements," he said.
Reuters reported on May 31 that Musk will also visit Tesla's Shanghai plant. In April, Tesla announced that it will open a new factory in Shanghai to produce its Megapack energy storage batteries, which are used to stabilize electricity grids and prevent power outages.
Chinese Foreign Ministry spokeswoman Mao Ning said on the matter of Musk’s trip: “China always welcomes business figures from all countries, including Mr. Musk, to visit China for a deeper understanding of the country and mutually beneficial cooperation. China is firmly committed to advancing high-level opening up and fostering a market-oriented, law-based and internationalized business environment. We welcome foreign companies to invest and do business in China, explore the Chinese market and share in development opportunities.”
Anthony Sassine, senior investment strategist and investment manager at Kraneshares, commented for CNN: “China accounts for 50% of Tesla’s vehicle sales and 20% of its production capacity, and this visit would set the story straight, to make sure he was on the same page as the Chinese Communist Party.”
The red carpet welcome of Musk shows China's desire to woo Western tech and financial companies to China as a preferred investment destination as decoupling from China voices are getting louder in the West.
Zimbabwean Foreign Minister Frederick Shava visits China
Zimbabwean Foreign and International Trade Minister, Frederick Shava, at the invitation of Chinese State Councilor and Foreign Minister Qin Gang, was on a seven-day state visit to China from May 27 to 2 June.
Chinese State Councilor and Foreign Minister Qin Gang held talks with Minister of Foreign Affairs and International Trade of Zimbabwe Frederick Shava in Beijing on Monday, calling for bilateral ties to be developed further. Qin noted that China and Zimbabwe have been good friends and partners that trust and support each other since the two countries established diplomatic relationships more than 40 years ago.
He said that China stands ready to work with Zimbabwe to implement the important consensus reached by the two heads of state, pursue mutual support on issues concerning each other's core interests, and promote the continued development of China-Zimbabwe relations. Qin said China will, as always, firmly support Zimbabwe in opposing external interference and sanctions, and in taking a development path suited to its national conditions. China will deepen exchanges of experience in state governance with Zimbabwe, he added.
China will tap the potential of cooperation with Zimbabwe in fields such as investment, trade, energy and mineral resources, clean energy and human resources development, and will continue to encourage Chinese enterprises to invest in Zimbabwe, he said. Echoing Qin's remarks, Shava said that Zimbabwe-China relations have stood the test of time and the level of friendly cooperation has been greatly improved.
Zimbabwe firmly upholds the one-China principle and supports the "one country, two systems" principle, as well as the Belt and Road Initiative, the Global Development Initiative, the Global Security Initiative and the Global Civilization Initiative, Shava said.
China has promised to help Zimbabwe oppose “external interference and sanctions” while building its development path, as the southern African country gears up for a general election this summer. In a meeting with his visiting Zimbabwean counterpart Frederick Shava in Beijing on Monday, Chinese Foreign Minister Qin Gang pledged to share more state governance experience with Harare, with which Beijing has maintained friendly relations for more than 40 years.
The landlocked country has been sanctioned by the United States and the European Union since the early 2000s, with some restrictions removed over the years. The sanctions, which ban Zimbabwean companies and individuals from trading with Western entities, were claimed by the US as a way to help Zimbabwe advance economically and democratically.
The visit by Shava shows China making deep strategic and economic inroads in autocratic African countries hit by Western sanctions for their lack of democracy and human rights abuse.
Chinese Commerce Minister Wang Wentao urges Japan to halt chip export controls
Wang Wentao, Chinese Commerce Minister, urged Japan to end its chip export controls as it is against the principle of international trade and will hurt the economic interests of both the country.
Chinese Commerce Minister Wang Wentao called on Japan to correct wrongdoings in restricting exports of semiconductor-related manufacturing equipment to China, which has severely violated international economic and trade rules, according to a statement from the Ministry of Commerce (MOFCOM) on Monday (5 June).
Wang's remarks were made during his talks with Japanese Trade Minister Yasutoshi Nishimura on Friday at the 29th Asia-Pacific Economic Cooperation (APEC) trade ministers' meeting held in Detroit, US, on May 25 and 26. "Japan's insistence on rolling out the export controls severely violates international economic and trade rules, which hurts the development foundation of the industry," Wang said, urging Japan to help maintain the stability of global industrial chains.
China, the world's largest semiconductor consumption market, enjoys advantages in upstream raw materials, components and packaging, and it has abundant application scenarios, while Japan has an upper hand in advanced chipmaking equipment and associated hardware integration. The Japanese restrictive measures, in lockstep with US' technology "decoupling" moves, will wreak havoc on Japanese manufacturers, which have shipped many semiconductor-related products to China, experts said.
After two months of public consultation, during which some Japanese industry groups and companies expressed opposition and concerns, the Japanese government on May 23 announced 23 items of chipmaking equipment will be added to the export control list, which is expected to take effect on July 23. In a quick response, a spokesperson for the MOFCOM said the move is an abuse of export control measures. China reserves the right to take measures to safeguard its legitimate rights and interests.
Brady Wang, a semiconductor analyst at Counterpoint Research, said: “Tokyo’s alignment with the US and the Netherlands will be particularly damaging as China seeks to source new semiconductor equipment that can be used to produce more advanced chips. China currently can produce chips at 14 nm, however, its capacity is very limited.”
The Japanese move and the response by Wentao show the deepening of the great tech game between China and the West of which Japan is a key partner. This move will impact the Chinese hi-tech sector and China may hit back with some form of trade sanctions in the coming days.
Finally, interested readers may want to read about Xinhua’s report of a phone call that took place between Wang Yi, director of the Office of the Foreign Affairs Commission of the CPC Central Committee, and Emmanuel Bonne, diplomatic counselor to French President Emmanuel Macron, at the latter's request, on June 5, 2023.
Section E: Chinese Domestic Politics
- Amit Kumar
Highlights from Xi Jinping’s visit to Inner Mongolia and his speeches
During his visit to Zhonghuan Industrial Park, Hohhot (Inner Mongolia’s Capital), Xi told workers in the park that it is up to self-reliance and strength in sci-tech and building new development patterns to realize breakthroughs in science and technology.
Underlining the role of enterprises, Xi said that the key to achieving sci-tech self-reliance is innovation and enterprises are the main underlying players in the process.
Xi stressed the importance of green and low-carbon development. He stressed that it is a prerequisite to pursue green development. It is of utmost importance for Inner Mongolia to promote transformation and upgrading of traditional energy industries, boost green energy, and develop itself into a key national energy base.
Inner Mongolia has set clear goals, and taken the right path, and has promising prospects with much room for growth in this regard, Xi said.
Xi stressed that the autonomous region should profoundly understand the CPC Central Committee's strategic positioning of Inner Mongolia, fully and accurately implement the new development philosophy on all fronts, and closely center around the primary task of promoting high-quality development.
He required the region to follow the guideline of forging a strong sense of community in the Chinese nation, continuously attach equal importance to development and security, prioritize ecological conservation and green development, proactively integrate into and serve the building of a new development pattern, and make new progress in building "Two Barriers," "Two Bases" and "A Gateway," so as to write a new chapter of Inner Mongolia's development in advancing Chinese modernization.
Here the two barriers are about desertification and ecological security for northern China; the two bases refer to energy and animal husbandry/livestock; and the gateway refers to opening up/connectivity towards China's north.
After taking stock of the work of the Inner Mongolia Autonomous Region by the region’s Party Committee and government, the report said:
Xi stressed that Inner Mongolia should accelerate efforts to improve industrial structures and vigorously develop advantageous and feature industries.
Inner Mongolia is our country's major base of energy and strategic resources, agricultural and livestock product production base, as well as an important gateway in China's northward opening up, and therefore the region must take into account its own advantages, features and strategic positioning when it comes to optimizing its industrial structures, vigorously develop advantageous and feature industries, blaze a new path for the transformation and development of resource-intensive regions, and strive to build a modernized industry system featuring Inner Mongolia's advantages.
It should also take an active part in the Belt and Road Initiative, and in the construction of the China-Mongolia-Russia Economic Corridor, open wider to the outside world, build itself into an important gateway in our country's northward opening up and play a greater role in fostering positive interplay between domestic and international economic flows.
Of particular interest was Xi’s effort to underscore the importance of border areas with ethnic minority populations in the nation’s drive toward common prosperity. He said:
As far as China's drive to advance toward common prosperity in the whole country is concerned, the most difficult task is in border areas with mainly ethnic minority populations, which should not be left behind on the road toward this destination.
We must adhere to a people-centered approach and work harder to ensure and improve people's well-being when seeking development.
This includes improving the policy framework, strengthening services for training, and taking targeted and effective measures to reduce burdens, stabilize employment, and increase job opportunities. We should support diverse and flexible channels for employment, with a focus on employment for graduates, veterans and migrant workers. Work must be done to create employment opportunities and provide the necessary support for households that have been lifted out of poverty, receive subsistence allowances, or have no one employed, and for people with disabilities who face difficulties in finding jobs.
It is important to improve a multi-tiered social security system, expand its coverage, and increase social assistance, medical assistance, subsistence allowances and support for households in need. We should also develop the elderly care industry and services. We must consolidate and build on the achievements of poverty alleviation, focus on accelerating the development of counties that have escaped poverty, foster growth drivers in those areas and sources of income for populations that have emerged from poverty, and prevent them from relapsing into poverty on a large scale.
Xi Speech: Calls for efforts to build modern Chinese civilization
Xi Jinping attended a meeting on cultural inheritance and development on June 9 where he delivered a speech underling the importance of China’s new cultural mission in the new era.
Xinhua reports:
He stressed that it is our new cultural mission in the new era to further promote cultural prosperity and develop a great culture in China and a modern Chinese civilization from a new starting point. It is imperative to have greater confidence in our own culture, shoulder the mission, work diligently and proactively, and make concerted efforts to create a new culture of our times and build a modern Chinese civilization.
He stressed that Chinese culture has a long and continuous history and that Chinese civilization is extensive and profound. A profound understanding of the history of Chinese civilization is essential to promoting the creative transformation and innovative development of fine traditional Chinese culture in a more effective manner, pushing ahead with the building of a cultural sector with Chinese characteristics more strongly and developing a modern Chinese civilization.
Xi noted that China's fine traditional culture is comprised of many important elements, which have formed the prominent features of Chinese civilization. The fact that Chinese civilization is highly consistent is the fundamental reason why the Chinese nation must follow its own path. If one does not learn about China from the continuity of its long history, there is no way for him or her to understand ancient China, modern China, or China in the future.
Chinese civilization is exceptionally innovative, which explains why the Chinese nation upholds fine traditions but never blindly sticks to old ways, and respects the fine traditions but never indiscriminately restores old traditions. It is also the reason why the Chinese nation is fearless of new challenges and is always open to new things.
Chinese civilization is characterized by strong uniformity, which is why different ethnic cultures of the Chinese nation are integrated, and can rally close together even when faced with major setbacks. It determines the common belief that the homeland cannot be divided, the country cannot be destabilized, the ethnic groups cannot be separated, and the civilization cannot be disrupted. It also determines that national unification always stays at the heart of China's core interests and a strong and unified country is the pillar upon which the well-being of all Chinese people depends.
Chinese civilization is inclusive, which fundamentally determines the historical orientation of the Chinese nation featuring exchanges and integration, the harmonious coexistence of diverse religious beliefs in China, and the openness of Chinese culture to world civilizations.
The peaceful nature of Chinese civilization fundamentally determines that China will continue to build world peace, contribute to global development and safeguard the international order, and that it will continue to pursue exchanges and mutual learning among civilizations rather than cultural hegemony. It also determines that China will not impose its own values and political system on others. China is a champion of cooperation, not confrontation. Never will it dish out favors to acolytes and punishments to opponents.
Xi stressed that it is natural to integrate the basic tenets of Marxism with China's specific realities and fine traditional culture if we are to create and develop socialism with Chinese characteristics on the basis of the profound Chinese civilization of more than 5,000 years. This is the understanding we have drawn from our exploration of the path of socialism with Chinese characteristics and the key to our success.
First, compatibility is the prerequisite for integration. Although Marxism and fine traditional Chinese culture have different origins, they are highly compatible with each other. Compatibility facilitates integration.
Second, the result of the integration is mutual benefit, giving rise to a unified new culture that enables Marxism to become Chinese, and fine traditional Chinese culture modern. The newly-minted culture through integration has become the cultural form of the Chinese path to modernization.
Third, the integration solidifies the foundation of the path of socialism with Chinese characteristics, providing it with broader and deeper historical depth and enriching its cultural basis. Chinese modernization invigorates Chinese civilization with modern power, while Chinese civilization supports Chinese modernization with cultural sustenance.
Fourth, the integration has opened up space for innovation and helped us maintain the initiative in our ideological and cultural work, exerting a powerful influence on our path, theory and system. What is more important is that integrating the basic tenets of Marxism with China's fine traditional culture means another effort to emancipate our minds, which makes it possible for us to make full use of the precious resources of fine traditional Chinese culture in broader cultural space in exploring theoretical and institutional innovation for the future.
Fifth, the integration has consolidated the principal role of culture, with the establishment of the Thought on Socialism with Chinese Characteristics for a New Era being the most vivid example. Integrating the basic tenets of Marxism with China's fine traditional culture has resulted from our thorough review of the historical experience drawn from adapting Marxism to the Chinese context and the needs of our times.
It showcases that we have profoundly grasped the laws governing the development of Chinese civilization. It demonstrates that our Party's understanding of the Chinese path, theory and system has reached a new height, and so has our Party's confidence in our history and culture, as well as our Party's consciousness in promoting cultural innovation when carrying forward fine traditional Chinese culture.
Xi noted that since the 18th CPC National Congress, the CPC Central Committee, while leading the Party and the people to govern the nation, has placed the promotion of culture in an important position of our overall work, and kept deepening understanding in this regard. A series of new ideas, viewpoints and judgments have been put forward.
These important viewpoints are theoretical reviews of experience from the practice of cultural promotion under the Party's leadership in the new era. They are the fundamental guidelines for doing a good job in our publicity, ideological and cultural work. We must adhere to and implement them over the long term and continue to update and develop them.
Xi called for efforts to continuously promote cultural prosperity and build a great culture in China and a modern Chinese civilization from a new historical starting point. To do all these, Xi said that we need to develop an independent cultural psyche, which requires greater confidence in our own culture and adherence to our own path. To have such a psyche, we also need to draw on what the Chinese nation has achieved in the past and at present, summarize Chinese experiences with Chinese wisdom, and develop Chinese experiences into Chinese theories, Xi said.
We must continue to be open and inclusive, adapt Marxism to the Chinese context and the needs of the times, inherit and develop fine traditional Chinese culture, adapt foreign cultures to China's context, and continuously cultivate and create a socialist culture with Chinese characteristics in the new era. Efforts must be made to uphold fundamental principles and break new ground, carry forward the fine historical traditions and write a new chapter for our times with positive energy and a pioneering spirit.
Referring to Xi’s speech, Cai Qi, member of the Politburo Standing Committee (PBSC) said:
Xi Jinping's important speech made a comprehensive, systematic and in-depth explanation of a series of major theoretical and practical issues regarding the inheritance and development of Chinese culture from the perspective of the overall strategic development of the Party and the country.
His speech is of political, ideological, strategic and guiding significance. It is necessary, along with the ongoing theoretical study program, to conscientiously organize study sessions on the gist of General Secretary Xi Jinping's important speech in a bid to more deeply understand the significance of the establishment of both Comrade Xi Jinping's core position on the Party Central Committee and in the Party as a whole and the guiding role of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era.
We must strengthen our commitment to the "Four Consciousnesses", the "Four-sphere Confidence" and the "Two Upholds". Under the guidance of the gist of General Secretary Xi Jinping's important speech, we should constantly deepen our understanding of the regularity of cultural development and be committed to our cultural mission.
Finally, interested readers may refer to a Xinhua report, which talks about Chinese Premier Li Qiang conducting an inspection tour in the country’s northeast Liaoning Province between 7-8 June, 2023.
Eye on China is a weekly newsletter curated by the Indo-Pacific Studies Programme at The Takshashila Institution, a public policy think-tank based out of Bengaluru, India.
Contributors :
India-China Relations: Anushka Saxena
Economy and Tech: Amit Kumar
Military Developments in China: Anushka Saxena
Foreign Policy Watch: Kingshuk Saha
Chinese Domestic Politics: Amit Kumar
