China's Ukraine War Diplomacy - Omicron Tests Dynamic Zero-COVID Policy - Tech & Two Sessions - India-China Talks - Japan's Kishida Visits India - FSDC on Economic Policy
I. Diplomacy & the Ukraine War
Xi Jinping and Joe Biden discussed the Ukraine war in a call on Friday. But before I get to that, let me highlight a few quick developments.
First, there was a seven-hour meeting in Rome earlier in the week between Yang Jiechi and US NSA Jake Sullivan. I covered the statements issued and media reportage after that meeting in my daily tracker here, if you are interested. What’s worth noting is that prior to the call, US had publicly stated that its intelligence reports informed that Moscow had requested Beijing for military aid/supplies. In an interview to CNN, Jake Sullivan had also downplayed the notion that Xi Jinping knew about Vladimir Putin’s plans to invade Ukraine.
BASH: I want to ask about China. China coordinated the timing of an invasion with Russia. They waited until after the Olympics. They're continuing to do business with Russia. Do you consider Xi Jinping a co-conspirator with Vladimir Putin in this war against Ukraine?
SULLIVAN: Well, we believe that China, in fact, was aware before the invasion took place that Vladimir Putin was planning something. They may not have understood the full extent of it, because it's very possible that Putin lied to them, the same way that he lied to Europeans and others.
Beijing continued to criticise all of this as “disinformation.”
Second, just before the Biden-Xi call, there was this report from Politico’s Stuart Lau quoting an unidentified European official saying that “EU leaders have very reliable evidence that China is considering providing military aid to Russia. All the leaders are very aware of what’s going on.” The report further quoted the official a saying: “We are concerned about the fact that China is flirting with the Russians.” The EU will “impose trade barriers against China” should Beijing proceed with Russia’s request, he said, as “this is the only language Beijing understands.”
Finally, hours before the call, the Chinese aircraft carrier Shandong sailed through the Taiwan Strait.
Anyway, according to reports, the Biden-Xi call lasted for just under two hours. The Chinese side issued a very detailed readout after the call. I guess this should put to rest any thoughts about China mediating to end the war or shifting its position of support for Russian interests.
Keep this tweet from CGTN’s Liu Xin in mind when you think about China’s position.
Now, of course, I understand that the Chinese position is more nuanced than this. There are different interests and concerns, specifically around the impact of sanctions, the changing nature of globalisation, the direction of European policy, and the impact of all this in the Indo-Pacific region. Also, there is evidently some elite churn that is taking place, as recent pieces by Hu Wei and Wang Huiyao. Also do check out this interview with Zheng Yongnian. But Liu Xin’s tweet is useful to note because it informs that the predominant prism through which the Chinese leadership is looking at events in Ukraine today is competition with the US. Also, there is the case of Xi Jinping’s proximity to Putin, and the political implications of Putin’s failure for Xi’s political future.
Anyway, the Chinese readout of the call began with Biden’s comments.
“President Biden said that 50 years ago, the United States and China made the important choice of issuing the Shanghai Communique. Fifty years on, the U.S.-China relationship has once again come to a critical time. How this relationship develops will shape the world in the 21st century. He reiterated that the U.S. does not seek a new Cold War with China; it does not aim to change China's system; the revitalization of its alliances is not targeted at China; the U.S. does not support ‘Taiwan independence’; and it has no intention to seek a conflict with China. The U.S. is ready to have candid dialogue and closer cooperation with China, stay committed to the one-China policy, and effectively manage competition and disagreements to ensure the steady growth of the relationship, said President Biden. He also expressed readiness to stay in close touch with President Xi to set the direction for the U.S.-China relationship.”
“Xi said the prevailing trend of peace and development is facing serious challenges, and the world is neither tranquil nor stable. As permanent members of the UN Security Council and the world’s two leading economies, China and the U.S. must not only guide their relations forward along the right track, but also shoulder their share of international responsibilities and work for world peace and tranquility, Xi said. Xi stressed that he and President Biden share the view that China and the U.S. need to respect each other, coexist in peace and avoid confrontation, and that the two sides should increase communication and dialogue at all levels and in all fields. President Biden has just reiterated that the U.S. does not seek to have a new Cold War with China, to change China's system, or to revitalize alliances against China, and that the U.S. does not support ‘Taiwan independence’ or intend to seek a conflict with China, Xi said. ‘I take these remarks very seriously’.”
Xi pointed out the China-U.S. relationship, instead of getting out of the predicament created by the previous U.S. administration, has encountered a growing number of challenges. What’s worth noting in particular is that some people in the U.S. have sent a wrong signal to ‘Taiwan independence’ forces, Xi said, adding ‘this is very dangerous’. Mishandling of the Taiwan question will have a disruptive impact on the bilateral ties, said Xi. ‘China hopes that the U.S. will give due attention to this issue.’ The direct cause for the current situation in the China-U.S. relationship is that some people on the U.S. side have not followed through on the important common understanding reached by the two Presidents and have not acted on President Biden's positive statements. The U.S. has misperceived and miscalculated China's strategic intention, Xi said. Xi underscored that there have been and will continue to be differences between China and the U.S. ‘What matters is to keep such differences under control. A steadily growing relationship is in the interest of both sides,’ he added.
‘China does not want to see the situation in Ukraine to come to this. China stands for peace and opposes war. This is embedded in China's history and culture,’ Xi said. China makes a conclusion independently based on the merits of each matter, advocates upholding international law and universally recognized norms governing international relations, and adheres to the UN Charter and promotes the vision of common, comprehensive, cooperative and sustainable security. These are the major principles that underpin China’s approach to the Ukraine crisis, Xi said. Noting that China has put forward a six-point initiative on the humanitarian situation in Ukraine, Xi said China is ready to provide further humanitarian assistance to Ukraine and other affected countries. ‘All sides need to jointly support Russia and Ukraine in having dialogue and negotiation that will produce results and lead to peace,’ Xi said, adding that the U.S. and NATO should also have dialogue with Russia to address the crux of the Ukraine crisis and ease the security concerns of both Russia and Ukraine…Sweeping and indiscriminate sanctions would only make the people suffer. If further escalated, they could trigger serious crises in global economy and trade, finance, energy, food, and industrial and supply chains, crippling the already languishing world economy and causing irrevocable losses, Xi added.
‘The more complex the situation, the greater the need to remain cool-headed and rational,’ Xi said, adding that whatever the circumstances, there is always a need for political courage to create space for peace and leave room for political settlement. ‘As two Chinese sayings go, 'It takes two hands to clap.' 'He who tied the bell to the tiger must take it off.' It is imperative that the parties involved demonstrate political will and find a proper settlement in view of both immediate and long-term needs,’ Xi said. Xi said other parties can and should create conditions to that end. The pressing priority is to keep the dialogue and negotiation going, avoid civilian casualties, prevent a humanitarian crisis, and cease hostilities as soon as possible. He said an enduring solution would be for major countries to respect each other, reject the Cold War mentality, refrain from bloc confrontation, and build step by step a balanced, effective and sustainable security architecture for the region and for the world. ‘China has been doing its best for peace and will continue to play a constructive role,’ Xi said.
“President Joseph R. Biden, Jr. spoke today with President Xi Jinping of the People’s Republic of China (PRC). The conversation focused on Russia’s unprovoked invasion of Ukraine. President Biden outlined the views of the United States and our Allies and partners on this crisis. President Biden detailed our efforts to prevent and then respond to the invasion, including by imposing costs on Russia. He described the implications and consequences if China provides material support to Russia as it conducts brutal attacks against Ukrainian cities and civilians. The President underscored his support for a diplomatic resolution to the crisis. The two leaders also agreed on the importance of maintaining open lines of communication, to manage the competition between our two countries. The President reiterated that U.S. policy on Taiwan has not changed, and emphasized that the United States continues to oppose any unilateral changes to the status quo. The two leaders tasked their teams to follow up on today’s conversation in the critical period ahead.”
Also this week, Xi Jinping also discussed the Ukraine issue with the leaders of Indonesia, Cambodia and South Africa.
Xinhua’s report of the call with Joko Widodo says: “the two sides exchanged views on the situation in Ukraine and agree that all parties should stick to promoting peace talks, prevent a large-scale humanitarian crisis, control the negative impact of sanctions on the world economy and avoid dragging down the world economic recovery process.”
The Chinese readout of the call with Cyril Ramaphosa says has the South African leader saying: “China is a reliable and true partner and friend of South Africa and other African countries, and I would like to thank China for sticking to a fair position and providing valuable assistance for South Africa and other African countries to help us jointly overcome difficulties. South Africa firmly adheres to the one-China principle and steadfastly supports China's stance on the issue related to Xizang and other major issues…The two leaders also exchanged views on the situation in Ukraine. Both sides agree that China and South Africa hold a very similar position on the Ukraine issue, and that sovereign countries are entitled to independently decide on their own positions. Both sides support Russia and Ukraine in keeping the momentum of peace talks and settling disputes through dialogue and negotiations.”
Finally, do check out these comments by Chinese Vice Foreign Minister Le Yucheng on the situation in Ukraine and the implications for the Indo-Pacific region. Le argues:
“The root cause lies in the Cold War mentality and power politics. First, one should not seek its own absolute security. Since NATO made a promise back then, it should not renege on its word and keep pushing its boundary eastward. The pursuit of absolute security actually leads to absolute insecurity. Second, bloc politics and group confrontation should be rejected. Military bloc is a Cold War vestige. With the disintegration of the Soviet Union, NATO should have been consigned to history alongside the Warsaw Pact. However, rather than breaking up, NATO has kept strengthening and expanding. One could well anticipate the consequences going down this path. The crisis in Ukraine is a stern warning. Third, globalization should not be ‘weaponized’. China has all along opposed unilateral sanctions that have neither basis in international law nor mandate of the Security Council. History has shown time and again that instead of solving problems, imposing sanctions is like ‘putting out fire with firewood’ and will only make things worse. Globalization is used as a weapon, and even people from the sports, cultural, art and entertainment communities are not spared. The abuse of sanctions will bring catastrophic consequences for the entire world. Fourth, small countries should not be used as a pawn. Some big countries do not want to get dragged into conflicts and bring harm to themselves, so they turn small countries into their cat's paw and even use them to fight proxy wars. One watches its own arms dealers, bankers and oil tycoons make a fortune out of the war while leaving people of a small country with the wounds of war that would take years to heal. This is highly immoral and irresponsible.”
Then on the Indo-Pacific, he argues:
“The Asia-Pacific now faces two opposite choices: should we build an open and inclusive family for win-win cooperation or go for small blocs based on the Cold War mentality and group confrontation? China's answer can be summed up as four ‘dos’ and four ‘don'ts’:
We must cherish peace and not undermine regional tranquility. The Asia-Pacific has enjoyed overall peace for several decades. This is the result of the joint and dedicated efforts of all countries in the region. No country should pursue its so-called absolute security at the expense of other countries' security. Otherwise, as the proverb goes, ‘One who tries to blow out other's oil lamp will get his beard on fire.’ We must respect each other and not wantonly interfere in others’ internal affairs. Asian countries have sustained prosperity and stability for half a century. The key lies in the Asian way of mutual respect and consensus building. Every country has the right to pursue a development path chosen by itself. Imposition or interference in others’ internal affairs should be rejected, and there is no need for ‘saviors’ or ‘lecturers’. We must promote unity and cooperation and not create division and confrontation. The Asia-Pacific has maintained vibrancy in a fluid and changing world. This is the result of united efforts by all regional countries. Going against the trend to pursue the Indo-Pacific strategy, provoke trouble, put together closed and exclusive small circles or groups, and get the region off course toward fragmentation and bloc-based division is as dangerous as the NATO strategy of eastward expansion in Europe. If allowed to go on unchecked, it would bring unimaginable consequences, and ultimately push the Asia-Pacific over the edge of an abyss. We must pursue independence and self-strength and not let others decide our future. We in Asia must keep the future firmly in our own hands, pursue independent, balanced and prudent foreign policies, and seek strength through unity in the process of Asia-Pacific regional integration.”
Zhong Sheng Commentaries in the People’s Daily on alleged US bio-military labs in Ukraine - You can find them in my PD tracker.
II. India-China Talks & Japan-India Ties
There have been a few developments over the past couple of weeks that are worth noting. First, there was the 15th round of Corps Commander-level talks regarding tensions in Eastern Ladakh. The two sides issued a joint statement after the talks. It says:
“The two sides carried forward their discussions from the previous round held on 12th January 2022 for the resolution of the relevant issues along the LAC in the Western Sector. They had a detailed exchange of views in this regard, in keeping with the guidance provided by the State Leaders to work for the resolution of the remaining issues at the earliest. They reaffirmed that such a resolution would help restore peace and tranquility along the LAC in the Western Sector and facilitate progress in bilateral relations. The two sides also agreed to maintain the security and stability on the ground in the Western Sector in the interim. They agreed to maintain dialogue via military and diplomatic channels to reach a mutually acceptable resolution of the remaining issues at the earliest.”
Essentially, it appears that this round led to no change in the situation on the ground. However, earlier this week, Hindustan Times reported that “China has claimed soldiers of the People’s Liberation Army (PLA) have disengaged in the Hot Spring area. It is for the first time that China has claimed troop disengagement in Hot Springs (Eastern Ladakh). It is not clear why China has claimed that disengagement at Hot Springs has been completed. Numerous rounds of diplomatic & military talks, but India & China have been unable to end the nearly 22-month standoff. Sources countered China’s claim, said ‘not all areas of contention at Hot Springs have been cleared’.”
While on the issue of the boundary, do check out this new CSIS study below.
Also, this week, there has been some talk of Chinese foreign Minister Wang Yi potentially visiting India. The Indian Express reported:
“Beijing has proposed a series of events to kickstart the dialogue, starting with possible high-level visits from both sides. To begin with, Beijing has proposed a visit by Chinese State Councillor and Foreign Minister Wang Yi to India as early as this month. This is to be followed by a reciprocal visit by External Affairs Minister S Jaishankar. The Chinese side has also proposed a series of high-level visits by its top Politburo members and key officials in President Xi Jinping’s regime. The Chinese have also proposed an ‘India-China Civilization Dialogue’ to be held in both countries. They have also proposed an India-China Trade and Investment Cooperation Forum and an India-China Film Forum. But China’s ultimate and clear objective is to host Prime Minister Narendra Modi for the in-person BRICS summit which will be attended by Russian President Vladimir Putin as well. China, which also holds the chair for the RIC (Russia-India-China) trilateral this year, could also host the leaders’ summit on the sidelines of the BRICS summit.
Hindustan Times reports that “the Chinese side has proposed a trip to India by Wang as part of his plans to travel to several countries in the region from March 22. Wang is expected to be in Pakistan during March 22-23 to attend a meeting of foreign ministers of the Organisation of Islamic Cooperation (OIC), and he will visit Nepal during March 26-27. Other countries that are expected to be part of Wang’s itinerary are Bangladesh and Bhutan.” When MEA spokesperson Arindam Bagchi was asked on Thursday about Wang’s possible visit, he said that he had “no information” to offer.
One visit to India that did take place this week was that of Japanese Prime Minister Kishida Fumio. I would recommend watching the press statements by the two prime ministers. Kishida began with Ukraine, while Modi did not reference it all in his opening remarks. The war, however, was discussed and both sides are signalling a certain convergence in views.
The two sides also issued a joint statement after the meetings on Saturday. Some key parts from the statement:
The Prime Ministers emphasized that India and Japan, as two leading powers in the Indo-Pacific region, had a shared interest in the safety and security of the maritime domain, freedom of navigation and overflight, unimpeded lawful commerce and peaceful resolution of disputes with full respect for legal and diplomatic processes in accordance with international law. They reaffirmed their determination to continue prioritizing the role of international law, particularly the United Nations Convention on the Law of the Sea (UNCLOS), and facilitate collaboration, including in maritime security, to meet challenges against the rules-based maritime order in the East and South China Seas. They emphasized the importance of non-militarisation and self-restraint. They further called for the full and effective implementation of the Declaration on the Conduct of Parties in the South China Sea and the early conclusion of a substantive and effective Code of Conduct in the South China Sea in accordance with international law, especially UNCLOS, without prejudice to the rights and interests of all nations including those not party to these negotiations.
They reiterated their condemnation of terrorist attacks in India, including 26/11 Mumbai and Pathankot attacks and called upon Pakistan to take resolute and irreversible action against terrorist networks operating out of its territory and comply fully with international commitments including to FATF. They also concurred to strengthen counter-terrorism efforts in multilateral fora, and to work together on early adoption of the Comprehensive Convention on International Terrorism (CCIT) in the United Nations.
“The Prime Ministers expressed their serious concern about the ongoing conflict and humanitarian crisis in Ukraine and assessed its broader implications, particularly to the Indo-Pacific region. They emphasized that the contemporary global order has been built on the UN Charter, international law and respect for sovereignty and territorial integrity of states. They underscored the importance of safety and security of nuclear facilities in Ukraine and acknowledged active efforts of the IAEA towards it. They reiterated their call for an immediate cessation of violence and noted that there was no other choice but the path of dialogue and diplomacy for resolution of the conflict. The Leaders affirmed that they would undertake appropriate steps to address the humanitarian crisis in Ukraine.” (Quick thought: Language that does not mention Russia at all.)
Indian Foreign Secretary Harsh Vardhan Shringla took questions from the press after the talks. On Ukraine, he said that the issue was discussed and then basically he reiterated the text from the joint statement above. He further added this:
“It is true that there was a Quad virtual summit during which the Ukraine issue was discussed. You would have seen from the readout of that summit, which was something that all four countries had released, was that, you know, these discussions were useful in converging various viewpoints and clearly, as far as the Quad was concerned, the points and elements that I just mentioned, in the context of India - Japan talks, were really the points that were taken up at the Quad. So there is a similarity and that convergence continues in terms of how our four countries see it. I think other questions are also similar. So in a certain sense, what I've given you is an encapsulation of what was discussed on the Ukraine issue by the two leaders.”
When Maha Siddiqui from CNN-News18 asked the FS on whether there had been any specific ask from India with regard to the sanctions, Shringla talked about India’s humanitarian assistance to Ukraine and added: “I don't think we went in the issues that you raised Maha and I think whatever you need to know, is available in the joint statement and I think the two countries have a position which is reflected in the statement signed by the two Prime Ministers.” — (Quick note: Keep this in mind as we read the Japanese Press Secretary’s comments below.)
On China, Shringla said:
“We did inform the Japanese side about the situation in Ladakh - the massing of troops and attempts at multiple transgressions. And also the fact that we were holding talks with China on the border related issues and the recent issues in Ladakh. We also made it clear that until and unless we had a resolution of the issues involved with peace and tranquillity in the border areas, we could not consider the relationship to be business as usual and normalcy in relationship would depend on progress on the issues that we are discussing. The Japanese Prime Minister also briefed our Prime Minister on Japan's own perspective, vis-à-vis, the Eastern South China seas…”
Finally, also note these comments by Hikariko Ono, Japan’s Press Secretary, after the Modi-Kishida talks. I could only find part of her comments in video. So I am relying on media reports for the rest.
“She said that Kishida asked Modi to cooperate further, including working on Russia, more precisely President Putin, in order to maintain the free and open international order. And after the lengthy and intense discussion, the two leaders agreed on the following four points:
Any attempts to change the status quo by force cannot be accepted anywhere in the world.
We should need to seek peaceful resolution of conflict.
Two countries should jointly tackle the situation for the immediate cessation of violence and breaking the deadlock.
Both countries will jointly support Ukraine and its neighbours.”
She also said: “PM Kishida said Russian aggression is a clear violation of international law, the international community should take definitive action against Russia regarding oil sanctions.”
Also note these two tweets from WION’s Sidhant Sibal on Japanese Press Secretary’s comments.
III. Adjusting to Omicron
China is battling with a fresh wave of COVID-19. On Saturday, the country reported its first COVID-19-related deaths in more than a year. The current wave is being driven by the highly transmissible Omicron variant, as per Chinese health officials. This is also putting tremendous pressure on China’s dynamic zero-COVID policy. And there are some signs that there are some alterations being made to the policy. For instance, people with mild symptoms or asymptomatic patients are being shifted to makeshift facilities for quarantining. Also, some reports suggest that steps are being taken to ensure that factories keep running.
On Thursday, the Politburo Standing Committee met to discuss the COVID-19 outbreak in the country. Xinhua English has a detailed report drawing from Xi’s comments. “Since the COVID-19 response measures were enforced on a regular basis, China has effectively responded to regional cluster infections and provided the best protection for people's lives and health as it can, Xi said. The country’s economic performance and COVID-19 response, which both led the world, fully demonstrated its strength and capacity in epidemic prevention and control. It also showed the advantages of the CPC's leadership and the socialist system, he noted.”
“‘Victory comes from perseverance,’ Xi said. He asked all departments and regions to prepare for complexity and difficulty in COVID-19 response at home and abroad. The people should always come first, said Xi. He stressed science-based and accurate measures and the adherence to the dynamic zero-COVID policy to curb the spread of the epidemic soonest. He called for further scientific and technological innovation in research and development of vaccines, rapid testing reagents, and medicines to make the prevention and control more targeted. More effective measures should be taken to achieve maximum effect in prevention and control with minimum cost, and to reduce the impact on socioeconomic development as much as possible, said Xi.”
Some other key points:
The meeting called for stringent implementation of the policy of early detection, reporting, quarantine and treatment.
The meeting stressed the need to secure the production and supply of daily necessities and ensure people’s need for medical treatment.
It also underlined the importance of comprehensively improving the capacities of epidemic transmission monitoring, early warning, and emergency response.
The meeting asked for strengthened virus control efforts at ports and enhanced regular prevention and control measures in schools and other key places.
Greater efforts ought to be made in advancing the administration of COVID-19 vaccines and raising the vaccination rate.
The meeting urged all localities to stay on high alert, lose no time, and attend to every aspect and detail when implementing epidemic containment measures.
In regions where the epidemic has hit, officials at all levels must consider epidemic prevention and control their top priority and put their utmost effort toward the successful containment of the virus, the meeting underscored.
Officials who have lost control of the epidemic due to dereliction of duty must be investigated immediately following discipline and regulations.
WSJ’s report informs that the new measures in China’s dynamic zero-COVID policy include “more efficient testing and shorter and more targeted quarantines, appear to be producing desired results in some cities. In Shanghai, the site of one local outbreak, Tesla Inc. and Volkswagen AG factories have been able to restart production after 48-hour suspensions, compared with the weeks it took many Chinese businesses to resume following harsh lockdowns early in the pandemic. The southern metropolis of Shenzhen, also hit with a surge of infections, said Thursday that it would allow companies to resume work if they could meet epidemic prevention criteria after it suspended nonessential businesses in a week-long containment program it described as ‘slow living’.
But this approach is not being uniformly adopted everywhere. For instance, the report adds that residents in the northeastern province of Jilin were hit with restrictions on travel and movements reminiscent of the harsh lockdown imposed on the city of Wuhan.
Global Times has a good article informing us how officials have responded to Xi’s comments. It says:
Top epidemiologists hailed this meeting as injecting the much-needed “anchoring energy” into China's COVID-19 prevention work as it currently battles the “worst outbreaks” in two years caused by the highly contagious Omicron variant. They believed that as China adheres to its dynamic zero-COVID strategy, which is still the biggest advantage China currently has in its COVID-19 battle, the country is also stepping into a “more balanced and scientific” stage of fighting the virus, following the plan drawn by the new COVID-19 playbook.
IV. FSDC on Development & Stability
The Financial Stability and Development Committee under the State Council met this week, signalling a shift in economic policies. Here’s what the report says, along with some of my assessments:
“Under the current complex situation, the most important thing is to insist on development as the top priority of the Party in governing and rejuvenating the country, take economic development as the central task, deepen reform and open wider to the outside world, to adhere to the principles of marketization and rule of law, to the ‘two unwavering’, to effectively protecting property rights, to fully implementing the spirit of the Central Economic Work Conference and the deployment of the ‘Two Sessions’, to coordinate epidemic prevention and control and economic and social development, to keep the economic operation within a reasonable range and the stable operation of capital markets.” 会议指出，在当前的复杂形势下，最关键的是坚持发展是党执政兴国的第一要务，坚持以经济建设为中心，坚持深化改革、扩大开放，坚持市场化、法治化原则，坚持“两个毫不动摇”，切实保护产权，全力落实中央经济工作会议精神和全国“两会”部署，统筹疫情防控和经济社会发展，保持经济运行在合理区间，保持资本市场平稳运行.
The next paragraph deals with specific sectors:
With regard to macroeconomic operation, we must implement the decision-making arrangements of the CPC Central Committee, effectively boost the economy in the first quarter, monetary policy should take the initiative to cope with the situation, and maintain appropriate growth in new loans.
For real estate enterprises, it is necessary to timely study and suggest effective risk prevention and mitigation solutions and put forward supporting measures for the transformation to a new development approach. — (Is this really a sign of easing? I guess it depends on what one means by risk prevention and mitigation. Two reports that shed some light: “China’s New-Home Prices Fall Again Despite Efforts to Help Developers” and China Will Not Expand Its Property Tax Trial This Year. Also note that official data show that government land sales revenue fell 29.5% on year to 792.2 billion yuan ($124.52 billion) in the first two months of 2022 after a 2.16% increase in December, largely smaller than 1.1236 trillion in the same period in 2021.)
On the regulation over US-listed Chinese firms, the meeting said the Chinese and the US regulatory bodies have maintained good communication and made positive progress. The two sides are working on a concrete cooperation plan. The Chinese government will continue to support various enterprises to seek listings in the overseas markets.
As for the platform economy, relevant departments should improve the established plans to govern the sector. They should steadily advance and complete the rectification work on large platform companies as soon as possible through standard, transparent, and predictable regulation, the meeting said. Both ‘red lights’ and ‘green lights’ should promote the steady and healthy development of the platform economy and improve its international competitiveness. (Quick thought: I don’t read this as an end to regulatory churn. It actually sounds like there are tasks that still remain to be completed, which must be completed. This suggests greater predictability but not a rollback or halting of the building of a new regulatory architecture. In fact, revisions to the Anti-Monopoly Law are on the NPCSC’s agenda for 2022.)
The meeting urged enhanced communication and coordination between the regulators of the Chinese mainland and the Hong Kong Special Administrative Region (HKSAR) to maintain the stability of the financial market in the HKSAR.
The last paragraph says:
“The meeting stressed that relevant authorities should earnestly shoulder their responsibilities, actively introduce market-friendly policies and prudently introduce policies with a contractionary effect. Authorities should respond in a timely manner to issues that draw attention from the market, the meeting said. Any policy that has a significant impact on the capital market should be coordinated with the financial regulatory authorities in advance to maintain stable and consistent expectations, the meeting said. The financial stability and development committee will strengthen coordination and communication under the guidance of the CPC Central Committee and the State Council and hold relevant parties accountable if necessary, the meeting said. The financial institutions should bear in mind the overall situation and firmly support the development of the real economy, the meeting said. It added that long-term institutional investors are welcome to increase their shareholding.”
(Quick thought: This is an interesting paragraph. It sounds like there is some easing and corrective action as opposed to a policy reversal that’s taking place. For instance, there is a caveat that policies with a “contractionary effect” must be “prudently” introduced. Essentially what this paragraph says is that there must be greater caution and coordination in how regulation is rolled out. This is basically about streamlining how the bureaucracy works and wielding a stick at them. Recall, there was a lot of criticism of the manner in which different regulatory agencies acted last year, rushing with new and sudden announcements. Also recall that as a consequence, there was a lot of confusion among investors and in July Fang Xinghai was part of what was reported as a “hastily arranged” call to soothe investors’ nerves. As a reminder, here’s Wang Xiangwei’s SCMP column at the time.)
Also, this week, we had data on the Chinese economy for the Jan-Feb period.
China's value-added industrial output went up 7.5 percent year on year in the period. This figure was also 3.2 percentage points higher than that in December 2021, and more than 90% of the 41 major industries achieved growth.
Total retail sales of consumer goods increased by 6.7% year-on-year, 5 percentage points faster than December 2021.
Fixed asset investment increased by 12.2% year-on-year, 7.3 percentage points faster than the full year of 2021.
Manufacturing investment increased by 20.9% year-on-year, 7.4 percentage points faster than the full year of 2021.
Also note that: “Within fixed asset investment, that in high-tech manufacturing saw one of the largest increases, up by 42.7%. Infrastructure investment grew by 8.1%. Investment in real estate development rose by 3.7%, even as commercial floor space sold fell by 9.6%.”
The output of the high-tech manufacturing sector jumped 14.4 percent year on year from January to February.
Output of new energy vehicles, industrial robots, and solar cells increased by 150.5%, 29.6% and 26.4%, respectively, year-on-year.
The index gauging the country’s service industry output rose 4.2 percent year on year in the Jan-Feb period, 1.2 percentage points quicker than that in December 2021. The sub-index tracking the output of the information transmission, software and IT services climbed 16.3 percent year on year, while that for accommodation and catering expanded 8.2 percent.
These numbers did come in for some criticism on analysts and folks on Chinese social media. Bloomberg reports:
“Digging deep into the breakdown data, we feel there are multiple contradictions behind the better-than-expected economic data,” Shen Jianguang, chief economist at online retailer JD.com Inc., and his colleagues wrote in a report late Tuesday. “The true economic situation may not be so rosy.”
The report adds:
“In an apparent attempt to address the questions, the NBS spokesman Fu Linghui elaborated on factors that led to the better-than-expected performance of the economy in an article posted on the agency’s official website on Wednesday. The positive drivers include policy front-loading, eased power supply bottlenecks, strong foreign demand, more targeted Covid policies and advanced stocking of companies to prepare for uncertainties amid geopolitical tensions, he wrote.”
V. Tech Updates From Two Sessions
by Megha Pardhi
China recently concluded the “Two Sessions'“ (Liǎnghuì 两会). This refers to the annual sessions of the National People's Congress (NPC) and Chinese People’s Political Consultative Conference (CPPCC). The fifth session of the 13th NPC and the Fifth session of the 13th CPPCC were held between 4 March 2022 to 11 March 2022.
According to the Report on the Execution of the Central and Local Budgets for 2021 presented at the 13th NPC by the Ministry of Finance of China, spending on science and technology in 2021 amounted to 320.554 billion yuan, 99.3% of the budgeted figure. The report said that in 2021, the central government increased spending on basic research in its general public budget by 15.3%. To unleash "creativity" in enterprises, the report suggests that extra tax deductions were raised from 75% on manufacturing enterprises' R&D costs to 100%, and enterprises were permitted to settle taxes in advance to allow them to benefit from this policy as soon as possible. Other measures for SMEs and "little giants" were also mentioned in the report.
According to a government work report, China's high-tech manufacturing grew 18.2 percent in 2021. The Government work report also mentions implementing a three-year action plan for reforming the science and technology management system, reinforcing China's strategic science and technology capabilities, further developing national laboratories and key national laboratories, and leveraging the strengths of universities, colleges, and research institutes.
The government work report also emphasized on development of the digital economy. This includes projects to develop an integrated national system of big data centers step by step, apply 5G technology on a larger scale, digitalization of industries, build smart cities and digital villages, etc.
A few lawmakers also raised issues related to cybersecurity in the sessions. For example, Pi Jianlong reportedly spoke on combatting cyber violence and the underground industry. Metaverse is also featured in discussions of lawmakers. For example, Gao Yu, deputy to the National People's Congress (NPC) expressed her concerns on metaverse. Metaverse fever has gripped China. Many tech companies are joining the metaverse bandwagon with Shanghai Data Exchange's latest addition to the list. While some expressed concerns, some delegates like Liu Wei, a CPPCC delegate and president of PCI Technology Group urged that the central government should lead the development of and applications for the metaverse. Kong Falong, an NPC delegate and party official from the Rural Credit Cooperatives of southern Jiangxi province suggested that government should set up a national metaverse research and development center. Some NPC and CPPCC delegates have also suggested additional measures to curb video game addictions and urged tighter government restrictions on the gaming industry.
National Computing Network
A plan released by China's National Development Reforms Commission (NDRC) to develop a "national computing network" generated a buzz among the delegates to the "Two Sessions" (Liǎnghuì 两会).
As SCMP reported, multiple delegates at the "two sessions" political gathering have made suggestions as to how China should build the mega-network leveraging the proposed national computing network. The news report further states that China's major tech giants such as Tencent Holdings, Huawei Technologies Co, and Alibaba Group Holding's cloud unit have all answered the call and vowed to build their own data computing centers in the network.
A representative of Nixingia, one of the regions part of the national computing network, said that this initiative will provide a new growth engine for these regions.
"Data from East Computing at West" Project
This computer network is being implemented as "Data from East Computing at West" (Dōng shù xī suàn 东数西算) (also referred to as "East Data West Calculation") project jointly released by the Central Cyberspace Administration of China (CAC), the Ministry of Industry and Information Technology (MIIT), and the National Energy Administration (NEA) on 17 February 2022. The "calculation" in the name refers to the
The project has four objectives:
Improving China's overall computing power level. (是有利于提升国家整体算力水平)
It is conducive to promoting green development. (是有利于促进绿色发展)
It is conducive to expanding effective investment. (是有利于扩大有效投资)
It is conducive to promoting coordinated regional development. (是有利于推动区域协调发展)
Under the East and West initiative, the plan is to relocate computing resources from the country's eastern regions to less-developed western regions. The Eastern region in China is wealthy and many tech hubs and clusters are concentrated in this region. A side effect of the reforms initiated in the late 1970s, China's eastern region flourished while the inner region and western region remained underdeveloped. As this disparity became evident in later decades, China's policymakers have scrambled to attract more investment and development in western regions. The proposed computing network is expected to redirect capital, talent, and technologies to the western part of the country.
Currently, most data centers in China are in eastern regions. Which has also increased energy consumption demand in these regions. The western region of China has many energy-rich renewable resources which can fulfill the power demand of these data centers. The push to develop a national computing network is also expected to improve cloud computing and big data capabilities.
In the initial stage, 10 data center clusters and
8 computing power hubs have been planned. Eight integrated computing hubs planned under this project are in:
Zhangjiakou data center cluster
Yangtze River Delta region
Yangtze River Delta ecological green integrated development demonstration zone data center cluster
Wuhu data center cluster
Southwestern Chengdu-Chongqing region
Tianfu data center cluster
Chongqing data center cluster
Southern Greater Bay region
A data centre in Shaoguan
Inner Mongolia Autonomous Region (IMAR)
Ningxia Hui Autonomous Region (NHAR)
Businesses that do not require high network requirements, such as back-end processing, offline analysis, and storage backup, could be the first to move western hubs. Eastern hubs will serve businesses that cannot work with a delay caused by long-distance network transmission and where western data centers cannot meet computing power requirements. Such businesses include industrial Internet, financial securities, disaster warning, telemedicine, video calls, artificial intelligence reasoning, etc.
The next stage of the project is expected to fulfill four objectives:
To strengthen the connectivity of internet facilities and accelerate the data exchange connection between the east and the west.
To strengthen the linkage of energy distribution and promote renewable energy power generation companies to supply power to data centers.
To support technological innovation and integration including heterogeneous computing power integration, cloud network integration, multi-cloud scheduling, data security flow, and other technological innovations and model innovations.
To promote the data center industry ecosystem including supporting the western computing power hub to develop labor-intensive industries such as data processing, data cleaning, and data content services.
China's computing demands are increasing with incased digitalization. The NDRC data suggests that China's combined computing power has reached 130EFLOPS (1.3 trillion floating-point operations per second). Demand for computing power in China is expected to grow at a rate of more than 20% every year. Hence this plan is expected to boost the integrated and coordinated development of computing power in China.
Computing demands also come with the baggage of huge energy consumption. Moving data centers to the west with a focus on renewable energy will also contribute to China's carbon neutrality goals. In the 2020 UN Climate Ambition Summit, Xi Jinping had announced that China's carbon dioxide emissions will peak before 2030 and China aims to achieve carbon neutrality before 2060.