Eye on China (11 February 2023)
Contents : Section A: India-China Relations; Section B: Chinese Domestic Politics; Section C: Economy and Tech; Section D: Foreign Policy Watch; E: Military Developments in China
Section A: India-China Relations
This section is brought to you by Manoj Kewalramani
There have been some very interesting developments over the past few weeks, which are worth capturing in this week’s section.
The wind of the times is such that the US-China spy balloon saga has drifted in India’s direction too. Prashant Jha reports for HT that “The US has concluded that the Chinese surveillance balloon that traversed across its continental territory before it was shot down had signal intelligence and monitoring capabilities and was a part of the People’s Liberation Army’s (PLA) fleet of surveillance balloons that has conducted similar operations in over 40 countries across five continents.”
The report adds: “HT has confirmed that the state department briefed Indian diplomats in Washington DC on the Chinese surveillance operation and alerted them that India was among the countries that are targets of Chinese surveillance.”
This proactive American diplomacy has clearly annoyed Beijing, which is now terming it as America’s “information and public opinion warfare” targeting China.
Another couple of stories around the India-China-US triangle are comments by US Commerce Secretary Gina Raimondo, who said that the US is considering collaborating with India on certain manufacturing jobs in order to boost competition against China. Raimondo told CNBC that she will visit India in March with a handful of US CEOs to discuss an alliance between the two nations on manufacturing semiconductor chips. But it’s not all so straightforward. The report adds:
“Raimondo said that India is ‘making a lot of the right moves’. ‘It’s a large population. (A) lot of workers, skilled workers, English speakers, a democratic country rule of law,’ she said. But the Commerce Secretary said the southeast Asian nation must comply with labor standards as part of any deal, especially in light of India’s consumption of Russian oil. The G-7 countries, Australia and the European Union have issued price caps on the cost of Russian oil products to restrict the Kremlin’s access to a potential funding source for its war on Ukraine while still maintaining an oil supply on the global market. ‘I’m running the Indo-Pacific economic framework,’ Raimondo said. ‘So we have 13 countries including India. And we’re saying to them, look, sign up at the government-to-government level to labor standards, environmental standards, anti-corruption standards, rule of law standards. And in return, it’ll unlock U.S. business, U.S. capital jobs in India’.”
Moving on, speaking at a forum in Delhi, Russia’s ambassador to India Denis Alipov stated that the sooner there is normalisation in India-China relations, the better it would be for the world. The Hindu reports:
“On India-China relations and the ongoing standoff along the Line of Actual Control (LAC), he said Russia would like to see the normalisation of relations that would benefit the whole world. “We understand there are serious impediments to that, very serious border problem between the two countries,” he said, referring to Russia’s own border conflict with China, which he said took them around 40 years to resolve, but ultimately, ‘to compromise’ is the only way. ‘It is not for us to say what India and China should do. It is entirely a bilateral matter between them. The sooner there is a normalisation between the two countries, the better for the whole world,’ Mr. Alipov said, adding that Russia would play a part only if invited. Referring to concerns in India over the “unlimited partnership” between Russia-China, Mr. Alipov said, ‘We have very close cooperation with the Chinese. But we will never be a junior partner to China or anyone else’.”
Meanwhile, IMF Managing Director Kristalina Georgieva ruffled some features in Beijing when she spoke about the debt challenges that countries are facing. Speaking on CBS' 60 Minutes on Sunday, she talked about the big meeting scheduled to be held in Bangalore later this month. She said that China “has to proactively seek restructuring of these debt obligations” of developing countries.
She added: “China has to change its policies because low income countries cannot pay. This is when debt restructuring becomes a top priority. What we are working towards is to bring all creditors, the traditional creditors from advanced economies, new creditors like China, Saudi Arabia, India, as well as the private sector, and put them around the table with the debtor countries. We are going to be in Bangalore in India in the end of February….China is going to participate at the level of minister of finance and the governor of People's Bank of China.”
Moving to the India-China bilateral dynamic, there are four stories worth noting.
First, India’s MEITY issued orders this week to block a further 232 apps and websites, most of which were linked to China. These include 138 betting and gambling apps and 94 credit services apps, reports Bloomberg.
Second, the issue of Chinese incursions across the LAC was raised in the Lok Sabha this week, with the opposition calling for a detailed discussion. It is a pity that this discussion is not taking place with the seriousness that it deserves. Anyway, defending the government, the Indian External Affairs Minister S. Jaishankar told a group of journalists that the government had “focused on rapid development of infrastructure along the northern borders with China for obvious strategic reasons.” It had also “focused on rapidly developing border connectivity with our friendly neighbours to enhance trade, energy and other people-to-people exchanges.” PTI reported that Jaishankar told journalists that work began last month on the strategically important 135 km-long Chushul-Dungti-Fukche-Demchok road in the Ladakh region. The Hindu’s report on this adds:
“According to a document circulated by the government, the length of roads constructed in the “China-border areas” during the last eight years (6806 km between 2014-2022) was nearly double the length of roads constructed in the preceding six years (3610 km between 2008-2014). It claimed that the same was true for bridge construction in border areas. The document also cites the completion of the 9.02 km-long Atal tunnel, the world’s longest tunnel above 10,000 feet, as well as the highest motorable road over the Umlingla Pass at 19,024 feet in southern Ladakh’s Demchok area, as important achievements. In addition, the document listed road, rail, bridge and port connectivity projects in the neighbourhood, including the development and modernisation of integrated check points for smoother trade flows with Nepal, Bangladesh, and Bhutan. In Nepal, the government has committed ₹500 crore for the construction of 10 roads totalling 306 km in the Terai region, and is working on rail links with all neighbours to India’s north and east. The government has also sanctioned funding for cross-border power transmission lines with Bangladesh and Nepal, as well as “South Asia’s first cross-border petroleum products pipeline” between Motihari in India and Amlekhgunj in Nepal, and another high speed diesel pipeline with Bangladesh, that will help reduce petrol prices and road congestion. The document also mentions the Kaladan Multi-Modal Transit Transport Project being undertaken by the government in Myanmar, including the Paletwa inland waterway and the Sittwe Port, as a “strategic project”.
Third, the Indian government has eased COVID requirements for people travelling from China. ET reports that the existing requirements of pre-departure Covid-19 testing and uploading of self-health declaration for international travellers coming from/via China, Singapore, Hong Kong, South Korea, Thailand, and Japan have been dropped.
Finally, a new note by SBI Research says that India can use its PLI schemes to reduce its dependence on China for imports to the extent of 10% and add some $6 billion to its GDP over time. Some useful data from the report:
I have a few thoughts on this issue :
First, it is really important to note that this is now part of strategic and enterprise thinking in India. Despite the official trade expansion, the long-term trajectory does appear bumpy.
Second, and more importantly, the question for India, from my perspective, is not about reducing overall imports or import dependence (or what once used to be thought of as comparative advantage). This is not in India’s interests. Rather, the question to focus on is reducing vulnerabilities.
Doing so requires first thinking through what constitutes vulnerabilities, and then figuring out pathways to reducing them. This is because you do not want to end up in a space in which the government is subsidizing sectors that have no strategic value, thereby wasting public resources and also reducing consumer benefit.
This is a project that we at Takshashila are currently grappling with. So do watch this space for our outputs in this regard.
Section B: Chinese Domestic Politics
This section is brought to you by Amit Kumar
For this week, the following news caught our attention in China’s domestic politics:
Xi hails China modernisation model
Xi Jinping while addressing the opening of a study session at the Party School of the CPC Central Committee on February 7, said that “China had debunked ‘the myth that modernisation means westernisation’ and hailed the Chinese model as a paradigm for developing countries to follow.” SCMP reports:
Xi reiterated the China model as an alternative to the model championed by the West for developing countries. The report states that Xi urged party members to “grasp the idea correctly” and promote Chinese modernisation which “presents another picture of modernisation, expands the path choices for developing countries…and provides China’s solution for human beings to explore a better social system.”
The report further says:
Xi said that the Chinese model made “major innovations in the theory and practice of world modernisation” and has set an example for developing countries to follow in terms of how to modernise independently.
“Chinese modernisation has required us to create higher efficiency than capitalism, but also to maintain social fairness more effectively, to better balance, integrate and unite efficiency and fairness.”
Xi also said, “we have completed in decades the industrialisation process that had taken developed Western countries hundreds of years.” “Practice has proven that Chinese-style modernisation is feasible and stable, and it is the only correct path for building a strong country and rejuvenating the nation.”
Wang Huning meets KMT’s Vice Chairman; Reiterates the 1992 Consensus
On 10 February 2023, Wang Huning, a member of the Politburo Standing Committee and the deputy head of the Central Leading Group for Taiwan Affairs met Andrew Hsia Li-yan, Vice Chairman of Taiwan’s main opposition party, the KMT who is on a 10-day visit to the mainland. KMT registered a major victory over the DPP in the latest local elections in Taiwan held in November last year.
SCMP reports that Wang told Hsia, “On the basis of reinforcing the political foundation of the ‘1992 consensus’ and opposing ‘Taiwan’s independence’ the Chinese Communist Party and Kuomintang should deepen political trust, maintain interaction in a constructive manner and strengthen cooperation and exchanges.”
The 1992 consensus was reached between the CPC and the KMT which essentially underlined the ‘One China’ principle - that there is only one China. Although, both the CPC and KMT differ in their interpretation of the consensus.
Hsia had previously met Song Tao, head of the State Council’s Taiwan Affairs Office and the Taiwan Work Office of the Central Committee where the latter emphasized that Taiwan and the mainland were one family.
Taiwan’s ruling party, the Democratic Progressive Party (DPP), and its leader, President Tsai Ing-wen have been constant critics of the 1992 consensus since Tsai won democratic elections both in 2016 and 2020. China-Taiwan cross-strait relations have since been at their most tense.
However, Taiwan’s Mainland Affairs Council, which overlooks the cross-strait policy, rejected Song’s statement. It said,
“Taiwan people will never accept how the Chinese Communist Party and the Kuomintang together sing the same tune in promoting the ‘1992 consensus’...Taiwan politicians should stand our ground … and should not collaborate with the CCP in its propaganda and United Front work.”
Section C: Economy and Tech
This section is brought to you by Amit Kumar
The following stories were of interest from the past week :
Xinhua carried interesting news regarding China’s shipbuilding industry
The shipbuilding industry is critical to the maintenance of global supply chains and their resilience for the majority of global trade takes place through the seas.
According to the latest data, the Chinese shipbuilding industry has continued to dominate the global market.
Xinhua reports, “the country retained the largest share of the global market for the 13th straight year, with six companies ranking among the world's top 10 shipbuilding enterprises.”
The SCMP reports, "China received more than half the world’s new shipbuilding workload in January, far outpacing second-ranked South Korea.”
Below are a few key figures as reported by Clarkson Research, a British shipbuilding- and shipping-market analysis company:
China received 40 orders amounting to 1.12 million compensated gross tonnage (CGT), which is an industry indicator of the amount of work required to build any given ship
In comparison, Korea received 12 orders amounting to 640,000 CGT, or 33 per cent of the global total. China’s share accounted for 57 per cent of the world’s CGT total.
Tank carriers, container ships, and bulk carriers along with liquefied natural gas (LNG) containers are the vessel categories in the industry. South Korea is a dominant player in the LNG carriers market. The SCMP reports, “According to the country’s Ministry of Trade, Industry and Energy, Korean shipbuilders received 70 per cent of the total 14.52 million CGT worth of LNG carrier orders in 2022.” However, Xinhua reports that China has increased its global share in the LNG container market to 30 per cent in 2022, up from 7 per cent in 2021, indicating its increasing capability in this segment as well.
In August last year, China also kickstarted the construction of its second domestically built large cruise ship - one of the most complex vessels to design and build - with an eye to capture the market share in this segment.
New Taiwanese government policy nudges start-ups to prefer Japan over China
Amid the growing US-China rivalry, in an attempt to decouple global supply chains, the Taiwanese government is encouraging its start-ups to enter the Japanese market and shun mainland China, the SCMP reports.
The report cites the data from the Ministry of Economic Affairs Investment Commission to say, “Investments in Japan approved by Taiwan reached US$1.7 billion last year, up from US$728.74 million in 2021 and US$964.37 million the previous year.” In return, three Japanese banks have “offered Taiwanese start-ups funding, as well as access to their own clients.”
At present around 4200 Taiwanese-invested companies operate in China. The move is consistent with the policy to reduce dependence on China and attempts toward diversification being led by the US and its allies.
Then there are two sets of recurring news that have consistently figured in Chinese media. The first of them relates to the Chip industry while the second relates to the demographic changes undergoing in China and the government’s response to both of them.
Sino-US trade shows resilience amidst decoupling efforts
The US-China bilateral trade expanded to an all-time high of USD 690.6 billion in 2022 according to the US Commerce Department. China retained its position as the US’ third-largest trading partner in goods and accounted for 13 percent of the latter’s total trade behind Canada (14.9%) and Mexico (14.7%). The US goods exports to China increased by USD 2.4 billion to USD 153.8 billion while imports increased by USD 31.8 billion to USD 536.8 billion.
China Daily reports: “According to China’s General Administration of Customs, Sino-US trade rose 0.6 percent year-on-year to $759.43 billion in 2022, with the US remaining China’s third-largest trading partner following the Association of Southeast Asian Nations and the European Union. Chinese exports to the US grew 1.2 percent year-on-year to $581.78 billion last year, while its imports from the US fell 1.1 percent to $177.64 billion.”
Chinese Semiconductor market under pressure
Bloomberg last week reported that the US has convinced Japan and Netherlands to further cut off China’s access to high-end ultraviolet lithography tools used in the manufacturing of semiconductor chips. The move is the latest in the series of US-led efforts to restrict China’s advancement in computing capabilities.
Now the SCMP has reported that one of China’s top chip maker, “Yangtze Memory Technologies (YMTC) has slashed up to 70 percent of its orders from Naura Technology Group, a leading Chinese maker of etching, cleaning and chemical vapour deposition tools for wafer fabs.” It further states: “The orders were cancelled over the past four months, which aligns with the October 7 decision by the Biden administration to dramatically tighten export controls on advanced chip making equipment to China.”
The reduction in procurement from its suppliers comes in the wake of uncertainty created by US export restrictions. YMTC was earlier also added to the Entity List by the US Department of Commerce in December 2022, thus preventing the company to import American-made products without government approval.
Previously, the SCMP had reported that “YMTC might postpone the construction of its second wafer fab in Wuhan due to disruptions to its procurement supply chain. The company has also decided to lay off 10 per cent of its workforce.”
Another one of China’s top contract chip makers, Semiconductor Manufacturing International Corp (SMIC) has for the first time publicly admitted to procurement challenges. The SCMP reports: SMIC has “warned that mass production at its new USD 7.6 billion plant could be postponed by one to two quarters owing to difficulties in security key equipment.” SMIC was added to the US Entity list in December 2020.
These measures are likely to impact China’s plans for an innovation-based economy and attaining self-sufficiency in semiconductors. China has set a goal of raising its chip self-sufficiency ratio to 70 percent by 2025, from around 30 percent in 2019.
That’s all for the section this week. Do check out the latest edition of the Newsletter Ginger River Review which covers an interesting set of data regarding China’s provincial GDP.
Before you go further, do check the Takshashila Institution’s latest podcast, All Things Policy, on ‘Shifting trends in Chinese Diplomacy’.
Section D: Foreign Policy Watch
This section is brought to you by Kingshuk Saha and Anushka Saxena
There have been some very interesting developments over the past few weeks, which are worth capturing in this week’s section.
Australian and Chinese trade ministers meet for the first time in three years
Australian trade minister Don Farrell had a virtual meeting with his Chinese counterpart Wang Wentao on Monday. It is the first meeting between the trade ministers of both countries in three years.
Despite the frost in the relations between the two countries in 2022 bilateral trade between them reached US $220.91 billion. Since the election of Prime Minister Anthony Albanese talks between the two countries have resumed.
Wang Wentao invited his counterpart to visit China but Don Farrell accepted the invitation without confirming the date of the visit.
After the meeting, Don Farrell said “Our discussion covered a range of trade and investment issues, including the need for resumption of unimpeded trade for Australian exporters so that Chinese consumers can continue to benefit from high-quality Australian products.”
US shoots down Chinese spy balloon
An F-22 jet shoots down the high-altitude balloon with an AIM-9X Sidewinder missile about six nautical miles off the US coast near Myrtle beach, South Carolina. The discovery of the balloon had set a diplomatic crisis between US and China resulting in US Secretary of State Antony Blinken calling off his trip to China. The US said it was a spying aircraft while the Chinese denied it saying it was a civilian research vessel. Secretary of Defence Lloyd Austin said, “In accordance with the President’s direction, the Department of Defence developed options to take down the balloon safely over our territorial waters, while closely monitoring its path and intelligence collection activities.”
The Chinese reacted strongly to the shooting of the balloon. Senior Colonel Tan Kefei, a spokesperson at China's Ministry of National Defence said “The US attack on Chinese civilian unmanned airship by force is an obvious overreaction.”
Following the incident, China refused conversation with the US defense secretary:
The saga of the suspected spy balloon continues with China declining a request for a secure call between US Secretary of Defense Lloyd Austin and his counterpart Minister of National Defense Wei Fenghe. US Department of Defence spokesman Brigadier General Pat Ryder said
“On Saturday, 4 February, immediately after taking action to down the PRC balloon, the DOD submitted a request for a secure call between Secretary Austin and PRC Minister of National Defence Wei Fenghe. Unfortunately, the PRC has declined our request. Our commitment to open lines of communication will continue”.
While Senior Colonel Tan Kefei, a spokesperson at China's Ministry of National Defence said, “Given that this irresponsible and seriously wrong approach by the U.S. did not create the proper atmosphere for dialogue and exchanges between the two militaries, China did not accept the U.S. proposal for a phone call between the two defence ministers.”
Xi meets with Cambodian PM Hun Sen
On 10 February, Xi and Cambodian PM Hun Sen met at the Diaoyutai State Guesthouse in Beijing. 2023 marks 65 years of diplomatic relations between China and Cambodia.
"It gives me great pleasure to work with you to realize our three-year appointment and open a new era of building a China-Cambodia community with a shared future at the start of spring," Xi said at the meeting yesterday.
Exactly three years ago, on 5 February 2020, Hun Sen had visited Beijing, and Xi was quoted as saying, “as the government and people of China are battling the novel coronavirus outbreak, Cambodia has shown that a friend in need is a friend indeed.”
In that same meeting, Hun Sen noted that “some countries have taken restrictive measures that are unhelpful and not warranted by the epidemic. The only thing more fearful than the epidemic is panic.”
China rushes to Turkey and Syria’s aid
As earthquake tremors and aftershocks of 7.8 and 7.5 magnitudes respectively jolted parts of Turkey and Syria, China announced a rapid assistance package of 40 million yuan to both countries.
On 6 February 2023, Chinese President Xi Jinping also sent messages of condolence respectively to Turkish President Recep Tayyip Erdogan and Syrian President Bashar al-Assad over the tragic earthquakes in the two countries.
Then, politicizing a humanitarian issue at a Press Briefing on 8 February 2023, Chinese Foreign Ministry spokesperson Mao Ning urged the US to put aside its geopolitical obsession and immediately lift unilateral sanctions on Syria since Washington's long-term involvement in the Syrian crisis with military intervention and economic sanctions has resulted in a large number of civilian casualties and difficulties in economic development and reconstruction process in the country.
Pakistan Inaugurates New China-backed Nuclear Power Plant
The Karachi Nuclear Power Plant (KANUPP) in Pakistan has inaugurated it’s second Nuclear Reactor on 3 February 2023, and Chinese funding and nuclear tech have played a big role in the expansion.
China National Nuclear Corporation (CNNC) affirmed the two Hualong One reactors at the site have now both officially been delivered to Pakistan and put into operation.
The investment made in the reactor is around the tune of 2.7 Billion USD, and it possesses a 1.1 Gigawatt power generating capacity.
The intended purpose of this nuclear partnership is to enable Pakistan to make a shift to cheap and clean sources of energy, for it to be able to mitigate a national energy crisis in a sustainable fashion.
"Since entering commercial operation, the K-2 and K-3 units have generated nearly 20 billion kilowatt-hours of electricity, effectively alleviating the power shortage in Pakistan, as well as making positive contributions to Pakistan's social and economic development, energy security and independence, and addressing climate change," CNNC said. "At the same time, the K-2/K-3 project has provided more than 60,000 jobs for the local people throughout the whole cycle and trained a large number of local industrial workers."
Section E: Military Developments in China
This section is brought to you by Anushka Saxena
This week, the following developments concerning the Chinese military and police force, have grabbed our attention :
There is more on the China-Pak partnership. The opening media briefing of naval exercise ‘Aman (Peace) - 23’, released by the Pakistan Ministry of Information and Broadcasting, declared the exercise open from 10 February to 14 February, 2023. The aims of the exercise, as Commander Pakistan Fleet Vice Admiral Ovais Ahmed Bilgrami briefed, were to enhance interoperability among 50+ participating countries, conduct counterpiracy and counter-narcotics, and enhance information sharing capabilities “not only for Pakistan but for all other countries whose prosperity and progress are tied to the seas.”
Subsequently, on 8 February, the Chinese PLA Navy announced that it shall be sending its Type 052D Nanning destroyer ship to participate in the exercise, which will be conducted in two rounds - first at harbour, and then at sea.
The 052D-Class guided-missile destroyers were first inducted by the PLAN in 2014 (Kunming), and there have been 25 versions since, the latest one being the Nanning (commissioned in June 2021). The 052D-class is an augmented version of the 052C-class destroyers.
By assigning Nanning to this mission, the PLAN is signalling the significance of this latest version of 052D destroyers, as it has also recently been deployed for counterpiracy operations in the Gulf of Aden, alongside the 43rd naval escort task force.
Guided Missile Destroyer Nanning | Image Source: Shipshub
As a side note, It is interesting to note that Pakistan identified three interests in keeping maritime security intact : “firstly, our extraordinary dependence on the seas for trade; secondly, operationalization of CPEC project and thirdly, our strategic location astride the global energy highway.”
Clearly, despite ballooning debts against China, Pakistan is continuining to attach importance not just to regular investment in the China-Pakistan Economic Corridor, but to its central role in ensuring Pakistan’s security at the seas.
In a bid to retaliate to the PLA’s daily sorties near island borders in the Taiwan Strait, and incursions across the median line of the Taiwan Air Defense Identification Zone, the National Chung-Shan Institute of Science and Technology based in Taiwan test-fired a missile off of its base in Jiupeng in the southernmost Taiwanese country of Pingtung on the morning of 7 February 2023.
Even though there is no confirmation on the matter, SCMP reported officials as saying that the missile tested was the newly developed Hsiung-Sheng missile, a surface-to-surface land attack missile with a range of 1200 km. Hsiung-Sheng is an extended-range version of the Hsiung Feng 2E land-attack cruise missile, and has the ability to hit Chinese cities such as Qingdao on its eastern coastal border, or Wuhan, much more central than that.
It is interesting that this missile test was conducted successfully because the last six missile exercises NCSIST was expected to conduct in 2022 had to be canceled because the PLA was conducting military drills close to the island. Seems as if the government and the Institute have chosen a “right time” to conduct them and signal a message.
Another Chinese research and spacecraft tracking shift, ‘Yuangwang-7’, set sail on the morning of 8 February 2023, to conduct a maritime telemetry, tracking and command (TT&C) mission in the Pacific Ocean.
Yuanwang-3 and Yuanwang-5 will soon set sail in succession. The PLA Daily has reported that the Yuanwang vessels will carry out more than 20 maritime TT&C missions including support for the Shenzhou-16 spacecraft mission in 2023.
Even though no plans regarding its halt and docking have been declared, the previous controversy surrounding the docking of another ship from the Yuanwang class of tracking ships, Yuanwang-5 in Sri Lanka in August 2022, can likely repeat itself.
To read more on developments concerning Chinese military forces, please refer to :
Spacebattles (a more informal channel for public discussions)
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: Manoj Kewalramani
Chinese Domestic Politics; Economy and Tech: Amit Kumar
Foreign Policy Watch: Kingshuk Saha and Anushka Saxena
Military Developments in China: Anushka Saxena
