Tibet - WTC Changes - Afghanistan - Didi Saga - European Outreach - Political Parties Summit - RRR & Defaults - 'Patriotic Education' - Media Responsibility - South Asia Poverty Alleviation Center
Chinese Foreign Minister Wang Yi spoke this week about China-Pakistan ties being “a unique ‘ironclad’ friendship.” The term ironclad is one of many buzzwords in Chinese diplomacy and domestic discourse. Often, we tend to dismiss these terms as rhetoric without delving into what they mean practically. Do check out this SCMP piece in which I offered some thoughts on what designation of a relationship as “ironclad” possibly implies.
I. WTC, Tibet & Afghanistan
Let’s begin with the change of leadership in the Western Theatre Command. Earlier this week, four PLA officers were promoted to the rank of general (English report), the highest rank in the forces. These were:
Commander of the PLA Southern Theater Command Wang Xiubin
Commander of the PLA Western Theater Command Xu Qiling
Commander of the PLA Army Liu Zhenli
Commander of the PLA Strategic Support Force Ju Qiansheng
SCMP’s Minne Chan tells us that with these changes “half of the 10 top People’s Liberation Army (PLA) commanders, covering the five theatre commands and branches, are aged 60 or younger.” From an Indian point of view, Xu Qiling was first publicly confirmed as Commander of the Western Theatre Command’s Ground Forces on June 1, 2020. So he was in charge when the Galwan Valley clashes took place. Xu had replaced He Weidong, who was promoted to head the Eastern Theatre Command.
In June 2020, WTC was headed by General Zhao Zongqi. General Zhao retired later in the year and was replaced by General Zhang Xudong in December 2020. Xu’s promotion now suggests that he will be taking over from General Zhang. That’s an incredibly quick change in leadership. The question now is whether this change is owing to concerns with regard to the management of WTC-related issues or part of an internal reshuffle ahead of the 20th Party Congress?
In any case, there’s still no clarity on the 12th round of Corps Commander-level talks. In the meantime, Foreign Minister S. Jaishankar was in Russia this week. Speaking at the Primakov National Research Institute of World Economy and International Relations in Moscow, he said that “peace and tranquility at the border are the fundamentals of a relationship between any neighbouring countries. Naturally the foundation has been disturbed, so has the relationship.” Separately, after talks with Sergei Lavrov, Jaishankar also expressed much optimism about India-Russia ties, saying “despite the fact that so many things are changing in our world both before and as a result of the COVID-19 pandemic, our time-tested and trust-based relationship is very much not just in place but remains very strong, continues to grow.” India and Russia will be holding their first 2+2 dialogue this year.
Here’s an interesting quote from the foreign minister: “what makes our working together so natural and comfortable is our belief in a multipolar global order.”
Next, there was much fanfare in the Indian media this week as Prime Minister Narendra Modi wished the Dalai Lama on his 86th birthday. In addition, union minister Hardeep Singh Puri, Nitin Gadkari, Arunachal Pradesh Chief Minister Pema Khandu and Assam Chief Minister Sarbananda Sonowal, among others, also wished the Dalai Lama. This is the first time since 2015 that Modi has publicly greeted Dalai Lama on his birthday.
It is also noteworthy that Penpa Tsering, the new president of the Central Tibetan Administration, was widely quoted in the Indian media. For instance, here’s a lengthy interview with WION’s Sidhant Sibal. Here’s another story where he calls on the Chinese government to recognise that the Dalai Lama is the key to resolving the Sino-Tibetan conflict and urges Beijing to invite him to a pilgrimage without any preconditions.
The Chinese Foreign Ministry did not address the issue at all this week, and I didn’t notice any particular discussion in Chinese media about it either. But Global Times’ Hu Xijin did offer a take about Modi and Blinken wishing the Dalai Lama.
“These small tricks cannot have any actual impact. Countries like the US, Japan, Australia and India have already fallen out with China. They like playing such small tricks to demonstrate their ‘values.’ Let them be. When China has a friendly relationship with them, it values their commitment to friendship. As the ties have deteriorated, we have seen a wide range of their despicable practices. In many cases, it does not deserve our serious response.”
My take on all of this:
I see the public acknowledgement by the Prime Minister as significant in terms of signalling to Beijing. The Indian government appears to be telling the Chinese leadership that it is much more willing to touch upon matters that Beijing might consider sensitive, particularly if China is unwilling to take India’s sensitivities and interests into account, say with regard to the boundary issue. In saying this, it is important to not over-interpret the policy significance of the Prime Minister wishing the Dalai Lama. For instance, India’s interests with regard to Tibet are broader than those of the US and EU (Do check out Suhasini Haidar’s Worldview). So don’t expect a simple alignment in policy, whether it relates to matters of the Dalai Lama’s succession or for that matter with regard to the issues of Xinjiang and Hong Kong. At present, all this is, is signalling. That said, I wish our public discourse were to focus more on capacity building than rhetoric; the strength of a message is derived from capacity and willingness to back it up.
While on Tibet, also note this report by India Today’s Manjeet Negi about the PLA recruiting Tibetan youth and training them for operations along the Line of Actual Control.
The report says:
“‘We have been receiving intelligence inputs that the Chinese Army is recruiting Tibetan youth for carrying out special operations along the LAC with India and they have been holding regular exercises to prepare them for such operations,’ top government sources told India Today. The Tibetan youth are being inducted into the Chinese forces after going through a number of loyalty tests, which include learning the mainland Chinese language and accepting the supremacy of the Chinese communist party over any other beliefs such as following the Dalai Lama and other religious gurus, the sources said…The Tibetan youth bring multiple advantages for the Chinese army. China feels the move will lead to more acceptance among the local youth in the Tibetan Autonomous Region as well as ease the pressure of Chinese mainland soldiers deployed in mountainous regions like the one in Ladakh.”
Anyway, moving on from friction to some degree of coordination, I guess. SCO foreign ministers are expected to meet in Dushanbe next week. Russian agency TASS quoted Bakhtiyer Khakimov, Russia’s Special Presidential Envoy for SCO Affairs and the Russian Foreign Ministry’s Ambassador at Large, as saying that they will focus on a draft plan of joint action to facilitate Afghanistan’s social and economic reconstruction. Khakimov pointed out that the SCO countries have multiple economic projects for cooperation with Afghanistan and are currently discussing ideas of how to rebuild old infrastructure.
Chinese Foreign Minister Wang Yi will be attending the meeting, while also traveling to other Central Asian countries. Ahead of this, the Chinese Foreign Ministry said that
“State Councilor and Foreign Minister Wang Yi and other SCO member states’ foreign ministers will exchange views with the foreign minister of Afghanistan on promoting regional security and stability, advancing the peace and reconciliation process in Afghanistan, and deepening SCO cooperation with the Afghan side. The SCO member states’ foreign ministers will release a joint statement elaborating on their unified position on the Afghan issue. Against the backdrop of the hasty withdrawal of US and NATO forces and the complicated evolution of the situation in Afghanistan, this meeting is of important significance for properly dealing with the changing situation in post-withdrawal Afghanistan, jointly advancing the peace and reconciliation process, strengthening efforts to fight the three evil forces, namely, terrorist, separatist and extremist forces, and effectively maintaining regional security and stability. China stands ready to work with all parties to give full play to the role of the SCO-Afghanistan Contact Group and contribute more SCO strength to Afghanistan's efforts to maintain stability, end chaos, realize peace and advance reconstruction.”
At the same time, Afghanistan’s NSA Hamdullah Mohib was in Russia this week. He called on Russia, India and China to support the Afghan defense forces and security forces in their fight against terrorism. He, however, singled-out Pakistan as supporting the Taliban “impose its rule on the Afghan people.” At the same time, a Taliban delegation was in Russia this week. Reuters reports that the Taliban said it now “controlled over 85% of territory in Afghanistan and reassured Russia it would not allow the country to be used as a platform to attack others.” Another interesting statement from the group was about China.
“‘We care about the oppression of Muslims, be it in Palestine, in Myanmar, or in China, and we care about the oppression of non-Muslims anywhere in the world. But what we are not going to do is interfere in China’s internal affairs,’ said a senior Taliban official in Doha, Qatar,” as per WSJ." The report also quotes Taliban spokesman Suhail Shaheen saying that “‘We will not allow anyone—whether it is an individual or an entity—to use the soil of Afghanistan against the United States, its allies, or any other country, and that includes China.’ While caring about the plight of the Uyghurs of Xinjiang, the Taliban will seek to help their fellow Muslims through political dialogue with Beijing, he added. ‘We do not know the details. But if we have the details, we will show our concern,’ he said. ‘If there are some problems with the Muslims, of course we will talk with the Chinese government.’”
The report further informs that “All of Badakhshan’s districts except for the provincial capital are now under Taliban control, with more than 1,000 government troops fleeing across the border to Tajikistan in recent days.” The report also quotes a couple of Chinese analysts.
“The Taliban want to show China good will,” said Qian Feng, head of research at the National Strategy Institute of Tsinghua University in Beijing. “They hope that China can play a more important role, especially after America pulls out its troops.”
The Taliban “believe they can take over again, and so they want to build more friendly relations with their neighbors,” said Li Wei, a security and arms control researcher at the think tank affiliated with China’s Ministry of State Security, the China Institutes of Contemporary International Relations. “They also don’t want to see Afghanistan become a breeding ground for international terrorism.”
Take the above for what you will, while keeping in mind that China evacuated 210 nationals from Afghanistan recently. A Xiamen Airlines flight departed Kabul for Wuhan on July 2 carrying Chinese citizens who had been stranded in Afghanistan. Among them were 22 people who were later confirmed to be infected with COVID-19. The Chinese Foreign Ministry has confirmed that recent returnees included coronavirus patients and called on all nationals to leave Afghanistan, reports AFP.
Also note this piece by Fudan University’s Zhang Jiadong. He writes that China is in a position to “participate in Afghan affairs without getting caught up in it.” He points to a few things;
first, CPEC is not dependent on Afghanistan and China’s connectivity effort is focussed more on the maritime domain than via the mountains of Afghanistan.
second, he suggests that China’s intervention is Afghanistan will not be like the US’s.
third, he says that China’s engagement will be different from that of the West because “we will not force Afghanistan to change its regime and values.” In this sense, the policy will be “pragmatic and flexible.”
“To summarise, the Afghanistan issue does not involve China’s core interests. China’s main concern on the issue of Afghanistan is to fulfil its responsibilities as a major country. As a world power, China has a responsibility and obligation to contribute to international peace and stability. Afghanistan is a neighbouring country of China, and China needs to make constructive efforts to resolve the problems of its neighbours...Non-traditional security issues such as terrorism and drug smuggling are areas that may have a negative impact on China…In the long run, the response to these non-traditional security issues needs to be based on the first and foremost peace and stability in Afghanistan. Therefore, China adopts a ‘constructive intervention’ approach to the Afghan issue, focusing on trying to promote the process of internal reconciliation in Afghanistan, instead of directly intervening in Afghanistan’s internal affairs like the previous major powers…” 总而言之，阿富汗问题并不涉及中国核心利益。中国在阿富汗问题上的主要关切，一是履行大国责任。作为一个世界性大国，中国有责任和义务为国际和平和稳定做出贡献。阿富汗是中国邻国，中国更需为解决邻邦的问题做出建设性努力。二是非传统安全问题。恐怖主义、毒品走私等非传统安全问题，是阿富汗陷入战乱后可能对中国产生负面影响的方面。而长远来讲，应对这些非传统安全问题又需要以阿富汗首先和平稳定作为基础。因此中国对于阿富汗问题采取的是“建设性介入”方式，重点放在设法推动阿富汗内部和解进程，而不会像之前几个大国那样直接介入阿富汗内部事务，因而也不会像它们那样陷入其中难以自拔.
Also worth reading is this Financial Times piece. It says “an Indian government official said China’s approach was to try to rebuild Afghanistan’s shattered infrastructure in co-operation with the Taliban by channelling funds through Pakistan, one of Beijing’s firmest allies in the region. ‘We can vouch that China will fund the rebuilding of Afghanistan through the Taliban via Pakistan,’ the official said. ‘China is Pakistan’s wallet.’ Another diplomat in the region said: ‘China at the request of Pakistan will support the Taliban’.”
The article also quotes Fan Hongda, professor at the Middle East Studies Institute of the Shanghai International Studies University, as saying that “Even though China has for a long time been extremely cautious about sending military forces overseas, if it is supported by a United Nations resolution, China might join an international peacekeeping team to enter Afghanistan.”
Note: The Region Watch section below also has more on Afghanistan.
China-India border dispute: New Delhi talks up infrastructure build-up in strategy shift against Beijing
How India and China are shaped by the idea of national humiliation
3 reasons why India can’t ignore China constructing missile silos to counter US
Deception is a legitimate strategy of Chinese diplomacy, says Vijay Gokhale
II. Political Parties Summit
At home, different units of the Party spent a lot of time studying Xi’s July 1 speech, with special sessions being arranged. You can check out the details of the organs that did arrange sessions here, and the PLA’s imperative to study the speech here.
Moving on, the Communist Party of China this week hosted the CPC and World Political Parties Summit. Xi Jinping delivered a speech (Xinhua English story) at the event. The full speech is available here. If you’d like an English version, you can listen to the speech here. This was basically Xi using the platform to make the broader point about China’s rise and international competition. He was offering a vision, albeit still hazy, of a normative order. Of course, such orders acquire legitimacy only if the values are widely shared by others; they become reality through practice and have to be underwritten by hard power.
Anyway, here are the key points that Xi made:
“Today, humanity is once again at a historic crossroads. Will the future be about hostile confrontation or mutual respect? Will it be about closeness or openness; decoupling or cooperation; zero-sum game or win-win results? The choice is in our hands, and the responsibility is on our shoulders.” He then talked about global challenges, such as climate change, requiring countries to work together.
“Great times call for grand architecture and grand architecture calls for great vision; viewed from the perspective of ‘my country first’ the world is a cramped and crowded place full of competition; viewed from the perspective of a global community and shared future, the world is a vast and open place full of opportunities.”
He then spoke about “common values of humanity.” These, for him, are “peace, development, fairness, justice, democracy, and freedom for all mankind.” He called for a need to understand “with a broad mind the values of different civilisations” and respect for “other people’s explorations to turn values into reality” This common values pitch is a much clearer articulation of the normative proposition that Xi is offering countries around the world. Think of this as competing with the “universal values” proposition or the “shared values” framework that the Biden administration has put forward.
“We should face up to major practical problems such as the gap between the rich and the poor and the development gap, pay attention to the underdeveloped countries and regions, care for the poor people, and make every piece of land give birth to hope.”
“Development is the right of all countries in the world, and not the privilege of a few countries...In this context, he talked about the need to “jointly oppose anyone engaging in technological blockade, technological divide, and decoupling...I believe that any political manipulation for the purpose of sabotaging the development of other countries and undercutting the livelihood of other people will receive little support and will eventually be futile!”
He next spoke about the need to build a “global community of health,” addressing the immunisation gap and politicisation of the pandemic, including “labeling the virus.” He also spoke about addressing climate change.
The final point was about improving governance capacity. “People of all countries are entitled to choose their own development path and institutional model.” “Democracy is also the right of the people of all countries, not the privilege of a few countries. There are many ways to achieve democracy, instead of a single stereotype. If a country is democratic or not, it must be judged by the people of the country, not by a handful of others!”
“There is no one path to modernisation; the one that suits you well, will serve you well. Cutting one’s feet to fit the shoes will lead nowhere. Every country's efforts to independently explore a path to modernization that suits its own national conditions should be respected.”
He spoke about the headwinds that economic globalisation is facing, but said that the “driving forces” for such globalisation still outweigh the challenges. He spoke about cooperation via BRI and added that the Party “is willing to contribute more Chinese solutions and Chinese forces to the process of human poverty reduction.” He added that China will enhance the “accessibility and affordability of vaccines in developing countries.” He also said that the country will make “arduous efforts to fulfill its carbon peak and carbon neutral commitments.”
“International rules should be based on universally recognised norms, rather than be formulated by a few. Cooperation between countries should be aimed at serving all mankind, rather than to seek hegemony through group politics. We must jointly oppose the practice of unilateralism disguised as multilateralism, and jointly oppose hegemonism and power politics.”
“China will always be a member of the big family of developing countries and will unswervingly work to improve the representation and voice of developing countries in the international governance system. China will never seek hegemony, expansion, or sphere of influence.”
Following this, the event ended with joint proposal/declaration of sorts (English version.) You can read my breakdown of this document here.
III. China’s European Outreach
There was also significant outreach to Europe from Beijing this week. First up, Xi held a summit meeting with Angela Merkel and Emmanuel Macron. They spoke about a range of issues, including the Iran nuclear issue, Afghanistan and Myanmar. PD tells us (Xinhua English report) that Xi made the following big points in his comments:
First, both sides must ensure that they adhere to “the correct mutual perception.” He said that “China has been committed to the common values of humanity including peace, development, fairness, justice, democracy and freedom.” And “China and Europe have engaged in cooperation based on the principles of mutual respect and seeking common ground while shelving differences...”
“China is willing to convene the 23rd China-EU leaders’ meeting with the European side at an early date, conduct high-level dialogues in strategic, trade, cultural, digital and climate sectors, and advance mutual recognition and protection of products listed in the China-EU agreement on geographical indicators to deliver more tangible benefits to the people.”
China is firmly committed to further opening up; Xi hoped the European side can provide just, transparent and non-discriminatory business environment for Chinese enterprises in accordance with market principles.
The international system with the United Nations (UN) at its core and the basic norms governing international relations based on the UN Charter must be upheld, and global issues should be addressed via consultations of all parties in a reasonably calm manner…
He spoke about WTO reform, COP15, climate change, and called for “mutual support in ensuring a successful Beijing Winter Olympics and Paris Olympics.”
Xi called for building a major-country relationship that is generally stable and balanced. “What China craves for most is to develop itself rather than replace others.” He said BRI aims “to create more opportunities for common development.”
“We hope the European side can play a more positive role in global affairs, genuinely demonstrate strategic independence, and jointly safeguard world peace, stability, development and prosperity.”
Xi then spoke about engagement in Africa, calling it a “continent with the greatest development potential.” He spoke about China’s pandemic diplomacy in Africa and said that China had “signed debt relief agreements or reached debt relief consensus with 19 African countries.” China welcomes France and Germany to join the Initiative on Partnership for Africa's Development, which was jointly launched by China and African countries, and carry out trilateral, four-party or multi-party cooperation.
According to the Chinese readout, Macron was very complimentary. He also said that France is committed to promoting cooperation with China in a practical manner, supports the conclusion of the EU-China investment agreement. Merkel said that the two sides share consensus on many issues and can cooperate in many areas, and that they should respect each other and reduce differences through enhanced dialogue. Germany hopes to strengthen cooperation on international affairs with China and is willing to maintain communication with China on climate change, biodiversity and Africa's response to the pandemic...Germany will actively look into the possibility of joining the Initiative on Partnership for Africa's Development.
The statement issued from the German side is very brief; it basically refers to key subject areas that were discussed - EU-China relations, international trade, climate protection, biodiversity, and vaccine supply. The French readout is a little more detailed. The primary focus is on climate change-related issues. It said that France and Germany “welcomed China’s commitment to contribute to the restructuring of the debt of vulnerable countries” It also talks about “European expectations on access to the Chinese market and fair competition conditions.” The statement ends by talking about Macron and Merkel expressing “serious concerns about the human rights situation in China” and “regarding the fight against forced labor.”
Next, we had Li Keqiang engaging with British businesses (English report). The heads of more than 30 multinational companies and renowned institutions, including Standard Life, Diageo, Jardine Matheson, AstraZeneca, Walgreens Boots Alliance and British Petroleum, Rio Tinto, Jaguar Land Rover, Clifford Chance, Schroder, University College London attended the dialogue, as per Xinhua and PD.
“China is willing to consolidate mutual trust with the UK, along with mutual respect, seek to expand common ground while shelving differences, deepen mutually beneficial cooperation for win-win results, build consensus and address divergences via equal dialogue, so as to promote the healthy and stable development of bilateral ties.” Once again, we see this bit about “shelving differences” that we saw Xi tell Macron and Merkel too.
Li talked about climate change, clean and green energy, and IPR protection. Since he was talking to business heads, this was a key point to make:
“He said that reform and opening-up is China's basic national policy and will continue to be advanced unswervingly. China’s manufacturing industry has been fully opened up and the service industry is opening up in an orderly manner, he added. ‘In the process of formulating a new development paradigm, we will continue to devote ourselves to creating a market-oriented, law-based, and international business environment, treating all types of market players equally, including foreign companies, and welcoming more foreign capital into China,’ he said. China also hopes Britain will provide a fair, just and non-discriminatory business environment for Chinese companies to invest in the country, Li said.”
Then we had Xi Jinping speaking to Czech President Milos Zeman and Greek Prime Minister Kyriakos Mitsotakis.
Xinhua English tells us that Xi “highly appreciates the fact that Zeman has for years been committed to approaching China-Czech relations from an overall and long-term perspective.” He also “hopes that more people on the Czech side will have a correct view of China and its development.” Xi mentioned BRI, pandemic-related cooperation, trade and investment. He also added that he hopes “the Czech side will play a positive role in facilitating dialogue and cooperation for win-win results between China and Europe.” Zeman said that the “Czech Republic is willing to serve as a link between the European Union and China, he said, wishing the Beijing Winter Olympics a success.” Do note, however, that the Czech Republic was one of 13 EU countries to sign off as members of the Media Freedom Coalition, criticising the closure of Apple Daily and the “use of the National Security Law to suppress journalism” in HK.
On the other hand, Xinhua English says that Mitsotakis told Xi that the CCP’s success had “changed not only the future of China, but also the trajectory of the world's development.” He also called China’s poverty alleviation effort a “miracle.” Xi told Mitsotakis that “China and Greece are both ancient civilizations, and have both experienced a mixed development process of tribulation and greatness...the two countries also share similar ideas about the advance of human civilization and the transformation of international order.”
He would like the two slides to show “mutual understanding and mutual support on issues concerning their respective core interests and major concerns.” Xi spoke about BRI and working through the CEEC framework. Xi added “It serves the interests of both sides and follows the trend of the times for China and Europe to conduct dialogue and deepen cooperation in the spirit of mutual respect, seeking common ground while reserving differences, as well as openness and mutual benefit.”
Also note that Mitsotakis wished Xi success for the 2022 Olympics; some other reports have said that he also accepted an invitation to attend the Games.
Finally, we had Foreign Minister Wang Yi speaking to EU High Representative for Foreign Affairs and Security Policy Josep Borrell. The EU’s readout says that:
“They had a frank exchange on the adoption of listings under the EU Global Human Rights Sanctions Regime and the announcement on Chinese counter-measures on 22 March. The High Representative stressed the EU’s concerns about developments in Hong Kong and Xinjiang. He also expressed his conviction that EU-China engagement remains essential and that channels of communication need to remain open.”
The official readout from Beijing (English version) says that Wang told Borrell that “there are neither major conflicts of interest nor geopolitical problems between China and the EU. Both sides should adhere to the only proper positioning that we are comprehensive strategic partners, and the overriding principle governing our exchanges is mutual respect, and seeking common ground while shelving differences.”
“The two sides should develop a correct mutual understanding, get rid of interference from all sides, and move forward China-EU relations on the right track in a sound and stable manner. China supports the EU in gaining greater strategic independence so that it truly develops relations and cooperation with China on an independent basis.”
He pushed back against the idea of a rules-based order. “In response to the so-called ‘rules-based international order’, Wang Yi stressed that rules are not ‘family rules’ or ‘bloc rules’ imposed on others, but should be jointly formulated by the international community.” On human rights, he spoke about China’s “opposition to sanctimonious preaching from those who feel they have the right to lecture us.” The Chinese readout also says that Borrell told him that the European side does not support the “independence” of Hong Kong. It is remarkable, to me, how Beijing has managed to convert the issue of autonomy as was to be the case into an issue of independence. It immediately puts others on the defensive. This is not and has not been the issue with regard to HK.
Amid all this talk of shelving differences and correct position and so on, it is worth noting that the European parliament this week overwhelmingly passed a resolution calling on diplomatic officials to boycott the 2022 Beijing Winter Olympics in response to continuing human rights abuses by the Chinese government. The resolution passed with 578 votes in favour to 29 against, with 73 abstentions, and was supported by all of Europe’s mainstream political groups, including the centre-right European People’s party (EPP) group of the German chancellor, Angela Merkel, and the centrists of France’s Emmanuel Macron, reports The Guardian. The 28-point resolution called for EU officials and member states to decline all government and diplomatic invitations to the 2022 Winter Olympics “unless the Chinese government demonstrates a verifiable improvement in the human rights situation in Hong Kong, the Xinjiang Uyghur region, Tibet, Inner Mongolia and elsewhere in China.”
IV. Real Economy & Defaults
The State Council meeting earlier in the week talked about the possibility of RRR cuts to support the real economy. Soon after, the PBOC announced that it would cut the reserve requirement ratio for all banks by 50 basis points, effective from July 15. Reuters reports that this will release around 1 trillion yuan ($154.19 billion) in long-term liquidity to underpin China’s post-COVID economic recovery. The report says that “growth is losing steam and smaller firms are bearing the brunt of a recent surge in raw material prices. Many analysts believe pent-up COVID demand has now peaked and that growth rates will start to moderate in the second half of the year, weighed down by weakening exports, surging producer price inflation and Beijing’s continued crackdown on the property market.”
Do note this bit of from NYT’s Keith Bradsher: “the People’s Bank also cautioned in its announcement that the effect might be somewhat muted, because part of any extra lending is likely to disappear quickly into the government’s coffers as the summer tax collection season starts. China’s monetary policy has swung sharply over the past 18 months in response to the pandemic. The central bank pushed banks to lend heavily early last year as the virus raced through Wuhan and beyond, to make sure businesses did not run out of cash. They’ll enjoy a special rate. Worried that the extra money might fan inflation, the central bank later tightened policy. But with many companies struggling to pay interest on their debts, and with the economy not quite fully recovered from the pandemic, the central bank then changed policy again on Friday toward further easing.”
Next, reports indicate that China’s corporate bond defaults have hit a record high this year. Reuters reports that Chinese companies’ bond defaults amounted to 62.59 billion yuan ($9.67 billion) in the first half of the 2021, the highest ever, according to Fitch Ratings. A total of 25 firms defaulted on bond payments in the first six months of 2021, compared with just 19 in the same period last year, the data showed. That increasing proportion of defaults by state-owned enterprises (SOEs) has raised concerns among some investors that the end of implicit government guarantees on SOE debt could create market instability.
While on issues of debt do note this story of Huishang Bank Co. Ltd, a creditor of Tsinghua Unigroup Co. Ltd., demanding bankruptcy restructuring of the once high-flying semiconductor designer. Huishang has filed a petition seeking a court-led reorganization of the state-owned chip conglomerate, citing unpaid debts and insufficient assets. It is unclear whether the court will take accept the case and there are uncertainties about whether the company will enter bankruptcy proceeding. Caixin reports that Tsinghua Unigroup has missed payments on several bonds, both domestic and overseas, since last year. To repay debt, the company has undertaken a series of asset sales. At the end of September 2020, Tsinghua Unigroup’s liabilities totaled 52.78 billion yuan ($8.14 billion), compared with cash of 4 billion yuan, according to China Chengxin International Credit Rating. WSJ’s report tells us that the bankruptcy protection request came after a series of bond defaults by the company late last year. The group was in default on nearly $2.5 billion of international bonds, a sign of financial stress in China spilling over into global markets.
Meanwhile, Bloomberg reports in a meeting in Beijing shortly before the July 1 festivities, officials at the Financial Stability and Development Committee urged Evergrande Group founder Hui Ka Yan “to solve his company’s debt problems as quickly as possible…The previously unreported discussion suggests Chinese authorities have become increasingly concerned that Evergrande poses systemic risks to the world’s second-largest economy. It adds pressure on Hui to deliver a more decisive fix to Evergrande’s finances, which have come under growing strain in recent weeks as the company’s bonds and shares tumble. FSDC officials asked Hui to consider bringing in strategic investors to stabilize the property giant, emphasizing the need to avoid major shocks to the economy, one of the people said. Hui told the officials he’s been speaking with local governments as he looks for a solution, another person said, asking not to be identified discussing sensitive information.”
Finally, Vice Premier, Liu He headed the financial stability and development committee meeting on Tuesday. Xinhua English tells us that the meeting “underscored intensifying research and strengthening policy reserves on major tasks.” These include:
establishing a modern central banking system,
improving the financial regulatory system,
deepening the reform of financial institutions,
optimizing the structure of financial organizations,
strengthening the development of financial infrastructure,
improving the mechanism for preventing, controlling and handling financial risks,
developing inclusive finance, green finance and digital finance,
building a capital market with Chinese characteristics, and
promoting a virtuous cycle in finance, science and technology, and industry.
It also noted the progress made in reforming “policy-based financial institutions,” adding that “efforts should also be made to give full play to the important role of policy-based financial institutions in serving the real economy and the national strategy.”
China Defaults Threaten an Eerily Calm $12 Trillion Bond Market
Home sales in China are slowing down due to longer mortgage approval times as Beijing seeks to calm growth
China Warns Stablecoins Are a Risk to Global Financial Systems
China’s Factory-Gate Price Growth Eases for First Time This Year
V. Didi & Tech Upheaval
Let’s try and use this section to document some of the big steps that have been taken by Chinese regulators over the past 10 days. WSJ’s and Caixin’s reporting on this has been excellent and I’m relying on their work predominantly.
First, Didi Global listed in the US on June 30, raising $4.4 billion in its initial public offering. Then on Friday, July 2, the Cyberspace Administration of China blocked the company’s China business from adding new users while announcing a cybersecurity review. CAC spoke about preventing risks related to national data security. As per reports, Didi said it would fully cooperate with the review. “We plan to conduct a comprehensive examination of cybersecurity risks, and continuously improve on our cybersecurity systems and technology capacities,” the company said in a statement.
WSJ reported that Didi was among the 34 technology companies summoned by Chinese antitrust authorities in April. Since then, regulators have conducted on-site inspections of Didi…Didi’s probe is the first one publicized by China’s Cybersecurity Review Office, a unit under the CAC. According to measures which came into effect a year ago, those under review should receive initial results within 45 days, except in complicated cases.
Soon after this on Sunday, Chinese regulators ordered app store operators in the country to remove the mobile app of Didi Global Inc.’s China service. The CAC said that there were serious problems involving illegal collection of personal data, also instructed Didi Chuxing, the company’s China business, to address the issues to “ensure the safety of the personal information of users.” A day before this, Didi’s vice president, Li Min, had taken to social media to rebut reports that Didi stored user data in the US. WSJ reported that in a message posted on China’s Twitter -like Weibo service, Mr. Li threatened to sue anyone who claimed the company transferred its domestic data abroad. “Like many overseas-listed Chinese companies, Didi stores all domestic user data on servers in China. It is absolutely impossible to pass data on to the United States,” he wrote. Didi said in a statement Sunday that current users who had already downloaded the app wouldn’t be affected by the move.
On Monday then, the CAC said in a brief statement that it had ordered online recruitment platform Boss Zhipin, run by Kanzhun Ltd., and Yunmanman and Huochebang — two truck-booking apps run by Full Truck Alliance Co. Ltd. — to stop registering new users. Caixin reported that the investigation aims to head off national data security risks, safeguard national security and protect the public interest, according to a statement from the CAC’s Cybersecurity Review Office.
Reporting on these developments, Global Times said that “the hypothetical scenario of the US coercing Chinese firms to submit data could happen, experts said, citing the US government's track record of stopping at nothing to forcing businesses to surrender. At a regular press briefing in Beijing on Monday, Foreign Minister spokesperson Wang Wenbin said that time and again, it has been demonstrated that it is the US that forces companies to open ‘back doors’ and illegally obtain user data…The possible intimidation of US-listed Chinese firms regarding data transfers could be one of the biggest risks for the likes of Didi, Dong Shaopeng, a senior research fellow at the Chongyang Institute for Financial Studies at Renmin University of China, told the Global Times on Monday.”
On Wednesday then, State Administration for Market Regulation (SAMR) fined 22 companies for violating anti-monopoly rules in 22 mergers and acquisitions deals they made without seeking regulatory approval in advance. The companies were fined 500,000 yuan (about $77,360) for the deals. These included Alibaba’s purchase of Guangzhou F.C., Tencent taking a controlling stake in Xingin International Holding Limited, and Suning.com and Bank of Nanjing starting a joint venture. CGTN said that all the cases were found to have caused an unlawful concentration of business operations, although they were not considered to have limited or restricted competition. The SAMR ruled companies have to restore to the state before concentration. Global Times said that multiple subsidiaries of Didi - Xiaoju Kuaizhi Inc - were among the penalized parties.
Two days later on Friday, Chinese regulators ordered mobile app stores to remove 25 more apps operated by Didi, offering services from carpool to finance, saying the apps illegally collect personal data. The Cyberspace Administration of China also barred internet platforms from providing traffic and downloads for the apps.
Then on Saturday, the CAC released draft changes to the Measures for Cybersecurity Review. These changes are open for public comment until July 25. As per the draft, companies holding data on more than 1 million users must now apply for cybersecurity approval when seeking listings in other nations because of the risk that such data and personal information could be “affected, controlled, and maliciously exploited by foreign governments.” That essentially means any company with any sort of significance will have to go through the review process. The cybersecurity review will also look into the potential national security risks from overseas IPOs.
Caixin reports the changes could push Chinese companies to list in Hong Kong to avoid potential reviews, some analysts said. As per the changes, companies should provide “IPO materials to be filed” to the Cybersecurity Review Office. This would mean that companies’ prospectuses and other filings will be checked by the government before they file for a listing outside China. If the review enters a “special review process,” it would take additional three months to complete, up from 45 business days at present.
The Economist described these changes as “the starkest effort yet to disconnect China Inc from American capital markets.” Keep in mind that “Chinese firms have raised $13bn in America so far this year, and $76bn over the past decade.”
The piece adds:
“Besides regulating what corporate data can and cannot be shared with foreigners, the new rules would target ‘illegal securities activities’ and create extraterritorial laws to govern Chinese firms with foreign listings. According to Bloomberg, a news service, Chinese regulators also want to restrict the use of offshore legal structures that help Chinese companies skirt local limits on foreign ownership…Nearly all Chinese tech giants listed in America, including Alibaba, a $570bn e-merchant, as well as Didi, use such “variable-interest entities” (vies). A vie is domiciled in a tax haven like the Cayman Islands, and accepts foreigners as investors. It then sets up a subsidiary in China, which receives a share of the profits of the Chinese firm using the structure. China’s government has long implicitly supported this tenuous arrangement, upon which hundreds of billions of dollars of American investments rely. Now it wants Chinese firms to seek explicit approval for the structure. The assumption is that Beijing would be hesitant to grant it. Existing vies may also come under scrutiny.”
Also on Saturday, the State Administration for Market Regulation officially blocked the merger of Huya and Douyu International Holdings, China’s two biggest video game live-streaming platforms, both backed by Chinese tech giant Tencent Holdings. SCMP reports that the SAMR did so, saying that the deal would have strengthened the dominant position of Tencent…The merger “may have the effect of excluding or restricting competition, which is not conducive to fair competition and may damage the interests of consumers,” SAMR said in the statement.
WSJ’s report on this tells us that in its Saturday statement, the market regulator said combining Huya and DouYu would hurt competition and hinder sustainable development of the online gaming and live-streaming industries. The regulator described antitrust operations as “the Sword of Damocles” dangling over the heads of China’s tech giants in a separate commentary carried on its official social media account. It said its actions were prompted by a desire to ensure tech companies could move from the stage of “barbaric growth” to one of “orderly development under the rule of law.”
Anyway, on the whole Didi saga so far, I find this from Lingling Wei and Keith Zhai to be useful framework to understand what’s happening:
“The sudden regulatory actions, which surprised investors in coming just days after the company’s IPO, suggested that protecting national security trumps Beijing’s ambitions for Chinese corporations to go global. One upshot: Beijing is unlikely to hold fire even if its regulatory moves risk the ability of Chinese firms to court international investors.” The also say: “The effort (tech crackdown starting with Alibaba) shows that these tech giants, with their troves of data, deep coffers and reach across all aspects of Chinese life, have become a national-security concern for China’s leaders.”
Didi Tried Balancing Pressure From China and Investors. It Satisfied Neither
China to severely punish illegal activities in securities market
China's central bank confident of expanding digital yuan program
Didi Accused of Failing to Disclose Warning to Delay IPO in Class Action Suit
VI. Region Watch
Anxieties about Afghanistan are growing as the destiny of peace in the region hangs in the balance. With the rising possibility of a civil war, experts are deliberating the Kabul government’s ability to stay in power. Pakistan, a key stakeholder in the Afghan peace process, has already criticised the United States for leaving Afghanistan without ensuring a credible government is in place. Beijing is also concerned about security risks spilling into its Xinjiang, which shares a 90km border with Afghanistan. Chinese Foreign Minister Wang Yi made a statement urging Pakistan to step up cooperation to contain security risks in Afghanistan:
‘[China and Pakistan] need to defend regional peace together. Problems in Afghanistan are practical challenges that China and Pakistan both face. China, along with Pakistan, is willing to continue support for all parties in Afghanistan to seek a political solution through dialogue and lead to ethnic reconciliation and long-lasting peace,’
Wang Yi also made a push for trilateral cooperation to boost Afghanistan’s involvement in the China-Pakistan Economic Corridor (CPEC). Chinese investment is ‘welcome’, according to Taliban spokesperson Suhail Shaheen. In an interview with SCMP, he called China a ‘friend’ and promised that the Taliban would protect Chinese investors and workers in Afghanistan. Shaheen added that the group would prevent Uyghur separatist fighters from attaining refuge in Afghanistan. But will Beijing take the Taliban’s word for it? Andrew Small doesn’t think so:
‘Whatever benign language the Taliban use, China remains highly concerned about the security situation there,’
the senior transatlantic fellow with the German Marshall Fund’s Asia Programme told SCMP.
China, however, is leaving no stone unturned. The Foreign Ministry announced that Wang Yi will visit Turkmenistan, Tajikistan, and Uzbekistan next week to discuss Afghanistan's condition. He is also scheduled to attend the meeting of foreign ministers of the SCO-Afghanistan Contact Group, to discuss the Shanghai Cooperation Organization’s (SCO) role in keeping the region stable and the peaceful rebuilding of Afghanistan.
Beijing's endeavours at making in-roads into the region continue with the launch of the China-South Asian Countries Poverty Alleviation and Cooperative Development Center. The initiative was proposed by Beijing in April this year to encourage regional cooperation in COVID response and recovery. Experts view the emergence of this sans-India regional bloc as a counter to SAARC, which has been paralysed for many years. Of the eight SAARC members, five have joined (except India, Bhutan and the Maldives) the Beijing-led initiative. The Kathmandu Post reported that:
‘As per the agreement between China and five South Asian nations, apart from this center, China is going to open up China-South Asian Countries Emergency Supplies Reserve mostly targeting for natural disaster time and prompt supplies of emergency goods in the city of Chengdu. Another platform that China is working with South Asian nations is to set up a China-South Asian Countries E-commerce Cooperation Forum on Poverty Alleviation in Rural Areas,’
Despite the image these developments may present, states in the region are cautious in their engagement with Beijing. Bangladesh, for instance, cancelled the Sonadia deep-sea project which could be suitable for Chinese Navy presence in the future. In Sri Lanka too, Beijing’s motives are under more public scrutiny than ever before.
A perception shift in relations between Sri Lanka and China?
That’s a wrap on this week’s update. I’d like a moment to mention something personal. It has been a year since I started writing Region Watch for Eye on China and what a phenomenal year it has been! My gratitude to Manoj for trusting me with this section and allowing me to make it my own. Shoutout to scholars of the region and journalists at The Kathmandu Post, Dhaka Tribune, Dawn, The Diplomat, SCMP, Nikkei Asia, Daily Mirror, The Hindu, Hindustan Times, Economic Times, ThePrint, The Wire, and countless other regional news outlets, the giants whose shoulders I stand on. Thank you.
VII. The Long & Short of It…
a. Media’s Social Responsibility
A report in the People’s Daily (English report) this week informed that over 100 major national and local media outlets in China have released 2020 social responsibility fulfilment reports. This was marked by the Central Propaganda Department and the All-China Journalists Association. The reports highlighted the practice of the media outlets in areas including serving the public, contributing to the country's cultural development, protecting people's rights and interests, and conducting business operations in accordance with the law.
PD’s version tells us that:
“In 2020, all media thoroughly studied and publicized Xi Jinping's new era of socialism with Chinese characteristics and the spirit of the 19th National Congress of the Communist Party of China, strengthened the four consciousnesses, strengthened the four self-confidences, and achieved two maintenance…” There’s a positive assessment of the media’s coverage and focus on key themes, such as the pandemic, poverty alleviation, etc, in terms of how the media “served the overall situation and faithfully fulfilled the duties and missions entrusted to them by the Party and the people...” 2020年，各媒体深入学习宣传贯彻习近平新时代中国特色社会主义思想和党的十九大精神，增强“四个意识”、坚定“四个自信”、做到“两个维护”，自觉承担起举旗帜、聚民心、育新人、兴文化、展形象的使命任务，特别是在决胜全面小康、决战脱贫攻坚、抗击新冠肺炎疫情等重大主题、突发事件报道中，广大新闻工作者围绕中心、服务大局，忠实履行党和人民赋予的职责和使命，自觉履行社会责任，展现了新闻战线的良好形象，获得了社会赞誉.
The parameters for assessment as per the report were: “in terms of fulfilling political responsibility, front construction responsibility, service responsibility, humanistic care responsibility, cultural responsibility, security responsibility, moral responsibility, responsibility for safeguarding rights and interests, and lawful operations responsibility. 各媒体认真贯彻落实实施办法，从履行政治责任、阵地建设责任、服务责任、人文关怀责任、文化责任、安全责任、道德责任、保障权益责任、合法经营责任等方面，对2020年履行社会责任情况进行逐项报告.
b. HK Patriotic Education & Stability
On Saturday, HK Chief Executive Carrie Lam called for efforts to “confidently promote patriotic education” in the city, reports CGTN. Speaking at a high-level forum on patriotic education in Hong Kong, Lam said it is natural to love one’s own country, adding that betraying one's country is regarded as a very serious crime in all countries. “We need to work together to confidently promote patriotic education in Hong Kong, enhance the spirit of patriotism and re-establish young people's values.” she said. In her comments, Lam also said that previously, national education had been stigmatized by people and media organizations with ulterior motives, which undermined students' sense of national identity and led to serious consequences. If you’d like a deeper dive into the concept and implications of patriotic education, I recommend this episode from the CSIS Pekingology podcast with Karrie J. Koesel, an Associate Professor of Political Science at the University of Notre Dame.
Also this week, the US government extended a national emergency designation over Beijing’s tightening control on Hong Kong. The White House said that this was needed to “deal with the unusual and extraordinary threat to the national security, foreign policy, and economy of the United States constituted by the situation with respect to Hong Kong.” A Zhong Sheng commentary termed the designation “ridiculous.” It added:
“It must be pointed out that such unrepentant and wrongful acts of intervention by the U.S. side, and this kind of arrogant performance of repeatedly interfering in Hong Kong affairs and China's internal affairs has always been firmly opposed by more than 1.4 billion Chinese people, including Hong Kong compatriots.” 必须指出，美方这种不思悔改、错上加错的干预行径，这种一再插手香港事务和中国内政的张狂表演，从来都是包括香港同胞在内的14亿多中国人民所坚决反对的.
“In extreme contrast to Hong Kong's high-spirited and enterprising atmosphere, some people in a few western countries are still busy dreaming of ‘chaos and disaster in Hong Kong’. They are very much ‘nostalgic’ for the troubles that persisted in Hong Kong in 2019. Recently, they have pieced together many photos of Hong Kong rioters holding foreign flags two years ago, confusing right and wrong to preach violence. They are digging up from the garbage dump of history, Hong Kong-related bills and executive orders that they have concocted and which violate international law and the basic norms of international relations, in an attempt to use the waste paper to make more noise.” 与香港这种昂扬奋进气氛形成极度反差的是，少数西方国家一些人还在忙着大做阴晦的“乱港祸港梦”。他们无比“留恋”2019年在香港出现的祸乱，近来在媒体平台上拼凑了不少乱港分子两年前手执外国国旗招摇、混淆是非宣扬暴力的照片. 他们从历史垃圾堆里翻捡出自己炮制的违背国际法和国际关系基本准则的涉港法案、行政命令，企图让那些废纸再闹出点动静.
There’s been much effort in Chinese media to point out that the National Security Law has brought about stability in HK. But some events this week are noteworthy. First, HKFP reported that it was confirmed that Hong Kong’s newly-appointed number two official, John Lee, will now lead a new government body for reviewing the eligibility of poll hopefuls. The committee will consist of three official members nominated by Carrie Lam, including the new Secretary for Security and former police chief Chris Tang, Secretary for Constitutional and Mainland Affairs Erick Tsang and Secretary for Home Affairs Caspar Tsui. Three pro-Beijing figures – ex-justice minister Elsie Leung, former Legislative Council (LegCo) president Rita Fan and former president of the Chinese University Lawrence Lau Juen-yee – will also join the committee as non-official members.
Second, we had a suicide attack on a police officer in HK on July 1. WSJ reported that a 50-year-old man dressed in gray pulled a knife out of his pocket and stabbed an officer in the back. As the officer staggered toward colleagues, the assailant stabbed himself in the heart and collapsed as officers rushed to subdue him. He died a short time later. The report adds that the 28-year-old policeman survived and is recovering from a deep cut and a punctured lung. Authorities have called his attacker a domestic terrorist and warned against glorifying an act of violence. And third, AP reports that nine people, including six secondary school students, were arrested in Hong Kong on Tuesday for allegedly plotting to set off homemade bombs in courts, tunnels and trash cans. Police said they were detained on suspicion of engaging in terrorist activity under the national security law.
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