Weak Economic Data - Xi-Li Rumours - Pangong Tso Bridge - BRICS Meeting - Yang-Sullivan Call - China-Russia Trade - Li & Sharif Talk Terror - BRI Struggling in Nepal & Myanmar
I. Economic Data, Digital Economy & the Xi-Li Rumours
By Manoj Kewalramani
When it comes to economic data, the hits kept coming this week. I am sharing below key data points from the NBS’ press conference, Reuters and WSJ’s reports:
Retail sales in April shrank 11.1% from a year earlier, the biggest contraction since March 2020.
Factory production fell 2.9% from a year earlier
Surveyed urban unemployment rate for April hit 6.1%—the highest since February 2020’s 6.2%. Joblessness among those ages 16 to 24 rose to 18.2%, the highest level since before the pandemic.
Year-over-year growth in fixed-asset investment, including infrastructure and real-estate projects, slowed to 6.8% for the first four months of the year from 9.3% for the first quarter
22.7% drop in catering revenue in April
Auto sales plunged 47.6%
Property sales by value in April slumped 46.6% from a year earlier, the biggest drop since August 2006, and sharply widening from the 26.17% fall in March. Amid this, the “People’s Bank of China did, however, let banks cut mortgage rates for first-time home buyers on Sunday, in a move to prop up the sagging property sector,” WSJ reports.
Reuters’ report adds: “Nationwide property investment by developers fell 2.7% from a year earlier in January-April, after a 0.7% gain in the first three months of the year. In April, property investment fell 10.1% year-on-year, the fastest pace since December, compared with the 2.4% decline in March. New construction starts measured by floor area plunged 44.19% from a year earlier, the fastest pace since January-February 2020. New construction starts fell 26.3% in January-April from a year earlier, after a 17.5% decline in the first quarter of the year.”
In April, the added value of high-tech manufacturing increased by 4% year-on-year, of which electronic communication equipment manufacturing increased by 9.7%.
The central and western regions were less affected by the impact of the pandemic, and industrial production continued to grow. In April, the added value of industries above designated size in the central and western regions increased by 4.6% and 5.6% year-on-year respectively.
Meanwhile, the added value of industries above designated size in the Yangtze River Delta fell by 14.1%, and the industry in the Northeast fell by 16.9%
Amid all this, Premier Li Keqiang and Vice Premier Liu He spoke at meetings expressing support for market entities and the digital economy. Li’s comments came during an inspection tour in Yunnan, which sparked many rumours of a Xi-Li split. Before we get to that, let’s look at Li and Liu’s comments.
At the symposium in Yunnan, Li engaged with “government officials from 12 provinces in eastern, central, western and northeastern China attended the symposium. Ten of the 12 provinces constituted the top 10 across China in terms of economic aggregate.”
“Noting that the new wave of domestic COVID-19 resurgences and changes in the international situation have posed further downward pressure on the economy, Li stressed the importance of confidence, citing China's more than 150 million market entities, strong resilience and generally stable prices. ‘We have always insisted on avoiding 'flood-like' stimulus. We didn't issue excess paper currency, even when COVID-19 hit us the hardest in 2020,’ Li said, adding that there is still room for policy maneuver in the face of new challenges. He emphasized the importance of efforts to coordinate COVID-19 control with economic and social development in a more efficient way, and the importance of stepping up macro regulation. As most policies introduced by the Central Economic Work Conference and government work report were implemented in the first half of 2022, Li called for local governments to put forward more measures in May, in order to quickly bring the economy back on track. The country must ensure the full implementation of its relief measures, including tax cuts and refunds, so that enterprises can enjoy policy support promptly and thoroughly, Li said.”
He added: “While giving higher priority to employment, the country should increase assistance to market entities to stabilise employment, and encourage financial institutions to defer repayments of loan interest for micro, small and medium-sized firms and self-employed households.”
Meanwhile, Wang Yang and Liu He were at a consultation session held by the CPPCC National Committee. This was the big meeting on tech companies and platform economy that was being talked about for over a week. Liu said:
Since the 18th Party Congress, under the strong leadership of the CPC Central Committee with comrade Xi Jinping at the core, the development achievements of China’s digital economy have attracted worldwide attention…Efforts should be made to adapt to the all-round changes brought about by the digital economy and improve China’s overall national strength and international competitiveness. We should lay a solid foundation for key core technologies, strengthen basic research, and attach great importance to pushing forward the development and utilisation of cutting-edge technologies.中共中央政治局委员、国务院副总理刘鹤出席会议并讲话。他指出,党的十八大以来,在以习近平同志为核心的党中央坚强领导下,我国数字经济发展成就举世瞩目。全球数字经济正呈现智能化、量子化、跨界融合、深度渗透、变革速度指数化等新特征。要努力适应数字经济带来的全方位变革,提高综合国力和国际竞争力。要打好关键核心技术攻坚战,提高基础研究水平,重视先进适用技术研发推广.
Entrepreneurs are the most important agents of innovation. It is necessary to support the orderly and sound development of the platform economy and the private economy, study specific measures to support the standardised and healthy development of the platform economy, and encourage platform enterprises to participate in major national scientific and technological innovation projects. It is necessary to properly handle the relationship between the government and the market, make overall plans, improve laws and regulations, increase direct government investment, improve the digital quality of the entire nation, and support digital companies to list in domestic and foreign capital markets. 企业家是最重要的创新主体,要支持平台经济、民营经济持续健康发展,研究支持平台经济规范健康发展具体措施,鼓励平台企业参与国家重大科技创新项目. 要处理好政府和市场关系,统筹制定规划,健全法律法规,增加政府直接投入,提高全民族数字化素质,支持数字企业在国内外资本市场上市. 数字经济发展必须坚持对外开放,特别是着眼于人、着力于人,以开放促竞争,以竞争促创新.
On Thursday, Li also attended a symposium on the 70th anniversary of the China Council for the Promotion of International Trade (CCPIT). The symposium was attended by representatives from nearly 30 institutions and multinational companies, including US-China Business Council, the London-based 48 Group Club, Korea Trade-Investment Promotion Agency, Malaysia-China Business Council, European Union Chamber of Commerce in China, the Japanese Chamber of Commerce and Industry in China and the American Chamber of Commerce in China.
Xinhua reports that Li backed the policy of opening up. The report adds:
“Noting that China’s economy has been deeply integrated with the rest of the world, Premier Li said China still needs to expand imports of equipment, raw materials and agricultural products, while learning from advanced experience and knowledge to develop its high-end manufacturing and modern service industries. China’s enormous market potential also means massive space for various investments, he said. The Premier pledged to strengthen communication and cooperation with foreign businesses to seek understanding and common ground, and properly deal with disputes and differences to achieve mutually beneficial cooperation. Regarding the current COVID-19 impacts on foreign businesses' activities in China, Premier Li said China had taken active measures to coordinate and solve the problems in areas such as production resumption, personnel entry, and logistics, pledging more efforts to optimize the policies. He emphasized that China will continue to deepen administrative reforms, make clear the regulatory rules that are transparent, stable, and predictable, further liberalize market access, guarantee equal access of foreign enterprises to areas that have opened up under the law, and strictly protect intellectual property rights.”
It was also interesting that this week, Qiushi published an article by Xi Jinping, drawn from his speech at the Central Economic Work Conference on December 8, 2021. In it, Xi highlights five key issues:
correctly understand and grasp the strategic goals and practical ways to achieve common prosperity
correctly understand and grasp the characteristics and behavioural laws of capital
correctly understand and grasp the supply guarantee of primary products
correctly understand and grasp the prevention and resolution of major risks
correctly understand and grasp the goal of carbon neutralisation
You can read the full translation of the article here. Also, through this week, the official narrative in the People’s Daily has been about the economic effects of the zero-Covid policy being a short-term phenomenon. The long-term fundamentals of the economy remain sound. In addition, Sunday’s edition of the Party’s flagship newspaper ran a two-page special on common prosperity.
Amid all this, Li’s prominence has led to reports about a potential split between Xi and Li over COVID containment, economic policy, and jostling for positions at the 20th Party Congress. I would advise everyone to take talks about a political split and a challenge to Xi’s authority with a bag of salt. There is clearly factional contestation and flux around the direction of economic policy. But I don’t think any of this challenges Xi’s authority. I find myself largely agreeing with this perspective shared in Edward White’s report for the Financial Times:
The distance between the promises from leaders such as Liu and Li and commercial realpolitik is emblematic of the chaotic policy environment as rival factions in Beijing battle for influence and favour under the most powerful Chinese leader in a generation. The fight is between senior party and government officials focused on economic growth and those more concerned with security and party control. Neither group threatens Xi’s primacy but the fallout has echoes of the infighting and policy guesswork that plagued China under Mao Zedong. “You’re beginning to see this phenomenon that we saw in the late Mao period,” said Victor Shih, a professor of Chinese political economy at the University of California, San Diego. “Just because they’re all followers of Xi Jinping, doesn’t mean that there isn’t competition and power struggles.”
An earlier FT report in late April had informed about a policy tussle between Liu on one side and Han Zheng and Hu Chunhua on the other, with the former preferring easing for the property sector. This week the five-year loan prime rate, which is set by a committee of banks and published by the People’s Bank of China, was lowered from 4.6% to 4.45%. The reduction in the rate, FT reports, will directly reduce the borrowing costs on outstanding mortgages across the country. A cut was widely anticipated following data this week showing worsening economic conditions across the economy, but the 15 basis point reduction exceeded analyst expectations and was the most since the country’s rate system was reformed in 2019.
One last bit: it was interesting to note that for the first time in a long while, the People’s Daily featured Shanghai Party Secretary Li Qiang’s name in a front page report. The report about Shanghai achieving zero community transmission and beginning opening up. Li Qiang is a key Xi ally and is tipped to get on the PSC at the 20th Party Congress. I wonder if this reference in PD is indicative of him surviving the debacle of Shanghai’s COVID containment effort.
As a parting shot, here’s the current status of COVID lockdowns in China
Also Read:
Mixed messages from top China leaders feed speculation of Xi-Li split
China diverts anti-poverty funds to Covid testing as crisis deepens
Chinese Bonds Suffer Third Straight Month of Foreign Outflows
Why Chinese leader Xi Jinping wants more technocrats in key roles
China’s New Home Prices Fall for the First Time in More Than Six Years
II. Pangong Tso Bridge & BRICS FMs Meeting
By Shrey Khanna
On May 18, The Print reported that China is building a second bridge over territory held by it in Pangong Tso, which will be capable of carrying armoured columns. Quoting the sources in the defence and security establishment, the report stated that “the first bridge — whose construction was started at the end of 2021 and finished last month — is being used as a service bridge for the construction of the second.”
“The earlier bridge could only bring in soldiers and lighter vehicles. The new one is actually bigger in size and wider. This means that they are looking at faster induction of not just troops and vehicles but even armoured columns,” the source quoted above said, explaining why the new construction is significant. Sources said that, with the new construction, China’s People’s Liberation Army (PLA) aims to have multiple routes to counter any possible operations by the Indian forces on the southern banks of the Pangong Tso in the future”, reported The Print.
On May 19, in his weekly media briefing, the official spokesperson of the Ministry of External Affairs (MEA), Arindam Bagchi addressed the issue of India-China talks and the construction of the bridge on Pangong Tso. He said:
“I have seen reports about the bridge. This is a military issue, I will not be able to comment on it or on where it’s exactly located. And as we have said, we believe the entire area is the occupied area…” He later added: we will continue to remain engaged with Chinese side both at the diplomatic and military levels to ensure that the directions given by the two ministers are implemented fully…We have seen media reports and other reports on the so called bridge or I don’t know if it’s another bridge - somebody said it’s a second bridge, or if it’s an expansion or widening of the current bridge. In the area that was referred to, of course, we’ve always considered this area occupied for decades. And from a military perspective, I would not be in a position to comment. That I think Ministry of Defence would be in better position to tell and also the implications of that…”
Then, on May 20, the MEA posted a specific response to the media queries regarding reports of a second bridge being constructed across Pangong Lake by China. The statement gave a detailed response. It said:
“We have seen reports of a bridge being constructed by China on Pangong Lake alongside its earlier bridge. Both these bridges are in areas that have continued to be under the illegal occupation of China since the 1960s. We have never accepted such illegal occupation of our territory, nor have we accepted the unjustified Chinese claim or such construction activities. We have made it clear on several occasions that the Union Territories of Jammu & Kashmir and Ladakh are an integral part of India and we expect other countries to respect India’s sovereignty and territorial integrity. In order to ensure that the nation’s security interests are fully protected, Government has stepped up development of border infrastructure especially since 2014, including construction of roads, bridges, etc. Government remains committed to the objective of creating infrastructure along the border areas to not only meet India’s strategic and security requirements but also facilitate the economic development of these areas. And of course, Government keeps a constant watch on all developments that have a bearing on India’s security and takes all necessary measures to safeguard its sovereignty and territorial integrity.”
Previously, on May 16, the Indian Army’s Eastern Command said China’s People’s Liberation Army (PLA) is engaged in infrastructure capacity enhancement across the international border in Arunachal Pradesh. In a press conference, General Officer Commanding-in-Chief of the Eastern Command, Lt Gen R. P. Kalita, said:
“Across the Line of Actual Control (LAC) in the Tibet region, a lot of infrastructure development is going on. The other side is constantly upgrading their road, rail and air connectivity as well as 5G mobile network so that they are in a better position to respond to a situation or mobilise forces”. He also added: “We are continuously monitoring the situation. We are also upgrading our infrastructure and capabilities as well as the mechanism to handle the situation. These have put us in a robust position.
Meanwhile, on May 16, quoting the government sources, The Print had reported that India does not foresee fighting China again along the critical Line of Actual Control (LAC).
The sources had said: “We don’t foresee any war or conflict like what happened in Galwan. India is a peace-loving country and wants good relations with all its neighbours including China,” a top government official told The Print when asked about speculation that the tensions could eventually result in conflict between the two countries in the coming months, or over the next few years. The government sources also said that the Chinese “have understood that India will stand up to any kind of aggression”, and will not back down if push comes to shove. “In Galwan, we fought valiantly and caused casualties on the Chinese side. Yes, we suffered too, but the Chinese have realised that we will not back down,” the sources further said.
Asked what would happen if faced with conflict, the sources said, “Our soldiers are very determined. War is not fought just through weapons and systems but through the grit and determination of soldiers, which is very high on our side. If indeed there is a conflict, we will give a muscular response without worrying (about) what the outcome will be.”
India plans to construct the country’s second-largest dam at Yingkiong in Arunachal Pradesh to counter China’s ambitious water diversion scheme of the river that feeds downstream into the Brahmaputra, reported Mint on May 16. In an interview, Jal Shakti minister Gajendra Singh Shekhawat said that the proposed dam in the upper reaches of Arunachal would be able to store around 10 billion m3 (BCM) of water.
The Mint reported that: “In response to a query about China’s plans to build hydroelectricity projects on the Great Bend, right above Indian territory, where the Brahmaputra takes a U-turn, Shekhawat said, “We have planned a project for its mitigation in Yingkiong for constructing a dam in the upper reaches of Arunachal Pradesh. And probably that is going to be one of India’s largest dams. We will hold water in that and will release it in the lean season when there is no rainfall to provide us (water) security”.”
Further, Shekhawat said that:
“Brahmaputra river has a huge quantum of 500 BCM (billion cubic metres) of water flowing into it. Of this, more than 75% comes from our catchment area. That’s the reason why we are not affected by it a lot. But in the non-monsoon season, when the river gets water from snowmelt, we don’t have water in our catchment area. So if they construct a dam and divert water in the non-monsoon seasons, then it will have an impact from Arunachal Pradesh to Bangladesh. Earlier they (China) had said they were not doing anything. Later they said that they are constructing run-of-the-river hydroelectric projects. And now there is evidence that perhaps they can also work on water transfer.”
The Foreign Ministers of BRICS countries held a virtual meet on May 19 with China as the chair. Chinese President Xi Jinping delivered a video address at the opening session of the meeting. Xi said:
“As a positive, inspiring and constructive force in the international community, the BRICS countries need to firm up belief, brave the storms and waves, and take real action to promote peace and development, uphold fairness and justice, and advocate democracy and freedom, so as to inject stability and positive energy into international relations in a period of turbulence and transformation.”
He also stressed that:
“BRICS countries need to strengthen political mutual trust and security cooperation, maintain close communication and coordination on major international and regional issues, accommodate each other’s core interests and major concerns, respect each other’s sovereignty, security and development interests, oppose hegemonism and power politics, reject Cold War mentality and bloc confrontation, and work together to build a global community of security for all.”
The grouping issued a joint statement “Strengthen BRICS Solidarity and Cooperation, Respond to New Features and Challenges in International Situation”.
The statement said:
“They reiterated that the BRICS countries shall continue to enhance the framework of intra-BRICS cooperation under the three pillars - political and security, economic and financial, and cultural & people-to-people exchanges, to contain the spread and effects of the COVID-19 pandemic with solidarity, to speed up the implementation of the 2030 Sustainable Development Agenda, and to further broaden and deepen the cooperation amongst the BRICS countries.”
The other notable points in the statement are:
“The Ministers reiterated their commitment to multilateralism through upholding international law, including the purposes and principles enshrined in the Charter of the United Nations as its indispensable cornerstone, and to the central role of the United Nations in an international system in which sovereign states cooperate to maintain peace and security, advance sustainable development, ensure the promotion and protection of democracy, human rights and fundamental freedoms for all, and promoting cooperation based on the spirit of mutual respect, justice and equality.”
“The Ministers reiterated their commitment to enhancing and improving global governance by promoting a more agile, effective, efficient, representative and accountable system; exercising inclusive consultation and collaboration for the benefit of all on the basis of respecting sovereignty, independence, territorial integrity, equality, legitimate interests and concerns of different countries.”
“China and Russia reiterated the importance they attach to the status and role of Brazil, India and South Africa in international affairs and supported their aspiration to play a greater role in the UN.”
“The Ministers stressed that global economic governance is of critical importance for countries to ensure sustainable development and recalled further their support for broadening and strengthening the participation of emerging markets and developing countries (EMDCs) in the international economic decision-making and norm-setting processes. They reiterated their support for G20’s leading role in global economic governance and underlined that G20 shall remain intact and respond to current global challenges. They called upon the international community to foster partnerships while underlining that it is imperative to strengthen macro-policy coordination in driving the world economy out of the crisis and shaping a strong, sustainable, balanced and inclusive post-pandemic economic recovery. They urged major developed countries to adopt responsible economic policies, while managing policy spillovers, to avoid severe impacts on developing countries.”
“The Ministers expressed their support for an open, transparent, fair, inclusive, non-discriminatory and rules-based multilateral trading system with a view to ensuring a level playing field with special and differential treatment for developing countries, and avoid the unilateral actions and protectionist measures that run counter to the rules of WTO. They supported a robust Global Financial Safety Net with a quota-based and adequately resourced IMF at its center.”
“The Ministers recalled their national positions concerning the situation in Ukraine as expressed at the appropriate fora, namely the UNSC and UNGA. They supported talks between Russia and Ukraine. They also discussed their concerns over the humanitarian situation in and around Ukraine and expressed their support to efforts of the UN Secretary-General, UN Agencies and ICRC to provide humanitarian aid in accordance with UN General Assembly resolution 46/182.”
“The Ministers expressed strong condemnation of terrorism in all its forms and manifestations whenever, wherever and by whomsoever committed. They recognized the threat emanating from terrorism, extremism conducive to terrorism and radicalization. They committed to combating terrorism in all its forms and manifestations, including the cross-border movement of terrorists, and terrorism financing networks and safe havens. They reiterated that terrorism should not be associated with any religion, nationality, civilization or ethnic group. They reaffirmed their unwavering commitment to contribute further to the global efforts of preventing and countering the threat of terrorism on the basis of respect for international law, in particular the Charter of the United Nations, and human rights, emphasizing that States have the primary responsibility in combating terrorism with the United Nations continuing to play central and coordinating role in this area. They also stressed the need for a comprehensive and balanced approach of the whole international community to effectively curb the terrorist activities, which pose a serious threat, including in the present-day pandemic environment. They rejected double standards in countering terrorism and extremism conducive to terrorism. They called for an expeditious finalization and adoption of the Comprehensive Convention on International Terrorism within the UN framework and for launching multilateral negotiations on an international convention for the suppression of acts of chemical and biological terrorism, at the Conference of Disarmament.”
“The Ministers reiterated the need for all countries to cooperate in promoting and protecting human rights and fundamental freedoms under the principles of equality and mutual respect. They agreed to continue to treat all human rights including the right to development in a fair and equal manner, on the same footing and with the same emphasis. They agreed to strengthen cooperation on issues of common interests both within BRICS and in multilateral fora including the United Nations General Assembly and Human Rights Council, taking into account the necessity to promote, protect and fulfil human rights in a non-selective, non-politicised and constructive manner and without double standards.”
Lastly, “The Ministers supported promoting discussions among BRICS members on BRICS expansion process. They stressed the need to clarify the guiding principles, the standards, criteria and procedures for this expansion process.”
Indian External Affairs Minister S. Jaishankar took to Twitter to highlight the 8-key points he made during the meeting. One of those points was: “BRICS has repeatedly affirmed respect for sovereign equality, territorial integrity and international law. We must live up to these commitments.”
Further Readings:
The Quad Needs a Harder Edge: It’s Time for the Group to Prioritize Its Security Agenda - Dhruva Jaishankar and Tanvi Madan - Do Read:
‘Quad’ security group plans system to track illegal fishing by China - Financial Times report
After 70 years of ties and a rising China, it is time for India and Japan to strike a defence deal
China is succeeding in delaying Indian plan to theaterise the Armed Forces
The West is tired of China’s power games. India could take advantage
India intends to use S-400 missiles against threats by Pak, China: Pentagon
China’s loss is India’s gain in the textile sector, but it’s not that easy
III. Region Watch
By Shibani Mehta
This month marked the fifth anniversary of the signing of the Belt and Road Initiative (BRI) between Nepal and China. The BRI was regarded as a watershed moment in Sino-Nepal ties, however, as the projects failed to take off, it led to anxieties in Kathmandu.
BRI projects are funded commonly with loans, a model undesirable to Nepal. Chinese ambassador to Nepal Hou Yanqi offered clarification about BRI not being a grant assistance, rather based on cooperation and cooperative modality that includes grant and commercial cooperation. Despite diplomatic efforts, Kathmandu reduced the number of projects from 35 to nine and sought greater grant assistance from Beijing. According to a new report, the Nepalese also maintained that BRI projects should be open to all for execution, implying that the right to bid should not be reserved exclusively for Chinese firms. Nepalese Finance Ministry further underlined that,
‘soft loans for the projects financed under the BRI must not have an interest rate more than two per-cent and the repayment time should be as per the international standard or as per the interest rate imposed by multilateral lenders like the World Bank, the Asian Development Bank and others.’
Experts argue that the fault lies with Nepal too. Frequent government changes, mixed signals from the leadership and irregular negotiations are a spanner in the works. However, it is unlikely that both would resume talks before the next general elections in Nepal this year.
Another milestone attained by China in the region is 71 years of diplomatic relations with Pakistan. Marking the occasion, Pakistan’s Prime Minister Shehbaz Sharif expressed his nation’s desire to elevate the friendship and trust with China to new heights while Foreign Minister Bilawal Bhutto Zardari is undertaking a two-day visit to the country.
Bilateral relations have grown from the initial Chinese policy of neutrality to a partnership with Pakistan. Pakistan-China diplomatic relations were established in 1950, border issues were resolved in 1963, military aid began in 1966, a strategic alliance was formed in 1972, and economic cooperation began in 1979. China too reiterated Pakistan’s priority in its foreign policy agenda, but took the opportunity to highlight its concerns.
China’s Premier Li Keqiang raised last month’s suicide attack in Karachi, near a Confucius Institute during a phone call with his Pakistani counterpart. News reports quoted him as saying,
‘(he) hoped that Pakistan will bring the perpetrators to justice as soon as possible, make every effort to handle follow-up matters, comfort the bereaved families and the injured, and comprehensively strengthen security measures for Chinese institutions and citizens in Pakistan to ensure that similar tragedies will not happen again.’
As per Pakistani media reports, Beijing has recalled all Chinese faculty/staff at Confucius Institutes across Pakistan.
“Chinese instructors teaching at the Confucius Institute of the University of Karachi have left for their country, the director of the department told Geo News on Sunday. Director Dr Nasir Uddin said that the teachers at the different Confucius Institutes in the country, not just the University of Karachi, have been called back by China. The director assured that the institute will not be closed, adding that Pakistani teachers are being asked to help in teaching Mandarin.”
Meanwhile, in China:
Bloomberg: Sri Lanka’s former Finance Minister told the parliament earlier this week that the nation missed payments on debt due to Chinese banks. Later, its central banker said that Sri Lanka will not service its dollar debt until the country completed a debt restructuring. Can you give any update on China’s talks with Sri Lanka on the debt issue? How could this current situation affect China’s funding support for Sri Lanka going forward?
Wang Wenbin: China fully relates to the difficulties and challenges facing Sri Lanka and stands ready to play a constructive role in its steady economic and social development. As to Sri Lanka’s debt to the Chinese side, China supports relevant financial institutions in having consultations with Sri Lanka to seek a proper settlement. China stands ready to work with relevant countries and international financial institutions and continue to play a positive role in easing Sri Lanka’s debt burden and helping it achieve sustainable development. In the meantime, we hope and believe that Sri Lanka will work in the same direction and make independent efforts to uphold the legitimate rights and interests of foreign investment and financing partners, and maintain stability and credibility of its investment and financing environment.
Sri Lanka’s extreme struggle continues and after nearly a month of silence, Beijing has promised to “play a positive role” in talks with the International Monetary Fund (IMF) on a possible emergency loan. China has offered to lend more but balked at joining a process that might cut island nation’s debt. According to reports, 10 per cent of the $51 billion external debt that Sri Lanka owns is to China. It is further believed that the amount will be much higher should loans given to state-owned firms and the Central Bank of Sri Lanka are considered.
Also Read:
IV. Surge in China’s Imports from Russia
By Megha Pardhi
SCMP reported that China's imports from Russia have surged, indicating China's defiance of the US calls to cut trade ties with Russia. As per the data based on China's General Administration of Customs department, imports from Russia reached US$8.89 billion in April. This marks an increase of 13.3 percent since March. This is a 56.6 percent increase from the same time last year.
Although a detailed breakdown of these imports from Russia to China is not available, a major chunk of the imports is believed to be oil and gas. After EU and American sanctions, the possibility of increased cooperation in the China-Russia trade in energy has increased. Although China's stance is neutral regarding the Ukraine-Russia war, China has not condemned Russian aggression. Rather, China is more likely to be an important ally of Russia in keeping the Russian economy afloat.
Oil and gas trade was expected to increase not just due to the Ukraine war, but also because both countries have signed deals to increase energy trade. Russia and China signed deals on energy cooperation during Putin's visit to China weeks before he announced a 'special military operation' in Ukraine. After deals were signed in February 2022, Russia was set to become a major supplier of gas to China.
Moreover, China and Russia are going forward with the Soyuz Vostok Pipeline project (part of the Power of Siberia 2 project) which will supply gas from Russia's Yamal to China via Mongolia. The pipeline is expected to supply around 50 billion m3 of Russian gas to China. Although, no deal was signed on the Soyuz Vostok Pipeline project during Putin's visit.
These deals are designed to reduce Russia's dependence on exports to Europe. Russia had already taken steps to increase oil ad gas exports to China after the annexation of Crimea. Beijing and Moscow had signed a $400-billion gas supply deal in 2014. Hence, the increase in China-Russia energy trade is not surprising. However, sanctions by UA EU and other western allied countries have likely accelerated this trend.
Falling Chinese Exports to Russia
On the other hand, exports to Russia have declined. Data from customs reported by SCMP suggests that exports to Russia dropped to US$3.8 billion. This is a 25.9 percent decline from last year's figures.
Washington Post Reported that tech exports from China to Russia have fallen significantly. US Commerce Secretary Gina Raimond cited Chinese trade data to highlight that Chinese shipments of laptops to Russia fell by 40 percent in March compared with February, while exports of smartphones fell by two-thirds, and exports of telecommunications network equipment fell 98 percent. Raimond indicated that this decline in tech exports is because of sanctions against Russia and she asserted that sanctions are working as intended. Chinese tech giants are reportedly retreating from Russia, although these companies are avoiding making a public statement. China's DJI, Alibaba, and other companies had come under pressure to act after the US sanctions.
Additional Reading
China, and Russia tipped to power up energy ties as Europe weans itself off Putin's oil and gas
The US Plans to Boost Penalty on Russia, China Export Violations
Chinese hackers tried to steal Russian Defense data, report says
V. The Long & Short of It…
By Manoj Kewalramani
a. Sun Guofeng under Investigation
The Central Commission for Discipline Inspection on Wednesday said that that Sun Guofeng, head of the monetary-policy department of the People’s Bank of China, is being investigated for “suspected serious violation of laws and discipline.” WSJ’s Lingling Wei reports that:
“the people with knowledge of the matter said the probe is centered on whether Mr. Sun, who had worked at the central bank since the late 1990s, shared macroeconomic indicators, such as those measuring inflation, with individual bond traders at select financial institutions in exchange for personal gains…The investigation is one result of a sweeping round of inspections of some 25 financial regulators, state banks, insurers and investment funds that President Xi Jinping launched late last year to reassert the Communist Party’s authority over these financial stalwarts. Focused on the relations between these state institutions and private-sector players including individual investors and businesses, the inspections have targeted a large number of individuals, including the former chief executive of China Merchants Bank Co…During the months-long disciplinary inspections, however, investigators sternly warned the central bank against any talk of Western-style central-bank independence. In February, after the inspections wrapped up, the anticorruption agency sharply criticized the PBOC, along with other financial regulators, for having “gaps” in implementing major policies of the party leadership. The agency also noted that there were prominent corruption problems around “key positions” at some financial institutions, without specifying, according to a statement on its website.”
b. BRI’s Risks
SCMP reports that “Chinese firms investing in potentially ‘vulnerable’ overseas opportunities have been urged to proceed with caution after reports Myanmar’s military junta cancelled tenders and blacklisted companies related to over 25 solar power projects. Beijing has maintained a relationship with Naypyidaw after last year’s coup, highlighted by Foreign Minister Wang Yi meeting counterpart U Wunna Maung Lwin in April. But The Irrawaddy, an independent news website operated by exiles living in Thailand, reported last week that Myanmar’s military regime had cancelled tenders relating to 26 solar power projects which were invited under the now-ousted National League for Democracy government in 2020 and blacklisted the companies for “breaching tender regulations”. The move also came after the electricity and energy minister U Aung Than Oo was ousted last week.”
I also recommend reading this interesting compilation by the Beijing Channel substack on Chinese analysts’ perspectives on the risks that BRI faces.
c. Wang Yi’s Chats with Japan & ROK FMs
Chinese foreign minister Wang Yi spoke to the foreign ministers of Japan and South Korea this week. Both the conversations are important, given that US President Joe Biden’s first trip to Asia since assuming the presidency.
Xinhua’s report about Wang Yi’s video meeting with South Korean foreign minister Park Jin has Wang saying that “the two countries got rid of the shackles of the Cold War and opened a new chapter of cooperation 30 years ago. ‘Today, it serves the fundamental interests of China and the ROK to keep the region open and inclusive, guard against the risks of the new Cold War and oppose camp confrontation,’ he stressed. ‘Standing at a new starting point, we should grasp the right direction and create a new 30 years of greater development of China-ROK relations,’ Wang said.”
“He suggested the two sides make good use of dialogue mechanisms at all levels, maintain smooth and high-quality political and diplomatic communication, enhance understanding, promote cooperation and manage differences. Both sides should proceed from their respective and common interests, oppose the negative tendency of ‘decoupling’ and ‘cutting off chains’, and maintain the stability and smoothness of the global industrial chain and supply chain, Wang said…Wang said China is glad to see the ROK play a more constructive role in promoting world peace and prosperity, and stands ready to work with the ROK to safeguard the common interests of the two countries, Asia and emerging markets, and inject stability and certainty into the turbulent and changing times.”
Speaking to Japanese Foreign Minister Yoshimasa Hayashi, Xinhua reports Wang saying that: “Japan’s negative moves on Taiwan and other issues concerning China’s core interests and major concerns have become prominent recently. In response, Wang called for removing disruptive factors in bilateral relations as soon as possible. He urged the Japanese side to honor the commitment it has made so far, abide by the basic trust between the two countries, and prevent forces trying to undermine China-Japan relations from gaining ground.”
Addressing the subject of the ‘quadrilateral mechanism’ summit between the United States, Japan, Australia and India, which will be hosted by Japan next month, Wang said that what causes concern and alarm is that even before the U.S. leader has arrived, the argument that Japan and the United States would jointly confront China has already been widely heard. ‘Japan and the United States are allies, while China and Japan have a treaty of peace and friendship,’ Wang said, noting that bilateral cooperation between Japan and the United States should not provoke bloc confrontation, still less should it undermine China's sovereignty, security and development interests. "We hope that Japan will not pull chestnuts out of the fire for others, and will avoid pitting itself against its neighbors," Wang said.
“Minister Hayashi, noting the difficulties Japan-China relations is facing and the extremely severe public opinion in Japan towards China, stated that both sides need to say what needs to be said while continuing dialogues and cooperate in appropriate ways in areas needing cooperation, and fulfil our responsibilities to the international society. Minister Hayashi also expressed serious concern over the situations in the East China Sea, including the situation surrounding the Senkaku Islands, as well as the South China Sea, Hong Kong, and the Xinjiang Uygur Autonomous Region, and stated the importance of peace and stability in the Taiwan Strait. In addition, Minister Hayashi reiterated the position of the Government of Japan regarding the temporary detention of a Japanese diplomat and the detention of Japanese nationals in China. Furthermore, Minister Hayashi strongly called for the prompt removal of import restrictions on Japanese food products…Regarding the situation in Ukraine, Minister Hayashi called on China to play a responsible role to maintain international peace and security, noting that Russia’s aggression against Ukraine constitutes a clear violation of international law, including the United Nations Charter. Regarding North Korea, the two ministers exchanged views on the recent situation. Minister Hayashi stated that the international community must make concerted efforts to realize denuclearization and the two ministers confirmed that they will continue to coordinate closely including understanding and support towards the early resolution of the abductions issue.”
d. Yang Jiechi-Jake Sullivan Call
China’s top diplomat Yang Jiechi spoke to US NSA Jake Sullivan this week. Xinhua reports:
“Recently, the two sides have held some dialogues in such fields as military-to-military, climate change, health and agriculture, which are beneficial, and the momentum of dialogue should be maintained, said Yang. At the same time, it must be pointed out that for some time, the United States has taken a series of wrong words and deeds that interfere in China's internal affairs and harm China's interests, which China firmly opposes and has responded forcefully, said Yang. The United States should match its words and deeds, translate its commitments into concrete policies and actions, cooperate with China, properly manage differences between the two sides, and do more constructive things to bring bilateral relations back to the right track of sound and steady development, said Yang. The Taiwan question is the most important, sensitive and core question in China-U.S. relations, Yang stressed, adding that the U.S. side has made it clear on many occasions that it follows the one-China policy and does not support ‘Taiwan independence.’ However, recent U.S. actions and statements on the Taiwan question are quite different, said Yang, noting that if the U.S. side persists in playing the "Taiwan card" and goes further down the wrong path, it will surely put the situation in serious jeopardy. China urges the United States to grasp the situation, strictly honor its commitments and abide by the one-China principle and the stipulations of the three Sino-U.S. joint communiques, said Yang, mentioning that the Chinese side will take firm actions to safeguard its sovereignty and security interests, and the U.S. side can count on China to keep its promise. Seeking peace, cooperation and development is the general trend in the Asia-Pacific region as well as the common aspiration of the people, Yang said, noting that upholding its principle of amity, sincerity, mutual benefit and inclusiveness, China has been developing friendly relations with its neighboring countries, and pursuing mutual benefit and win-win outcomes as well as sharing the same destiny with them. Any act that undermines the fundamental and long-term interests of countries in the region for its selfish interests is doomed to go nowhere and impracticable, and any attempt to form factions and engage in separatist confrontation is doomed to fail, Yang added.”
The readout adds that they also spoke about “Ukraine and the situation on the Korean Peninsula and some other international and regional issues.”
The US readout said that “this phone call, which followed their March 14 meeting in Rome, focused on regional security issues and nonproliferation. Mr. Sullivan and Director Yang also discussed Russia’s war against Ukraine and specific issues in U.S.-China relations.”
Some other key China-US stories:
State Department: Taiwan as an Observer in the World Health Assembly
Yellen Says Ukraine Conflict Shows Why West Should End Reliance on China and Russia
Other Stories:
China seeks more island security pacts to boost clout in Pacific
EU to upgrade trade ties with Taiwan as China warns Brussels ‘not to gamble on this issue’/ China sends special envoy to Brussels in bid to salvage souring ties with EU
China’s Internet Censors Try a New Trick: Revealing Users’ Locations
Autumn succession: The main plot line of the 20th Party Congress
China Insists Party Elites Shed Overseas Assets, Eyeing Western Sanctions on Russia
China’s demographic crisis is reaching into the ranks of the Communist Party/ Breakdown of Chinese report on new guidelines for veteran cadres
China’s new envoy to Singapore is not seen as the typical career diplomat