Chindia Alert: You’ll be Living in their World Very Soon
aims to alert you to the threats and opportunities that China and India present. China and India require serious attention; case of ‘hidden dragon and crouching tiger’.
Without this attention, governments, businesses and, indeed, individuals may find themselves at a great disadvantage sooner rather than later.
The POSTs (front webpages) are mainly 'cuttings' from reliable sources, updated continuously.
The PAGEs (see Tabs, above) attempt to make the information more meaningful by putting some structure to the information we have researched and assembled since 2006.
Trade talks grinded to a halt last month when Mr Trump accused China of reneging on its promises and raised tariffs on $200bn (£159.2bn) worth of Chinese goods.
The move came as a surprise to many who had thought the US and China were nearing a trade deal. China retaliated with its own tariff hikes.
The Trump administration has threatened to impose tariffs on another $300bn worth of Chinese products if the two sides can’t reach an agreement on trade.
Tariffs on billions of dollars worth of goods from the US and China imposed over the past year have weighed on the global economy and hit financial markets.
Companies ranging from retailers to electronics firms have made submissions to the US trade department warning that more tariffs will hurt their business and consumers.
Still, in his latest comments the US president appeared more optimistic about striking a trade deal.
“I think we have a chance. I know that China wants to make a deal. They don’t like the tariffs, and a lot of companies are leaving China in order to avoid the tariffs,” Mr Trump told reporters at the White House on Tuesday.
Despite moves to resume talks, recent comments from both sides suggest they still remain far apart on many issues.
Sticking points in trade negotiations have included how to enforce a deal and how fast to roll back tariffs.
headed to Tehran this week for the first visit by a sitting Japanese prime minister in four decades, some in the diplomatic world imagined he could be the man to bring
Those hopes were torpedoed on Thursday when, on the same day Abe was meeting Iran’s supreme leader Ayatollah Khamenei, explosions ripped through two oil tankers, one Japanese and one Norwegian, near the Strait of Hormuz, a strategically significant shipping lane.
The attack immediately overshadowed an earlier success for Abe, who had met President Hassan Rowhani a day before and was assured Iran would stick to the terms of a 2015 agreement limiting its nuclear activities.
Washington accused Iran of being behind the attack on the tankers, releasing a video on Friday that it said showed Iran’s revolutionary guard removing an unexploded mine from one of the ships, and warning that it would “defend its interests”.
Iranian President Hassan Rowhani and Japanese Prime Minister Shinzo Abe meet Iran’s Supreme Leader Ayatollah Ali Khamenei in Tehran. Photo: Reuters
Tehran, for its part, claimed to have been set up, with its foreign minister Mohammad Javad Zarif saying “suspicious doesn’t begin to describe” the incident. So much, then, for hopes of mediation.
, who had encouraged the Japanese leader’s visit, admitted on Twitter soon afterwards that when it came to negotiating, “they are not ready, and neither are we!”
Still, the incident exposed more than just the naivety of those hoping for an Abe-led breakthrough. In raising the stakes in Washington’s confrontation with Tehran, it also threw the spotlight on Iran’s dwindling number of allies – and perhaps most significantly on its largest trading partner, China – which face mounting pressure to rethink the relationship.
Tanker attacks: world divided over Iran role as Saudi prince breaks silence
said Beijing would promote its ties with Iran “however the situation changes” – a comment made during a meeting with Iranian President Hassan Rowhani on the sidelines of the Shanghai Cooperation Organisation summit in Kyrgyzstan – but diplomatic observers question just how far China can go in accommodating its controversial trading partner.
BEST FRIENDS FOREVER?
Iran has long been able to count on support from China, which accounts for 30 per cent of the Islamic republic’s exports and imports, and its willingness to defy US pressure is a gamble at least partly based on an assumption it can continue to count on Beijing’s support.
As Iran’s largest economic partner – Chinese direct investment in Iran hit a record high of nearly US$4 billion last year, according to data analysis project ChinaMed – Beijing already plays a key role in relieving US pressure on Iran, said Mohsen Shariatinia, assistant professor of regional studies at Shahid Beheshti University in Tehran.
But experts warn that reliance will come into question as China becomes increasingly hamstrung by its own problems.
China has enough problems of its own, starting with US pressure on Huawei. Photo: EPA
– which, as analysts point out, originally ignited over allegations it was defying US sanctions on Iran. Beijing will also be well aware of the need to keep
, its second-biggest oil supplier and Tehran’s critic-in-chief, happy.
On the other hand, analysts say, China will be wary of being seen to abandon its old friend, as doing so would send a message to other nations at odds with Washington that they could no longer look to China as a diversification strategy.
“This could mean Chinese investment is vulnerable to US interference,” said Esfandyar Batmanghelidj, founder of Bourse Bazaar, a media company that supports business diplomacy between Europe and Iran.
Sanctions drive Iranian students away from US towards Asia
Doing so, Batmanghelidj said, would put a question mark over one of China’s most significant foreign policies of recent years – President Xi’s signature
Tensions between Iran and the US have reached boiling point in recent weeks, after the Trump administration last month ended waivers on sanctions for nations importing Iranian oil – a move the US says is aimed at making the republic “radioactive to the international community” and which Rowhani has described as an “economic war against Iran”.
So far, China has largely stuck by the Islamic Republic, continuing to buy fuel from it despite the latest wave of US sanctions on Iranian oil that followed Trump’s decision last year to withdraw the US from the landmark 2015 agreement curbing Tehran’s nuclear development.
The deal had been widely lauded as a triumph of multilateralism and the dawning of a new economic era for Iran.
US releases video of ‘Iranian forces removing unexploded mine’ from ship
Part of its eagerness to support Iran has stemmed from the Islamic Republic’s key position in the Belt and Road plan. In 2017 alone, China signed deals for more than US$15 billion in Iranian infrastructure investment, according to the
Planned projects include high-speed rail lines, upgrades to the nation’s electrical grid, and natural gas pipelines. The two nations have also vowed to boost bilateral trade to US$600 billion in the next seven years.
“China sees Iran as its Western gateway, where not only is it a big market in itself, but it will also be the gateway to the rest of the
and ultimately to Europe for China,” said Anoush Ehteshami, professor of international relations at Durham University in Britain.
Nisha Mary Mathew, at the Middle East Institute in Singapore, said that China’s relationship with Iran was not just economic – but primarily strategic, with both nations envisioning an international order that was no longer dominated by the US and its Western allies.
DEFIANCE, FOR NOW
If the belt and road gives China good reason to stick with Iran, there are plenty of voices urging just that action. As Andrea Ghiselli at Shanghai’s Fudan University pointed out, US sanctions until now have only strengthened the hardline factions in Iran’s government.
The combination of the US withdrawal from the nuclear deal – which had the support of the international community – along with Europe’s tepid efforts to rescue it, may have emboldened those favouring resistance over negotiation.
Xi’s supportive comments in Kyrgyzstan were only the latest in a string of remarks from China that could encourage such factions.
If Trump kills off Huawei, do Asia’s 5G dreams die?
After China’s Foreign Minister Wang Yi met Iranian Foreign Minister Mohammad Javad Zarif in Beijing last month, the ministry’s spokesman Lu Kang said China’s economic relationship with Iran was “reasonable and lawful”.
Two months prior to that, China’s Minister of Commerce Zhong Shan, while hosting his Iranian counterpart Farhad Dejpasand, had claimed China’s “determination to maintain and develop the China-Iran comprehensive strategic partnership is unshakeable”.
Chinese President Xi Jinping with Iranian President Hassan Rowhani. Photo: AFP
Even so, the pressure is getting to some. In February, Foreign Minister Zarif temporarily resigned, in what Andrea Ghiselli at Fudan University in Shanghai called a clear sign of the “changing and precarious power balance with Iran’s foreign policy establishment”.
And nowhere is the pressure felt more keenly than the economy and China’s ability to serve as a lifeline.
“The real anxiety in Iran right now is about market share,” said Bourse and Bazaar’s Batmanghelidj. “If you’re exporting zero oil and your customers are buying oil elsewhere, you lose market share.
“The government wants to know if it agreed to go back to the negotiating table and the US promised sanctions relief, that there are people who are going to buy in significant volume.”
TURNING POINT: HUAWEI
For many analysts, the event most likely to have changed the equation in Beijing’s eyes is the arrest by the Canadian authorities of
, the chief financial officer of Chinese telecom giant Huawei.
Meng’s arrest came at the request of the US government, which claimed her company had violated sanctions by selling equipment to Iran.
Many observers saw the action as Washington’s way of signalling to Chinese companies that they would face repercussions if they eased the pressure on Iran by continuing to trade.
“Going after Huawei was about going after Chinese enterprises – signalling that they can no longer trade with Iran with impunity,” Batmanghelidj said.
Since then, Chinese firms have shown increased skittishness towards trading with Iran. According to China’s General Customs Administration, Chinese exports to Iran declined by more than half between October 2018 and February 2019, from over US$1 billion to just under US$500 million.
Mohammad Ali Shabani, a researcher at the School of Oriental and African Studies in London, said other countries in the region were now watching to see if China would blink in the face of US pressure. “This could have dire consequences for China’s image as a reliable partner,” he said.
NOT JUST ABOUT AMERICA
There are reasons beyond US pressure that may factor into Beijing’s thinking. It has long stated its opposition to Iranian nuclear weapons development, and Chinese Foreign Minister Wang Yi has said that China is “ready” to take on “its due responsibilities and make a greater contribution to world peace and common development”.
Trade war: here are Beijing’s options – and none look any good
Zhao Hong, at the Research School of Southeast Asian Studies at Xiamen University, said that in stepping up as a responsible world power Beijing faced a dilemma over its approach to Iran.
“Chinese leaders have to painfully balance an impulse towards economic cooperation with Iran against other vital interests, including convincing Washington that China is a responsible stakeholder,” he wrote in the Journal of Contemporary China.
Saudi Aramco’s Ras Tanura oil refinery. The country is China’s second-largest oil supplier after Russia. Photo: Reuters
Then there is China’s relationship with Iran’s chief adversary, Saudi Arabia, to consider. Riyadh is China’s second-largest oil supplier, behind Russia, and it plays a central role in Beijing’s energy strategy.
According to International Trade Centre data, more than 12 per cent of China’s imported oil came from Saudi Arabia last year, compared with just 6 per cent from Iran. Last year, Saudi Arabia shipped 56.73 million tonnes of oil to China, or 1.135 million barrels per day.
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This April, China imported 6.3 million tonnes of oil from Saudi Arabia, nearly twice the 3.24 million tonnes it imported from Iran, according to China’s General Administration of Customs.
Iran’s comparatively small share of China’s oil imports market and its heavy reliance on China as a trading partner add up to a deeply uneven relationship, experts say, and it is this imbalance that will encourage the US that China may be open to rethinking its ties.
As Jon Alterman, director of the Middle East programme at Washington DC think tank the Centre for Strategic and International Studies, pointed out, while China was Iran’s largest trading partner, Iran represented less than 1 per cent of China’s international trade.
“Iran needs China,” Alterman said. “But to China, Iran is expendable.”
Yutu’s discovery of olivine helps pave the way for scientists to confirm existence of a mantle beneath the moon’s crust
Crystallised mineral likely came from a crater caused by a meteor strike
China’s lunar rover, Yutu, has made a groundbreaking discovery. Photo: Xinhua
China’s lunar rover, Yutu, has made a groundbreaking discovery that proves what scientists have been thinking for decades: that the moon has a mantle.
Scientists have long suspected that the moon has a mantle under its crust, just like the Earth, but for the past 60 years lunar explorations, including the US Apollo missions, have failed to provide proof. While there were clues, there was no direct evidence.
“Now we have it,” said Professor Li Chunlai, deputy director of the National Astronomical Observatory of China and a lead scientist on the Chang’e-4 mission that put Yutu, or Jade Rabbit as it is known in English, on the moon.
The findings, published in the latest issue of journal Nature on Thursday, answer some fundamental questions about the moon, such as its internal structure and history of its formation.
The rover discovered olivine in surface samples collected near its landing site. Photo: Xinhua
During its first mission on January 3, Yutu discovered olivine, a green, crystallised mineral usually found deep underground – like the upper mantle of the Earth – in surface samples collected near its landing site.
Further analysis showed that the olivine was not local, but had originated from a 72km diameter (45-mile) crater nearby.
The far side of the moon has more craters than the near side, which faces the Earth, and a meteor strike probably penetrated to the mantle and brought up materials to the surface.
What you need to know about Chang’e 4’s mission to the moon
Yutu’s landing site used to be littered by rocks, but cosmic rays and solar wind weathered them to dust, Li said.
“What we found is the first direct evidence of materials from deep below the lunar crust,” though how deep is still unknown, he said.
It is generally believed that the moon was once covered by oceans of molten rock. Lighter substances rose to the surface and formed a crust while heavier ones sank to form the mantle and core. The new findings support that theory.
China is the first country to land a rover on the far side on the moon and is planning to send a larger spacecraft there later this year to bring back samples.
The first Chinese astronauts will land on the moon between 2025 to 2030, according to Beijing’s latest schedule.
The Apollo missions brought back many rock samples, some of which contained olivine, but some scientists suspected they might have come from a volcanic eruption.
First photo of lunar rover leaving ‘footprints’ on moon
China, the United States and other nations have all announced plans to launch missions to exploit the moon’s resources within the next decade or two.
Yutu’s discovery could help scientists to draw a more accurate map of those resources, including the volume and distribution of minerals, researchers said.
In Chinese folklore, Yutu or Jade Rabbit as it is known in English, is a companion of the moon goddess Chang’e. Photo: Handout
US President Donald Trump gave Nasa an additional US$1.6 billion budget to put Americans back on the moon by 2024.
Li said Chinese scientists were willing to work with their colleagues in the US, but Washington had blocked any such collaboration.
IEEE’s ban has ignited a backlash from its Chinese members, resulting in calls to boycott the organisation
Staff at Huawei Technologies have been banned by the Institute of Electrical and Electronics Engineers from taking part in the peer review of research papers, including serving as editors for journals, after the Chinese telecommunications equipment maker was added to a US trade blacklist. Photo: AP
The US government’s efforts to reduce the influence of Huawei Technologies, the world’s largest telecommunications equipment supplier, has extended beyond business to cover scientific research.
That development emerged as the New York-based Institute of Electrical and Electronics Engineers (IEEE) moved to ban Huawei employees from the peer review of research papers, including serving as editors for its journals, after the Chinese hi-tech champion was added to a US trade blacklist.
The decision by IEEE, the world’s biggest technical professional organisation, was leaked online across Chinese social media on Wednesday, igniting a backlash from some of the country’s leading scientists who described the move as “anti-science” and “violating academic freedom”.
Zhang Haixia, a professor with the Institute of Microelectronics at Peking University, announced on her WeChat account on Wednesday that she was quitting IEEE because the decision to comply with the trade blacklist went “far beyond the basic line of science and technology” and challenged her professional integrity.
US is waging a tech war against this district in Shenzhen
“As a professor, I do not accept this,” Zhang wrote online in a public letter addressed to IEEE president-elect Toshio Fukuda.
Her resignation letter was viewed more than 40,000 times since it was posted online. The most popular comments on its thread included calls for Chinese scientists to boycott IEEE.
In a statement on May 30, the IEEE said it must comply with its legal obligations under the laws of the US and other jurisdictions and that compliance with regulations “protects the IEEE, our volunteers, and our members”.
It said Huawei employees are only barred from the peer reviewing process and that they can continue to participate in individual membership, corporate membership, enjoy voting rights and take part in a variety of other activities, including the submission of technical papers for publication.
Huawei said it had no comment about the peer review ban.
The issue between Huawei and IEEE has come amid a raging tech war between the world’s two biggest economies, which recently escalated when the US government placed Huawei and its affiliates under the US Entity List on May 16. That bars the Chinese group from buying hardware, software and services from American hi-tech suppliers without US approval.
A succession of major American technology companies, from Google and Microsoft to Intel and Qualcomm, have suspended their dealings with Huawei to comply with the US trade ban.
Growing disquiet in China as US steps up war on tech champions
US President Donald Trump has also signed an executive order barring US companies from using telecoms equipment made by companies that pose a threat to national security.
The trade blacklist, which is maintained by the Bureau of Industry and Security under the US Department of Commerce, identifies organisations and individuals believed to be involved, or pose a significant risk of becoming involved, in activities contrary to America’s national security or foreign policy interests.
A non-profit organisation founded in January 1963, IEEE had more than 422,000 members in more than 160 countries as of December 31 last year. More than 50 per cent of its members, who are rooted in electrical and computer sciences, engineering and related disciplines, are from outside the US.
Technology is true target of US attack on China, says diplomat
It also publishes around 200 transactions, journals and magazines, and sponsors more than 1,900 conferences in 103 countries.
There is no official data on how many IEEE members are based in mainland China. Public information online, however, showed that at least 80 Huawei employees are members of the organisation.
China’s biggest chip maker to delist from NYSE as US targets tech
In a statement released on May 16, IEEE said that as a corporation organised in New York, it must comply with its legal obligation under US laws. It said the US government’s export restriction covers not only physical goods and software but also technical information.
In the leaked IEEE email, the organisation warned its members of “severe legal implications” if they continue to use Huawei staff as reviewers or editors for the peer review process of its journals.
“IEEE is registered in the US, but we should suggest experts at all levels of IEEE to move its headquarters to places such as Switzerland,” said Zhou Zhihua, a leading computer science professor at Nanjing University and an IEEE fellow, in a post on microblogging site Sina Weibo. “More importantly, let’s show more support to China-produced English-language journals.”
Deliveries will start in the next six to 10 months, carmaker says
Tesla will take on Chinese carmakers such as Geely and SAIC, and electric car start-ups including Nio and Xpeng Motors
Tesla said on Friday that its Model 3 electric car, which will be assembled in China, will be ready for deliveries in six to 10 months. Photo: AFP
Customers can pre-order the Model 3 assembled in China after Tesla announced on Friday that it would be priced 13 per cent lower than the US imports, taking the electric carmaker a step closer in tapping the world’s largest EV market.
The standard range plus Model 3 car that Tesla plans to assemble at the Gigafactory 3 in Lingang, Shanghai, will be priced at 328,000 yuan (US$47,529), 49,000 yuan cheaper than the same model currently imported from the US.
Tesla’s US-built cars are now subject to a 25 per cent import duty in China. The bestselling US electric carmaker plans to start deliveries in the next six to 10 months.
“Today we announced that Model 3 Standard Range Plus vehicles built at Gigafactory Shanghai will begin at 328,000 yuan for our customers in China,” Tesla said in a statement.
Aerial view of the Tesla Shanghai Gigafactory under construction in Lingang, Shanghai, on May 10, 2019. Photo: Imaginechina
The model has a range of 460km and a top speed of 225km/h.
Industry observers said that the price of the locally made car aimed at the mass market is on the higher side, adding that a 300,000 yuan price tag could attract thousands of Chinese buyers.
“If a Chinese customer can buy a Tesla car for less than 300,000 yuan, many of them will make a decision on the spur of the moment since it is viewed as the best EV in the world,” said Tian Maowei, a sales manager at Shanghai-based Yiyou Auto Service.
Tesla rushes Model 3s to China before trade war truce expires
US President Donald Trump has signed an executive order barring US companies from using telecoms equipment made by companies that pose a threat to national security, a move aimed at shutting out Huawei Technologies.
US technology companies including Google and Microsoft have severed business ties with Huawei to comply with the US trade ban.
Tesla’s Gigafactory 3 is expected to make around 3,000 Model 3 vehicles a week in the initial phase. Photo: AP
In January, Tesla started construction on a US$5 billion wholly-owned plant in Shanghai, the city’s single largest foreign direct investment just three months after it secured a land parcel to make electric cars locally.
The factory will produce Model 3 and Model Y electric vehicles that are seen as affordable to drivers in China.
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Gigafactory 3 is expected to make around 3,000 Model 3 vehicles a week in the initial phase, ramping up to 500,000 per year when it becomes fully operational, Tesla said.
Tesla will take on Chinese carmakers such as Geely and SAIC and electric car start-ups including Nio and Xpeng Motors in China where sales of new-energy vehicles including battery-powered and plug-ins are expected to jump 27 per cent this year to 1.6 million units, according to the China Association of Automobile Manufacturers.
In March Beijing announced a cut in cash subsidies offered to NEV buyers by up to 60 per cent, believing it was time to remove the crutches and cull an industry that had spawned hundreds of small manufacturers.
It is unclear whether Tesla vehicles will receive subsidies from the Chinese government.
China’s housing market showing signs of bubble similar to that seen in Japan in 1980s, says Asian Development Bank Institute dean and CEO Naoyuki Yoshino
China’s loose policy following 2008 global financial crisis laid foundations for current housing bubble, with US-China trade war adding to concerns
The average price of a home in Beijing has soared from around 380 yuan (US$55) per square feet in the early 2000s to the current level of well above 5,610 yuan (US$813) per square foot, according to property data provider creprice.cn. Photo: Bloomberg
China must exercise extreme caution in handling its housing sector because it is showing signs similar to those witnessed during Japan’s bubble period of the 1980s that contributed to the collapse of Japanese asset prices and its subsequent “lost decades” of weak economic growth and deflation, a Japanese financial system expert warned.
The parallels between China’s current landscape and Japan’s three decades ago are readily apparent, stemming from a loose monetary policy that laid the foundation for the expansion of a housing bubble, said Naoyuki Yoshino, dean and CEO of the Asian Development Bank Institute.
China flooded its economy with credit in response to the 2008 global financial crisis, fuelling rapid growth in mortgages, real estate borrowings and investments over the past decade.
In the same vein, the Japanese government’s relaxed monetary policy in the 1980s triggered an economic bubble that eventually burst and sank the economy into a recession that
with the Bank of Japan continuing to still keep interest rates at or below zero per cent to this day in an attempt to spur inflation.
The Japanese government’s relaxed monetary policy in the 1980s triggered an economic bubble that eventually burst and sank the economy into a recession that lasted almost 25 years. Photo: Bloomberg
Japan’s experience could serve as a lesson on how to avoid a housing market collapse that would be especially detrimental to China’s financial sector and real economy, according to Yoshino.
“I’m very much concerned that if land prices keep on rising and if the population starts to shrink along with aggregate demand, then China will experience a similar situation to that of Japan,” Yoshino said.
There are already several strong signs of a housing bubble in China, according to Yoshino, firstly the astronomical surge in property prices in recent years.
I’m very much concerned that if land prices keep on rising and if the population starts to shrink along with aggregate demand, then China will experience a similar situation to that of Japan Naoyuki Yoshino
Home ownership is one of the few ways for Chinese families to generate wealth because of limited investment opportunities. The average price of a home in Beijing has soared from around 4,000 yuan (US$578) per square metre, or 380 yuan (US$55) per square feet, in the early 2000s to the current level of well above 60,000 yuan (US$8,677) per square metre, or 5,610 yuan (US$813) per square foot, according to property data provider creprice.cn.
The increase has also lifted the housing price to income ratio sharply from 5.6 in 1996 to 7.6 in 2013, well above the Japanese rate of 3.0 at its peak in 1988. The price to income ratio is the basic affordability measure for housing.
According to the Global Times, a reasonable home price should be three to six times the median household income. That means a family with an average income can buy a house with three to six years’ annual income. The house price to income ratio in China is above 50 in the first-tier cities and 30 to 40 in the third- and fourth-tier cities, the newspaper said in October. There are four levels of cities in China, defined by a number of factors including gross domestic product (GDP) and population, with Beijing, Shanghai and Shenzhen considered tier-one cities.
Another worrying sign, according to Yoshino, is that China’s financial sector has lent more heavily to the real estate sector than did Japanese banks during their bubble period.
Thirdly, the ratio of Chinese housing loans to the nation’s GDP has consistently been higher than Japan’s by about three times more.
Ever since US President Donald Trump started imposing tariffs on Chinese imports in July, worries have been mounting that China’s property bubble and its record debt level would make the economy vulnerable to the impact of rising trade tensions, leading to a sharper-than-expected economic slowdown.
Despite a government crackdown on debt and risky lending over the last several years, housing prices and bank lending to the sector have continued to rise, pushing homes beyond what the vast majority of people can afford, as well as putting many property developers deeply into debt.
The Chinese Academy of Social Sciences, a top government think tank, said in a report last week that the growth in housing prices in China’s bigger cities, caused by a relatively short supply of new homes, is likely to push up costs across the country.
“The government should closely monitor these cities to avoid overheating,” said Wang Yeqiang, a researcher at the Chinese Academy of Social Sciences who co-authored the report.
Property developers have begun a debt-fuelled land-buying spree just as urban housing demand is entering a long-running structural decline, said Julian Evans-Pritchard, senior China economist at Capital Economics. The potential supply of property that could be built on developers’ land reserves jumped last year to a record high, meaning the risk of a glut of new housing is real, Evans-Pritchard added, if developers were to convert all their land reserves into housing tracts.
“Since real estate drives around a fifth of GDP, a sharp downturn in this sector would be contagious, resulting in a jump in defaults across a wide swathe of the economy that could quickly erode bank capital buffers,” he warned.
China’s corporate debt stood at 155 per cent of GDP in the second quarter of 2018, much higher than other major economies, according to data from the Organisation for Economic Cooperation and Development. In comparison, Japan’s corporate debt level is 100 per cent of GDP and is 74 per cent in the US. China’s corporate debt includes issuances by its
vehicles which by extension is mostly credit with an implicit guarantee from the central government.
Since real estate drives around a fifth of GDP, a sharp downturn in this sector would be contagious, resulting in a jump in defaults across a wide swathe of the economy that could quickly erode bank capital buffersJulian Evans-Pritchard
China’s imbalance between housing supply and demand may worsen because it faces a similar economic transition that is already well underway in Japan – a
that led to Japan’s long-term deflation problem, said Yoshino, who is also the chief adviser to the Japan Financial Services Agency’s Financial Research Centre.
Even if rising housing demand due to urbanisation were to push China’s housing prices higher over the near term, the country faces risks from an oversupply of housing in the longer term due to its increasingly unbalanced demographic structure, he said.
The government has proposed that China’s retirement ages of 45 to 50 years for females and 55 to 60 years for males introduced in the 1980s be gradually increased to 65 years for both by 2045 due to a rapidly ageing population.
The rising population of retirees will consume fewer goods and services compared to younger families with children, and in turn, could dampen business investment given lower expected rates of return.
At the same time, more retirees means a bigger burden on the younger generation of taxpayers, which would reduce their wealth and change patterns of consumption. This is especially worrying on the back of China’s high debt level and pension funding gap, similar to the situation in Japan, Yoshino said.
In Japan, benefits from government pension schemes account for an increasing share of the country’s accumulated debt as spending on social protection programmes now represents more than a third of the government’s total budget.
China’s national pension fund is forecast to peak at 6.99 trillion yuan (US$1 trillion) in 2027 before it gradually runs out by 2035, according to the Chinese Academy of Social Sciences. Photo: AFP
forecast to peak at 6.99 trillion yuan (US$1 trillion) in 2027 before it gradually runs out by 2035, according to the Chinese Academy of Social Sciences, forcing the government to start to transfer assets from state-owned companies to fill the funding gap.
Against the broader economic slowdown, compounded by the trade war with the US, policymakers are also expected to carve out a highly expansionary fiscal budget for this year, with the broad deficit surging to 6.6 per cent of China’s GDP, up from 4.7 per cent last year, according to Larry Hu, head of China economics at Macquarie Capital.
Alicia Garcia Herrero, Asia-Pacific chief economist at Natixis, noted that the US criticisms of China’s unfair trade practises and currency manipulation were reminiscent of the US-Japan disputes in the 1980s and 1990s.
Because Japan was politically and economically dependent on the US at that time, it inevitably implemented economic policies to reduce its current account surplus. Subsequently, Japan suffered from the bursting of its asset price bubble, which led to deflation and the lost decades.
However, Herrero said that the modern China is less dependent on the US and so is in a better position to resist pressure to adjust its economic policies to create demand for American products.
Wang Yang, one of the seven members of China’s elite Politburo Standing Committee, said the US-China trade war could slash one percentage point off Beijing’s economic growth this year. Last year, growth expanded at its slowest pace since 1990, while corporate bond defaults hit a record high and banks’ non-performing loan ratio hit a 10-year high.
may be a dominant military force in Asia for now but short of going to war, it will be unable to stop its economic and diplomatic clout from declining relative to China’s power.
That’s the view of Australian think tank the Lowy Institute, which on Tuesday evening released its 2019 index on the distribution of power in Asia.
However, the institute also said China faced its own obstacles in the region, and that its ambitions would be constrained by a lack of trust from its neighbours.
The index scored China 75.9 out of 100, just behind the US, on 84.5. The gap was less than America’s 10 point lead last year, when the index was released for the first time.
“Current US foreign policy may be accelerating this trend,” said the institute, which contended that “under most scenarios, short of war, the United States is unlikely to halt the narrowing power differential between itself and China”.
The Lowy Institute’s Asia Power Index. Click to enlarge.
. He most recently hiked a 10 per cent levy on US$200 billion worth of Chinese goods to 25 per cent and has also threatened to impose tariffs on other trading partners such as the European Union and Japan.
Herve Lemahieu, the director of the Lowy Institute’s Asian Power and Diplomacy programme, said: “The Trump administration’s focus on trade wars and balancing trade flows one country at a time has done little to reverse the relative decline of the United States, and carries significant collateral risk for third countries, including key allies of the United States.”
The index rates a nation’s power – which it defines as the ability to direct or influence choices of both state and non-state actors – using eight criteria. These include a country’s defence networks, economic relationships, future resources and military capability.
It ranked Washington behind both Beijing and Tokyo in terms of diplomatic influence in Asia, due in part to “contradictions” between its recent economic agenda and its traditional role of offering consensus-based leadership.
The spoils of trade war: Asia’s winners and losers in US-China clash
Toshihiro Nakayama, a fellow at the Wilson Centre in Washington, said the US had become its own enemy in terms of influence.
“I don’t see the US being overwhelmed by China in terms of sheer power,” said Nakayama. “It’s whether America is willing to maintain its internationalist outlook.”
But John Lee, a senior fellow at the Hudson Institute, said the Trump administration’s willingness to challenge the status quo on issues like trade could ultimately boost US standing in Asia.
“The current administration is disruptive but has earned respect for taking on difficult challenges which are of high regional concern but were largely ignored by the Obama administration –
illegal weapons and China’s predatory economic policies to name two,” said Lee.
“One’s diplomatic standing is not just about being ‘liked’ or ‘uncontroversial’ but being seen as a constructive presence.”
CHINA’S RISE
China’s move up the index overall – from 74.5 last year to 75.9 this year – was partly due to it overtaking the US on the criteria of “economic resources”, which encompasses GDP size, international leverage and technology.
China’s economy grew by more than the size of Australia’s GDP in 2018, the report noted, arguing that its growing base of upper-middle class consumers would blunt the impact of US efforts to restrict Chinese tech firms in Western markets.
US President Donald Trump with Chinese counterpart Xi Jinping. Photo: Reuters
“In midstream products such as smartphones and with regard to developing country markets, Chinese tech companies can still be competitive and profitable due to their economies of scale and price competitiveness,” said Jingdong Yuan, an associate professor at the China Studies Centre at the University of Sydney.
“However, to become a true superpower in the tech sector and dominate the global market remains a steep climb for China, and the Trump administration is making it all the more difficult.”
The future competitiveness of Beijing’s military, currently a distant second to Washington’s, will depend on long-term political will, according to the report, which noted that China already spends over 50 per cent more on defence than the 10
stands in the way of its primacy in Asia, according to the index, which noted Beijing’s unresolved territorial and historical disputes with 11 neighbouring countries and “growing degrees of opposition” to its signature
and Myanmar due to concerns over feasibility and cost.
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Xin Qiang, a professor at the Centre for American Studies at Fudan University in Shanghai, said Beijing still needed to persuade its neighbours it could be a “constructive, instead of a detrimental, force for the region”.
“There are still many challenges for [China to increase its] power and influence in the Asia-Pacific,” Xin said.
Wu Xinbo, also at Fudan University’s Centre for American Studies, said Beijing was having mixed success in terms of winning regional friends and allies.
“For China, the key challenge is how to manage the maritime disputes with its neighbours,” said Wu. “I don’t think there is growing opposition to the Belt and Road Initiative from the region, actually more and more countries are jumping aboard. It is the US that is intensifying its opposition to the project as Washington worries it may promote China’s geopolitical influence.”
would persist and shape the global order into the distant future.
“They can still and do wish to cooperate where both find it mutually beneficial, but I think the more important task for now and for some time to come, is to manage their disputes in ways that do not escalate to a dangerous level,” Yuan said. “These differences probably cannot be resolved given their divergent interests, perspectives, etc, but they can and should be managed, simply because their issues are not confined to the bilateral [relationship] but have enormous regional and global implications.”
Elsewhere in Asia, the report spotlighted Japan, ranked third in the index, as the leader of the liberal order in Asia, and fourth-placed India as an “underachiever relative to both its size and potential”.
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Lee said the index supported a growing perception that Tokyo had emerged as a “political and strategic leader among democracies in Asia” under
“This is important because Prime Minister Abe wants Japan to emerge as a constructive strategic player in the Indo-Pacific and high diplomatic standing is important to that end,” Lee said.
, Malaysia and Thailand rounded out the top-10 most powerful countries, in that order. Among the pack, Russia, Malaysia and Thailand stood out as nations that improved their standing from the previous year.
Coordination Council for North American Affairs becomes Taiwan Council for US Affairs, island’s foreign ministry says
Move signifies ‘firm and close relationship between Taiwan and the US’, President Tsai Ing-wen says
Taiwan has changed the name of its de facto embassy in the United States to better reflect ever-improving ties between the sides. Photo: EPA
Taiwan has changed the name of its de facto embassy in the United States to better reflect relations between the sides, which are at their strongest in decades, Taipei said on Saturday.
Once the necessary formalities have been completed, the agency formerly known as the Coordination Council for North American Affairs will be called the Taiwan Council for US Affairs, the island’s foreign ministry said.
“The new name better reflects the [agency’s] role in coordinating US-Taiwan affairs. It also symbolises the close and amicable relations between Taiwan and the United States,” it said.
Observers said the name change was significant as it appeared to drop the pretence that the council was non-diplomatic or political in nature.
The name change was possible because of the consensus between Taiwan and the US. Photo: CNA
Although Washington severed formal diplomatic ties with Taipei in 1979 in favour of Beijing, the two sides retained unofficial relations that have grown ever-closer in recent years, including an increase in military exchanges and cooperation.
“The new name [was made possible] as a result of the consensus between Taiwan and the US,” the island’s President Tsai Ing-wen said in a Facebook post. “This is the first time the designations ‘Taiwan and the US’ have been used to refer to each other’s affairs office on an equal basis, signifying the firm and close relationship.”
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Taiwan had been forced to use the old title because of the “special historical background” related to the change in diplomatic allegiance 40 years ago, Tsai said.
Beijing, which considers Taiwan a wayward province awaiting reunification, by force if necessary, has demanded that Washington observe the one-China policy by not officially recognising Taiwan or allowing it to use either “Republic of China” – the island’s official name – or “Taiwan” in the title of its representative offices in the US.
Washington also enacted the Taiwan Relations Act in 1979 to prescribes relations with the island and includes a commitment to supply it with arms to protect itself.
“After continuous efforts and coordination by the two sides, and in 2019, the 40th anniversary of the Taiwan Relations Act, our office handling relations with the US is finally able to change its name,” Tsai said.
The American Institute in Taiwan relocated to a larger, purpose-built compound last month. Photo: Bloomberg
Presidential spokesman Alex Huang said the name change was due mainly to an improvement in relations between Taiwan and the US as a result of a greater cooperation on the promotion of regional peace and the Indo-Pacific security agenda.
“In the past few years, the US government has given Taiwan strong and firm support in terms of national security and participation in international events, as well as support from Congress and think tanks,” he said, referring to bills signed by US President Donald Trump that allow for exchanges between high-level officials and military personnel, and the approval of new sales of arms and logistical support to the island.
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Also, last week, Taiwan’s national security chief David Lee met US National Security Adviser John Bolton in Washington for the first talks of their kind since 1979, Taiwan’s Central News Agency reported on Saturday.
Last month, the American Institute in Taiwan – the United States’ unofficial embassy in Taipei – relocated to a significantly larger, purpose-built compound, in yet another sign of improving relations.
US support for Taiwan has increased under Trump’s leadership as he regards Beijing as a hostile competitor, not only on trade, but also in military and global influence terms.
Tensions between Taipei and Beijing have flared since Tsai became president in 2016 and refused to accept the one-China principle. The mainland subsequently halted all official exchanges with the island and embarked on a campaign to squeeze its diplomatic allies around the world.
Beijing has retaliated with duties on $110bn worth of American products.
Tariffs on $200bn worth of Chinese goods were due to more than double at the start of the year, rising from 10% to 25%.
But both countries agreed to suspend tit-for-tat tariffs after they struck a truce in December, and began negotiations to work towards a deal.
US President Donald Trump recently said the US and China had agreed on “a lot of the most difficult points” but that “we have some ways to go”.
What are the sticking points?
Sticking points in negotiations in recent months have included how a deal would be enforced, issues around intellectual property protection, and how fast to roll back tariffs.
Gary Hufbauer from the Peterson Institute for International Economics in Washington said enforcement was a crucial issue, but remained optimistic about the prospect of a deal.
“China will make lots of promises, the US remains sceptical on implementation,” he said.
Still, he expects a deal to be announced by mid-May. The latest round of talks are expected to be followed by further negotiations in Washington on 8 May.
The US accuses China of stealing intellectual property and wants Beijing to make changes to its economic policies, which it says unfairly favour domestic companies through subsidies. It also wants China to buy more US goods to rein in a lofty trade deficit.
He said China would boost efforts to secure intellectual property protection, increase imports of goods and services and ensure a fair trading environment for firms.
But what makes trade negotiations particularly difficult to resolve is the fact they are part of a broader power struggle between the world’s two largest economies.
China’s growing influence has put many Western governments – and particularly the US on the defensive. Some in China see the trade war as part of US efforts to curb its rise.
The trade war is already having an impact on the world economy.
International Monetary Fund chief economist Gita Gopinath said the escalation of US-China trade tensions was one factor that had contributed to a “significantly weakened global expansion, especially in the second half of 2018.” The IMF cut its growth forecast for this year by 0.2 percentage points to 3.3%.
Foreign lifestyle experiences are becoming more popular as citizens seek to escape pollution, food and medicine safety worries and authoritarian government controls
Citizens encountering more barriers to their dreams of travelling abroad, with severe limits on moving money overseas and restrictions on visiting foreign countries
Thailand, including the likes of Chiang Mai, the United States, Australia, Canada, New Zealand are popular destinations for Chinese families. Photo: Shutteratock
Xu Zhangle and her husband and their two children are a typical middle-class couple from Shenzhen, and along with 60 other Chinese families, they are going on an extended holiday to Thailand in July, where they hope to enjoy an immigrant-like life experience.
The family have paid a travel agent around 50,000 yuan (US$7,473) for the stay in Chiang Mai in the mountainous north of the country, including transport, a three-week summer camp for their daughters at a local international school, rent for a serviced apartment and daily expenses.
Zhangle loves Chiang Mai’s relaxed lifestyle and easy atmosphere and wants to live as a local for a month or even longer, instead of having to rush through a short-term holiday.
“It would not be just [tourist] travelling but rather a life away from the mainland.” she said.
Recently, upper middle-class citizens have increased their efforts to safeguard their wealth and achieve more freedom by spending more time abroad.
They have invested considerable amounts of money in overseas properties and applied for long-stay visas, although many of their attempts have ended in failure.
Chinese citizens are encountering more barriers to their dreams of travelling abroad, with severe limits on moving money overseas and restrictions on visiting foreign countries.
Still, growing anxieties about air pollution, food and medicine safety and an increasingly authoritarian political climate are pushing middle class families to look for new ways to circumvent the obstacles so they can live outside China.
Among the options, there is growing demand for sojourns abroad of a month or more, to enjoy a foreign lifestyle for a brief period to make up for the fact that their emigration dreams may have stalled.
“I think this is becoming a trend. Chinese middle-class families are facing increasing difficulties to emigrate and own homes overseas. On the other hand, they still yearn for more freedom, for a better quality of life than what is found in first-tier cities in China.
They are eager to seek alternatives to give themselves and their children a global lifestyle,” said Cai Mingdong, founder of Zhejiang Newway, an online tour and education operator in Ningbo, south of Shanghai.
“First, the availability of multiple-entry tourist visas and the sharp drop in air ticket prices have made it convenient and practical to stay abroad for from a few weeks to up to three months each year.”
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Now, many well-to-do Chinese middle class families can get a tourist visa for five or even 10 years that allows them to stay in a number of countries — including the United States, Australia, Canada, New Zealand and other Asian countries — for up to six months at a time.
“In 2011, a round-trip air ticket from Shanghai to New Zealand cost 14,000 yuan (US$2,000), but now is about 4,000 (US$598),” added Cai.
This opens up the possibility for many middle-class families who are not eligible to emigrate, to live abroad for short periods of time.
Many wealthy Chinese middle class families can get a tourist visa for five or even 10 years that allows them to stay in several countries including the United States, Australia, Canada, New Zealand and other Asian countries, for up to six months at a time. Photo: AP
Chinese tourists made more than 140 million trips outside the country in 2018, a 13.5 per cent increase from the previous year, spending an estimated US$120 billion, according to the China Tourism Academy, an official research institute under the Ministry of Culture and Tourism.
“In [the Thai cities of] Bangkok and Chiang Mai, there are more and more Chinese who stay there to experience the local lifestyle, which is different from theirs in China. The life there is very different from that in China,” said Owen Zhu, who now lives in the Bangkok condo he bought last year.
“The freedom, culture and community are diversified. The quality of air, food and services are much higher than in first-tier cities in China, but the prices are more affordable.
“In Bangkok, in many international apartment complexes where foreigners live, the monthly rent for a one-bedroom [apartment] is about 2,000 (US$298) to 3,000 yuan.”
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A one-bedroom apartment in Shenzhen in southern China is twice as expensive, with rents continuing to rise rapidly.
There are global goods, and it is easy to socialise with different people from around the world,” Zhu added
“Many Chinese people around me, really, come to Thailand to live for a while and go back to China, but then come back again after a few months.”
Both Cai and Zhu said they discovered the new phenomenon among China’s middle class and decided it was a business opportunity.
Growing anxieties about air pollution, food and medicine safety and an increasingly authoritarian political climate are pushing middle class families to look for new ways to circumvent the obstacles so they can live outside China. Photo: AP
Zhu is in the process of registering a company in Bangkok and plans to build an online platform to service the needs of Chinese citizens living abroad who do not own property or have immigration status, especially members of the LGBT community.
Cai said dozens of Chinese families in the Yangtze River Delta had paid him to send their children to schools in New Zealand or Europe for around three or four weeks in the middle of the school year, while the parents rent villas in the area, with New Zealand and Toronto in Canada among the most popular destinations.
Last year, Zheng Feng, a single mother and freelance writer from Beijing, rented a small villa in Australia for a month for them, a friend and their children to escape Beijing’s pollution and experience life overseas.
“To be honest, I don’t have enough money to invest in a property or a green card in Australia. But it’s very affordable for me and my son to pay about 30,000 yuan (US$4,484) to live abroad for one or two months.” Zheng said.
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Zheng will join the Xu family in Chiang Mai later this year and she is also planning a similar trip to England next year.
Zheng’s friend, Alice Yu, invested in an American EB-5 investor visa a few years ago, and plans to make one or two month-long trips abroad each year until her family is finally able to move to the United States.
Demand for the EB-5 investor visa in China seems to be waning given heightened uncertainty about the future of the programme and US immigration law in general under US President Donald Trump.
Approval for the visa can now take up to 10 years, resulting in a huge backlog that has further dampened interest and led to a significant dip in investment inflows into the US from foreign individuals.
A one-bedroom apartment in Bangkok can cost around bout 2,000 (US$298) to 3,000 yuan a month. Photo: AFP
“Maybe it will soon become standard for a real Chinese middle-class family to have the time and money to enjoy a long stay at a countryside villa overseas,” said Yu.
“Regardless of whether we can get a long-term visa for the United States, I want my children grow up in a global lifestyle and with more freedom than just growing up on the mainland. So do all wealthy and middle class Chinese families, I think.”
Karen Gao’s son started studying at an international school in Chiang Mai in June, at the cost of about 70,000 yuan (US$10,462) a year, after she quit her job as a public relations manager in Shenzhen and moved to Thailand on a tourist visa.
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“A few months each year for good air, good food and no censorship and internet control, but cheaper living costs compared to Beijing, it sounds like a really good deal to go,” said Gao, who has now been offered a guardian visa to accompany her son, who has already been given a student visa.
“In Shenzhen, I wasn’t able to get him into school because I had no [local] residence permit.
“It would be the best choice for us because we feel so uncertain and worried about investing and living in the mainland.”
Last year, Gao, like thousands of other private investors mostly middle class people living in first-tier cities, suffered significant losses when their investments in hotels and inns in Dali, Yunnan province, were demolished amid the local government’s campaign to curb pollution and improve the environment around Lake Erhai.
“We were robbed by the officials without proper compensation,” Gao said.
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CHINDIA ALERT: You'll be living in their world, very soon 