Weblog with daily updates of the news on a frugal, fair and beautiful China, from the perspective of internet entrepreneur, new media advisor and president of the China Speakers Bureau Fons Tuinstra
China business analyst Shaun Rein looks at the different views China has on the Blinken and Yellen visits for CNBC. Both officials represent a different camp in the Biden administration, and unfortunately, Blinken might have more sway compared to Yellen, he thinks.
The geopolitical arguments between China and the USA are developing fast. Renowned economist Arthur Kroeber takes the stock right now as US treasury secretary Yellen visits Beijing, for the NPR. How can two major economies disentangle if they rely so much on each other?
NPR:
SCHMITZ: It’s been four years since a U.S. treasury secretary visited Beijing. And in that time, relations between the U.S. and China have worsened considerably. For years, these two economies really needed each other. To what extent is that still the case?
KROEBER: I think that’s still enormously the case. You know, all-time – trade is at an all-time high, over $700 billion. You have a lot of U.S. companies that still rely on China as one of their major markets, both for volume and for growth. So there’s definitely been some chipping away in certain areas, notably semiconductors. But the level of interdependence is still extremely high.
SCHMITZ: And, you know, the U.S. has been trying to disentangle itself from China more recently, you know, reshoring supply chains, placing controls on semiconductor technology, as you mentioned, you know, keeping Trump era tariffs on Chinese goods in place. I’m curious, how do you think this has shaped how China interacts with the rest of the world?
KROEBER: Well, I think the Chinese have come to the conclusion that it is the purpose of U.S. policy not just to reduce its reliance on China but to slow down China’s growth and its technological development. So it’s made China a lot more suspicious than it already was of U.S. intentions. So it’s created that problem. It’s also encouraged the Chinese to ramp up the charm offensive to international companies both from the U.S. and from Europe, and in other areas because they want to continue large inflows of foreign investment and looking for companies to act as a counterweight against political pressure that’s coming not only from Washington but also from Europe as well.
SCHMITZ: You know, to what degree does reduced dependence between these two superpowers increase the risk of greater hostilities or even conflict between the two?
KROEBER: Well, if we really get to a point where the economies are significantly less dependent on each other, I think that is a problem. And if you look at two simple examples from the last two decades – we’ve had an extraordinary period of peace over Taiwan, which is kind of disputed territory. And one of the reasons for that is because the high level of economic interdependence between China and the U.S. and Taiwan means that the costs of China trying to solve that issue by military means are extremely high.
I think you can also see that in the Russia-Ukraine situation, that China has an alignment with Russia. They would probably like to do more to help them in the current situation. But they’ve been very, very cautious about staying away from exporting weapons to Russia, again, because of the costs, because of their high interdependence. So I don’t think we’re at a low interdependence level yet.
China business veteran Shaun Rein discusses with Cyrus Janssen how China has faced challenges since it opened up post-Corona. Outbound travel has not resumed, expected revenge spending did not happen and consumer confidence is at the lowest rate ever. No, he says, China is not yet back to normal, because consumers sit on their corona savings, unwilling to spend. And foreign investors, while CEOs are going to China, are hesitant to resume investing in China, at least till the end of 2023. But support for Xi Jinping is still he, he sees. Though, expect a tough 10-20 years.
It’s complicated, says Winston Ma, Adjunct Professor of Law at NYU and Author of “The Digital War” about the new US export restrictions on chips for China, and it is potentially a lose-lose situation, he tells at Bloomberg.
He discusses the implications of the US-China rivalry for AI, 5G, and the future of the internet.
Business analyst Shaun Rein visits the US for the first time in four years after Covid-19 lockings in China, and he explains why he has become bearish on the country. Consumer confidence is down at a historic low, and an expected revenge purchase after the lockdowns ended stayed away. Foreign companies are pressured by the US to split off their operations, despite a wide range of international CEOs visiting China last month.
China veteran Kaiser Kuo discusses the US approach of China, and how it should change, at the Centre of East Asian Studies at the University of Wisconsin.
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A default of the US is highly unlikely, even in the current chaotic political setting in the United States, says leading China economist Arthur Kroeber, but today the risks for China are much higher than during the 2008-2009 crisis. A crisis would not offer an opportunity to build an international financial system around the Renminbi, next to the US dollar, he adds in the ChinaFile.
Arthur Kroeber:
As in 2008-2009, a global economic meltdown would hurt China a lot. It would fare slightly better than most other countries because it runs a closed-off financial system that relies mainly on domestic savings, and is protected from the ups and downs of global financial instability by capital controls. But the impact of a U.S. debt default would still be devastating. In 2008-2009, the loss of trade finance and collapse in global demand sent China’s exports plummeting by nearly 20 percent, and upwards of 20 million workers lost their jobs.
Fifteen years ago, China’s government could respond by unleashing a massive debt-financed economic stimulus program, because the country’s debt level, at 140 percent of GDP, was relatively low and it still had significant needs for infrastructure and housing. Today, the space for maneuver is far narrower: debt has soared to nearly 300 percent of GDP, and both infrastructure and housing are seriously overbuilt.
Though severe, the economic consequences to China of a U.S. default would probably not be regime-threatening. Whatever pain the Chinese people were forced to suffer could rightly be blamed on outside forces. And in a pinch the government could still support a minimum level of growth by adding to its debt pile, since it would be borrowing from its own future, not from foreign creditors.
This leads us to the second question. If the U.S. defaults, could China create a substitute system, built around the renminbi? The short answer is no.
The U.S. treasury market is huge, and deeply intertwined with the rest of the world. (That’s why a default would be so bad.) There are $23.9 trillion in treasury bonds outstanding; foreigners hold $7.5 trillion, or 31 percent, of that pile; daily trading last year averaged $600 billion. In practice, this means it is easy for large companies and governments to hold treasuries in any amount, trade large volumes quickly, and easily obtain or dispose of as much collateral as they need for borrowing.
China’s government bond market is nowhere near big enough, liquid enough, or integrated enough with the rest of the world to substitute for U.S. treasuries. According to calculations by my colleagues, the total value of Chinese government bonds (CGBs) on issue—$3.3 trillion—is less than half the value of U.S. treasuries held by foreigners. The foreign holdings of CGBs are a mere $340 billion, one-twentieth of the country’s treasury holdings. The daily turnover of China’s government bond market is $30 billion, about 5 percent of the treasury market average.
After the 2008-2009 crisis, because it decided it was too dependent on the dollar-driven global financial system, China tried hard to internationalize the renminbi. Its efforts have borne little fruit. The renminbi accounts for just 2.8 percent of global official central bank reserves (compared to 60 percent for the U.S. dollar and 20 percent for the euro), a figure that has not changed much in the past several years. Similarly, it makes up just 2.4 percent of global trading in foreign exchange.
China has failed to internationalize the renminbi for the same reason it is relatively insulated from global financial shocks: capital controls. Bringing money in and out of China still requires permission from Beijing. From the Chinese government’s point of view, this is good. When economic conditions worsen in China, it is hard for Chinese citizens to take their money out and park it abroad. And by limiting the amount of money foreigners can bring in to China, and controlling the conditions under which they can take it out, Beijing reduces the risk that a global financial panic leads to a damaging outflow of foreign investor capital. As a result, Beijing does not have to work so hard to maintain domestic financial stability.
Tech entrepreneur Winston Ma explains how tech is shaping the competition between China and the US, where China is likely to play the key part, despite the current leading role of the US.
A tech war is raging between China and the US, but financial analyst and innovation expert Winston Ma sees enough synergy between both countries to allow investments in tech to go forward, he tells at the Ben Grahan IX annual conference.
In its more developed iteration, the policy focuses mainly on non-China actors. The first is “invest”, which calls for the United States to invest more in high tech and other future-oriented industries so it can compete with China. However, Washington’s political paralysis is leaving new investment packages dead for the foreseeable future, barring a Democratic victory in the upcoming midterm elections.
The second (“align”) is about finding allies who oppose China’s vision of authoritarian-based development. Here, Blinken stood on much firmer ground. He outlined steps the administration has taken to link up countries with shared interests. This includes the newly announced Indo-Pacific Economic Framework, the Australia-UK-U.S. (AUKUS) military cooperation scheme, and expanded collaboration through the Quad.
The third pillar (“compete”) unites the first two to challenge China. The goal, he emphasized, is not to isolate or harm China, but to uphold the rules-based international order that led to China’s rise. Another goal is to offer developing countries alternatives to China’s Belt and Road Initiative.
Blinken listed areas where the United States and China could cooperate, but they were largely familiar issues that have gotten little real traction. They include climate change, COVID-19, nuclear proliferation, synthetic drugs, and the emerging global food crisis.
Even more telling was the lack of discussion on tariffs. Some officials, such as U.S. Trade Representative Katherine Tai,favor keeping tariffs on Chinese goods in place, while others, such as Treasury Secretary Janet Yellen,have come out against them.
Russia’s invasion of Ukraine has raised multiple questions on China’s relationship with Russia, Taiwan, and the USA. CFR-scholar Ian Johnsonlooks at the CFR-blog at a wide range of the international fallout of recent affairs. And can and will China bail out Putin from the economic and financial sanctions?
Ian Johnson:
Could China’s economic relationship with Russia make sanctions ineffective?
It is unlikely that China immediately offers aid to Russia, but it could easily become the long-term buyer of gas and other resources that Russia can’t sell to Western countries. On Friday, it announced that it would loosen restrictions on Russian grain imports, but this had been in the works for some time.
Overall, changing the flow of resources will not happen overnight. Pipelines take many years to construct, so China can’t suddenly step in to buy sanctioned goods, such as natural gas that would have been carried by the Nord Stream 2 pipeline. But in the coming years, China can offset sanctions by becoming a no-questions-asked buyer of Russian resources.
Could Putin’s invasion embolden Xi to increase pressure on Taiwan?
China’s foreign ministry has said clearly that Ukraine and Taiwan are not the same. While China views Taiwan as an inalienable part of its territory, it considers Ukraine a fully sovereign country. But on a deeper level, the logic is similar.
Both the People’s Republic of China and the Russian Federation are descendants of large, continental, multiethnic empires. The twentieth century saw China lose Mongolia and Taiwan in the aftermath of the Qing dynasty’s collapse. China no longer claims Mongolia, but it still wants Taiwan and hasn’t ruled out taking it by force. Russia fared worse when the Soviet Union collapsed in 1991. It lost most of Central Asia, as well as territories in Europe, including the Baltic states, many parts of the Caucasus, Belarus, and Ukraine. Russia seems to have given up on recapturing Central Asia (content, perhaps, to have loyal strongmen run those countries) but clearly wants segments of its European territories back.
Russia’s situation is something nationalists in China can clearly identify with. So if Russia can grab chunks of Ukraine or install a puppet regime and withstand economic sanctions, that could embolden nationalists in China to look to Taiwan and think they could do the same.
Is the United States likely to work with China in responding to the invasion?
In an ideal world, the United States would be able to restart high-level dialogue with China. It could then remind Beijing that its future is as a global leader, engaging and competing with advanced countries, not slumming with energy-state autocracies such as Russia.
But there is little hope of this happening, because ties between Washington and Beijing remain too frayed by recent developments. The current situation will likely persist, with Beijing taking potshots from the side while other countries try to save Ukraine’s autonomy.
US scholar and former foreign correspondent Howard French dives into the US debate on whether sanctioning and divesting from China are helpful. French does not think so and compares the position of China with North Korea – where sanctions did not work – and South Africa, where they did, at a debate at Intercollegiate Studies Institute.
China watcher and CFR-scholar Ian Johnson opens a roundtable conference at the National University of Singapore on the question whether the world is heading for a new cold war, now the tensions between China and the USA have not diminished after the US president Joe Biden took over from Donald Trump.
China is drawing its future, including becoming the world’s largest economy by 2035. China watcher and CFR-scholar Ian Johnson looks at the CFR website at the decisions taken at the November 2021 Plenum of the Communist Party, as the country prepares for its party conference in 2022 with a new 5-year plan.
Ian Johnson:
China will be even more self-confident with Xi firmly ensconced as leader for the foreseeable future. The question is what Xi wants to accomplish to leave his mark on this era. Xi has already overseen a more robust Chinese foreign policy. Under his watch, China has expanded its massive Belt and Road Initiative to expand its economic influence abroad. It has also pushed further into the South China Sea, claiming shoals and reefs are its territory and building them out into islands.
But two other goals loom, both of which will affect foreign countries, including the United States. One is the party’s goal of making China a prosperous society by 2035. That means having the world’s biggest economy and a per capita gross domestic product (GDP) of about $25,000. That would have implications for the United States: China would be a true economic equal as well as a country with greater business opportunities.
It’s complicated, says 
