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
US president Joe Biden and China’s President Xi Jinping plan a virtual meeting next week, after months of rising tension between both economic giants.Political analyst Victor Shihsees the meeting as a step forward,he tells CNN.
CNN:
US officials revealed last month that they had reached an agreement in principle with China to hold a virtual meeting between Biden and Xi before the end of the year, as part of an effort to ensure stability in one of the world’s most consequential and fraught relationships.
That tentative agreement was the result of an extended, six-hour meeting between Biden’s national security adviser Jake Sullivan and China’s top diplomat, Yang Jiechi in Switzerland, just days after Beijing sent record-breaking number of warplanes into Taiwan’s defense zone.
Victor Shih, an expert on elite Chinese politics at the University of California, San Diego, said the meeting is a positive development for bilateral relations.
“I think the bilateral meeting next week is a preliminary sign that the relationship between the US and China is getting back on a more normal track — than (what) had been the case in the later Trump years,” Shih told CNN.
The meeting is also likely to motivate officials, especially on the Chinese side — from the Foreign Ministry to the Commerce ministry — to once again focus their energy on US-China relationship and think of ways to improve it, Shih added.
The last time Biden and Xi spoke was in September, in a phone call that lasted roughly 90 minutes.
China’s President Xi Jinping has not traveled much over the past years, most lately he missed COP26 in Glasgow, nor has he received many foreign guests.Political analyst Victor Shihsees there is more behind Xi’s travel behavior than only an effect of the coronacrisis, he tells at Forbes.
Forbes:
Still, Xi’s halt in international travel has been conspicuous, especially compared with the frenetic pace he once maintained. The last time he left China was January 2020, on a visit to Myanmar only days before he ordered the lockdown of Wuhan, the city where the coronavirus emerged.
Nor has Xi played host to many foreign officials. In the weeks after the lockdown, he met with the director of the World Health Organization and the leaders of Cambodia and Mongolia, but his last known meeting with a foreign official took place in Beijing in March 2020, with President Arif Alvi of Pakistan.
Victor Shih, professor of political science at the University of California, San Diego, said that Xi’s limited travel coincided with an increasingly nationalist tone at home that seems to preclude significant cooperation or compromise.
“He no longer feels that he needs international support because he has so much domestic support, or domestic control,” Shih said. “This general effort to court America and also the European countries is less today than it was during his first term.”
Financial and political analyst Victor Shih explains how the fall of Evergrande was triggered off by new financial regulations, and why Evergrande cannot be compared to the Lehman crisis in the US, he tells at a discussion at the German MERICS institute.
The arrest of HNA founder and group chairman Chen Feng, and CEO Tan Xiangdong, last week was yet another signal indicating a major change in China’s economic relations, based on guanxi or old-style relations between power brokers, says political analyst Victor Shih to Bloomberg.
Bloomberg:
Unlike the technology giants — whose success and control of big data have made them a target — HNA grabbed the government’s attention for a different reason. Under the leadership of Chen and Wang, the group took advantage of the easy credit that swirled in China in the twenty-teens to fund a raft of overseas acquisitions. Deals worth more than $40 billion included significant stakes in Deutsche Bank AG and Hilton Worldwide Holdings Inc., luxury properties such as golf courses, landmark hotels across six continents and the 648-foot skyscraper 245 Park Avenue in Manhattan.
When Beijing became aware of the risks of such capital flight and leverage, it started to clamp down on the big acquirers. The high-flying Anbang Insurance Group, owner of New York’s Waldorf Astoria hotel, was seized by the government in 2018. HNA’s slow-motion unraveling began soon after, with it shedding assets as debt repayments loomed. The group still faces at least $63 billion in claims from creditors.
“Chen shared the same strategy of many business people with political connections — they used their connections to borrow as much money as possible from state-owned financial institutions,” Victor Shih, an associate professor who specializes in Chinese financial policies and elite politics at the University of California San Diego, said in an interview before Chen’s detainment. “The way that these conglomerates used leverage to over-pay for overseas assets rapidly was not sustainable and resulted in catastrophic deleveraging.”
Debt was the foundation stone for Chen and Wang’s ambitions. Both devout Buddhists, they set their sights on HNA becoming one of the top companies in the Fortune 500. Credit-fueled expansion helped the conglomerate rise 183 spots to 170th by 2017, but also sealed its fate within months as debt ballooned to more than $93 billion the following year.
China’s Xi Jinping is framing his new policies as a new way to diminish the gap between poor and rich in China. While under his predecessors’ new policies were a matter of waiting until they would be replaced by the next slogan, Xi’s slogans like those on the “common prosperity” are here to stay, says political analyst Victor Shihin Asia Times.
Asia Times:
Xi’s securities regulators are now going after China’s private equity and venture capital funds. Specifically, they want to stop what Beijing calls the disguising of public offerings as private placements as a way to curb the embezzlement of assets.
Investors are quickly realizing that Xi’s “common prosperity” is anything but a hollow slogan. And “with power mostly centralized in his hands, Xi now can change status quo policy quickly and even without much warning,” observes Victor Shih, author of Factions and Finance in China: Elite Conflict and Inflation.
With Xi almost certain to win an unprecedented third term as leader next year, Shih notes, senior officials under him “want to zealously implement any new policy.”
This assertive implementation, he adds, will go on “regardless of the longer-term consequences because officials are afraid” of disappointing Xi.
China and US regulators have been tightening rules for Chinese companies to list at US stock markets, sending shockwaves through the financial and tech industry. Financial experts Winston Ma and Victor Shihlook at the Wall Street Journal at what has happened over the financial cleaning operation in the past few weeks.
The Wall Street Journal:
On one end are China’s regulators, led by the cyberspace authority, which are moving to make it harder for Chinese companies to sell shares overseas. On the other are American lawmakers, such as Sen. Marco Rubio (R., Fla.), who are stepping up calls to block Chinese firms from going public in the U.S. unless they submit to U.S.-style audit requirements.
In China, “the cyber regulator has become the new securities regulator,” says Victor Shih, a University of California, San Diego, professor of political economy who focuses on Chinese policies. “Investors and companies will find it much harder to manage the listing process.”…
One option being considered by the regulators is to require companies using the VIE structure to seek regulatory approval before selling shares in foreign markets, the people said. That could make it a more cumbersome process.
“This would be a significant tightening of Chinese securities regulations,” said Winston Ma, an adjunct law professor at New York University and author of The Digital War, a book about China’s growing technological prowess. “Almost every U.S.-listed Chinese company that foreign investors like pension funds and endowments can buy is listed through a VIE structure.”
In a last-ditch effort to mess up the relations between China and the US, the Trump administration issued rules to prevent members of the communist party to enter the US. Political analyst Victor Shihexplains in Politico why that is not a smart move.
Politico:
Beware unintended side effects of the new U.S. rules on CCP members entering the country. A White House rule announced earlier this month limiting Chinese Communist Party members to short, single-entry visas to the U.S. won’t have much practical impact with travel all but shut down, but as both countries’ populations get vaccinated and travel resumes, its practical implications could be problematic.Making it harder for CCP members to enter “would force U.S. businesspeople, academics and officials to go to China more often to meet with their counterparts, potentially exposing them to even more Chinese intelligence and influence efforts,” Victor Shih, political economy professor at U.C. San Diego, tells China Watcher. “Besides, I am sure the Chinese government would provide the real spies with covers that preclude Party membership, so a membership litmus test really doesn’t tell you much.”
— Better idea: Allow CCP members to renounce their Party. “Given that a good number of the smartest and most educated people from China had been inducted into the party early on, the U.S. should provide a path for citizenship even for party members,” Shih says. “Beyond signing a legally binding document prohibiting them from participating in party activities, they also can fill out a detailed questionnaire on how they joined the party. This would allow the U.S. to continue to naturalize the best and brightest from China without the cat and mouse game of people lying about their party membership.”
Devaluation of the Renminbi, limiting export or more straining of capital flight are some options China’s government has to deal with its financial dilemma caused by the trade war, but – warns financial expert Victor Shih – all might also cause setbacks, he tells Reuters.
Reuters:
Meanwhile, the famed trade surplus the export powerhouse ran with the rest of the world has been shrinking.
Victor Shih, an associate professor of political economy at the University of California, San Diego, says currency devaluation could be an attractive option for China to offset the impact of the trade war.
But he warned the tactic had limits, as it “could create a panic on the renminbi which becomes difficult to control”…
Shih estimates that even a modest 20 percent reduction in exports to the United States could cause the monthly trade surplus to drop by $8 billion to $10 billion, nearly a third of the average. In addition, a reduction in foreign direct investment, which brought $136 billion into China last year, would also reduce forex inflows substantially, he added…
Shih said existing capital controls were very stringent.
“Even the billionaire class faces tight restrictions in terms of where they can invest money,” he said. “However, there are still ways, and it is likely that corruption is returning, which will undermine Chinese capital control measures.”
The creation of a digital currency does not mean China can create a reserve currency for the international markets, says financial expert Victor Shihin Quartz. Domestically, it could mean the digital currency could try to catch back the financial room now occupied by commercial players like Alibaba’s Alipay and Tencent’s WeChat, he adds.
Quartz:
What investors are looking for in a reserve currency isn’t the technology—it’s a currency that’s stable, underpinned by a strong economy, freely convertible, and able to be used widely.
Victor Shih, an expert on China’s political economy and a professor at University of California San Diego, explained that merely introducing a digital currency “doesn’t solve the problem that some people holding renminbi offshore will want to sell that renminbi and exchange it for the dollar,” which is widely considered to be a safer asset. Here the gap is even larger: Nearly two-thirds of the world’s currency reserves are held in US dollars, compared with 2% in renminbi, the currency’s official name.
Suppose Iran sold China a large amount of oil, and accepted the digital yuan as payment. That would help with Beijing’s goal of pursuing more widespread use of the yuan in international transactions. But Tehran would probably want to use at least a quarter of those earnings to buy goods from Europe, said Shih, so they would need to convert a portion of the digital yuan into dollars and euros, the second-most used currency for global payments.
“If that happened on a very large scale, you’d have hundreds of billions of renminbi accumulating in Hong Kong,” a major clearing center for yuan-denominated transactions. And if those yuan were converted to another currency in large amounts, “the renminbi will be under downward pressure and the PBOC will have to step in” to prop up its value.
Still, the digital yuan could be one way for the state to try and wrest back control of digital payments from commercial companies, but it’s unclear what that would mean for the two dominant digital wallets, Alipay and WeChat Pay, who handle 94% of electronic payment transactions (link in Chinese). The central bank could theoretically ban commercial wallets like Alipay outright to eliminate competition, Shih said, but “that would be pretty terrible.”
One key advantage of people using digital yuan, Shih said, is enabling China’s central bankers to track exactly where every yuan is going in greater detail than possible at present. If Iran made purchases with its digital yuan earnings, for example, the PBOC would be able to see what it’s bought, and from whom, down to the cent. Yet the same thing that makes a virtual currency attractive to China’s government could work against it elsewhere—there are lots of situations when even perfectly law-abiding people don’t want governments to know what they’re doing, particularly when that government is the Communist Party of China.
Shih does see one potential opportunity: weaving the digital yuan into a payment systems on platforms like TikTok, the viral video app owned by Chinese tech giant ByteDance and boasting hundreds of millions of users, or in popular video games like Fortnite, developed by Epic Games, which is 40%-owned by Chinese tech firm Tencent.
“That’s the thing about the digital world,” said Shih. “Everything is potentially linkable so you can leverage popularity on one platform to get popularity on another platform.”
China has been betting on two horses: restarting the economy and preventing the coronavirus from spreading. Political analyst Victor Shih sees how local officials put their bets: they prefer the virus from stopping over a risky restart of production, he says at CNN.
CNN:
Manufacturers are struggling to resume production because of worker shortages, according to Caijing, while Caixin added that some local governments are reluctant to order companies back to workbecause they fear mass gatherings will lead to another outbreak.
"Because local officials and factories know that they would be punished severely by the government for allowing new infections to spread, they have played it safe by delaying the resumption of [real] economic activities," said Victor Shih, an associate professorat the University of California at San Diegoand the author of "Economic Shocks and Authoritarian Stability."
"The threat of harsh punishment works to enforce self-quarantine, but will lead to risk avoidance behavior in the aftermath," he said.
US president Trump might be doing his best to upset China in every possible way, but US-China relations are no longer top priority for either country, says political analyst Victor Shihat NBC News. “Fundamentally the big problem on both sides is that you now have leadership which no longer considers having good bilateral relationships as a highest priority,”
NBC News:
“Fundamentally the big problem on both sides is that you now have leadership which no longer considers having good bilateral relationships as a highest priority,” said Victor Shih, a professor of politics at the University of California, San Diego’s School of Global Policy and Strategy.
He said the lack of willingness to improve those ties has been behind more intensive U.S. investigations into alleged Chinese espionage, sanctions on the Chinese technology giant Huawei and the extensive trade tariffs.
“Previous administrations should have pursued these issues,” he said. “But didn’t because of a strong desire to maintain cooperation.”
Although not taken serious, when a spokesperson of China’s Foreign Affairs ministry blamed the US army for bringing the coronavirus into China, many paid attention. Political analyst Victor Shih explains why China relied on this very unlikely scenario at the New York Times.
The New York Times:
The circulation of disinformation is not a new tactic for the Communist Party state. The United States, in particular, is often a foil of Chinese propaganda efforts. Last year, Beijing explicitly accused the U.S. government of supporting public protests in Hong Kong in an effort to weaken the party's rule.
The old tactic has been amplified by more combative public diplomacy and a new embrace of a social media platform that is blocked in China to spread a message abroad.
Victor Shih, an associate professor at the University of California at San Diego who studies Chinese politics, said that while the campaign was very likely an attempt to distract and deflect blame, a more worrisome possibility was that some officials fabricated the idea and persuaded top leaders to believe it.
"If the leadership really believes in the culpability of the U.S. government," he warned, it may behave in a way that "dramatically" worsens the bilateral relationship.
Fighting the Covid-19 virus and saving the economy might not go very well together, says political analyst Victor Shihin Al Jazeera. While there is very little international supply chains can do at this stage, as Chinese governments make decisions, says Victor Shih, the message for the long run is: diversify.
Al Jazeera:
While that situation persists, global supply chains of everything from eyeglasses to cars, chemicals, batteries and electronic components remain crippled.
"The instructions that we know Xi Jinping issued, are in a way in deep contradiction with each other," Victor Shih, associate professor of political economy at the University of California San Diego, told Al Jazeera by phone.
"If the authorities are really doing everything possible they can to prevent new cases, then they would have very stringent measures to prevent migrant workers coming back in," Shih said. "But that, of course, will hamper economic activity."...
Analysts say an even bigger issue is that thousands of small- and medium-sized factories, assembly plants and facilitators of global supply chains in those key manufacturing areas remain out of action.
"A lot of these smaller companies are already operating on very thin margins and many of them have taken on a lot of debt," Shih said. "So even a few weeks of not having any business, not having any cash flows will potentially bankrupt these companies. This is why they don't pay their workers because they literally don't have the money."
Many such plants either remain shuttered or are only slowly cranking up their activities...
While global companies with international supply chains can do little to escape the short-term disruptions to their China operations, the long-term message to them is clear, says the University of California's Shih: Diversify.
"This is yet another reason for a lot of foreign companies, especially those based in North America and Europe, to really try to diversify their supply chains," Shih said.
"With global warming and with the advent of cheap airline and transportation infrastructure, you will have the potential for pandemics breaking out, not just in China, but other developing and maybe even advanced countries," he said. "So the more diversified a company's production chain is, the better they are able to weather these different shocks."
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China's Hubei province shocked the world as the number of confirmed covid-19 patients spiked because it started to use different way to diagnose patients. Political analyst Victor Shih sees it as a proof that the government is using different sets of tools to manipulate the number of patients and deaths, he tells to Reuters.
Reuters:
The sudden jump in new cases raises questions about China’s commitment to transparency, said Victor Shih, a specialist in Chinese politics at the School of Global Policy & Strategy at UC San Diego.
“The adjustment of the data today proved without doubt that they have had two sets of numbers for confirmed infected all along,” he said. “If that were not the case, the government could not have added so many new cases in one day.”
“A very disturbing aspect of today’s new numbers is that the vast majority of new cases accrued to Wuhan, but what if the rest of Hubei Province still did not adjust their reporting methods?”
Hubei had previously only allowed infection to be confirmed by RNA tests, which can take days to process and delay treatment. RNA, or ribonucleic acid, carries genetic information allowing for identification of organisms like viruses.
Using CT scans that reveal lung infection would help patients receive treatment as soon as possible and improve their chances of recovery, the commission said.
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China is profiling itself as a stabilizing actor on world politics, after the US killing of Iranian Major General Qassem Soleimani, says political analyst Victor Shihat the South China Morning Post. However, China’s presentation of itself as respectful of the sovereignty of other nations does not square with numerous examples of China looking to use its economic sway to influence other nations’ diplomacy or politics, Shih said.
The South China Morning Post:
For domestic audiences, state media coverage of the situation, and China’s role, has boosted a long-term drive to present the country as a stabilising international force in contrast to the United States, analysts said.
“This event obviously has helped China make the argument that the US is in fact isolating itself in the world by engaging in unilateral interventions in other countries, and China is on the side of the righteous majority in resisting [what it frames as] US hegemonic activities,” said Victor Shih, associate professor of political economy at the University of California San Diego’s school of global policy and strategy.
However, China’s presentation of itself as respectful of the sovereignty of other nations does not square with numerous examples of China looking to use its economic sway to influence other nations’ diplomacy or politics, Shih said.
Major outlets including state news agency Xinhua, China Daily and People’s Daily, have highlighted the potential for China to play a role in stabilising the region and characterised the US as a destabilising presence in the Middle East.
China's consumers are changing because of the trade war and food-driven inflation, says China expert Victor Shihat the Investor Place. They will pick pork over iPhones, he says, with a drastic impact on the stock markets.
The Investor Place:
In an email correspondence, Victor Shih, Ph.D., associate professor of political economy at the University of California, San Diego, wrote:
"Both the trade war and food-driven inflation likely will crimp Chinese consumers’ discretionary spending. While the trade war has slowed employment growth and wage growth, the African swine flu has driven up food prices substantially. For the average households, they are trapped between much higher food prices and uncertainties about future income. This will limit their spending on discretionary items."
Put another way, AAPL stock may be on a winning path right now. But that’s not guaranteed to sustain. As known pressures tighten their stranglehold, the impact will invariably filter down...
But at the present juncture, China is a major risk factor. As Professor Shih noted, the average Chinese consumer is feeling the heat. Given the choice of buying food to live or buying an iPhone 11, I don’t have to spell out the correct answer. Therefore, anybody who is not a day trader should probably avoid or cash out of AAPL stock.
It is not Hong Kong protests or the trade war, China's leaders fear most, but hogs hit by African swine fever and the rising pork prices, says political analyst Victor Shihat Phys.org. An estimated 40 percent of its pigs have been killed already and massive reserves of frozen pork released on the stretched markets.
Phys.org:
And as it wears on, it is not just a problem for farmers, but also for the country's leaders—afraid of social repercussions and spiralling economic costs.
"Historically, high food inflation has triggered bouts of urban protests," says Victor Shih, the Hi Ho Miu Lam chair professor at University of California San Diego.
Beijing has implemented several measures to boost the pig population, including subsidies of up to five million yuan ($700,000) for breeders.
They also announced in September that new large-scale breeding bases were being built in southwest Sichuan province with the capacity to produce two million pigs a year.
But farmers contacted by AFP—reluctant to be identified—were afraid to raise new herds despite government subsidies, fearing that any trade deal between Beijing and Washington would undercut Chinese producers or that their hogs would be taken away again...
In a bid to keep a grip on escalating prices, the government auctioned 30,000 tonnes of pork from its strategic meat reserves ahead of the National Day holiday.
Officials insisted in September that there was sufficient supply and prices would now be stable.
But given the slowing economy and the trade war, "pork-driven inflation has further limited the government's options", says Shih.
Hong Kong might have lost much importance as a gateway to mainland China, for the financial markets Beijing still needs a stable Hong Kong, says financial analyst Victor Shih in NTD. The reason Chinese entities are borrowing through Hong Kong is that the financial institutions around the world, including the International Monetary Fund, legally treat Hong Kong as a separate entity, he said.
NTD:
Chinese companies use Hong Kong’s capital markets to attract foreign investors, while international companies use the city as a base to expand
into mainland China. Experts warn that Beijing would shoot itself in the foot if it takes an increasingly hard line against protestors, seriously damaging Hong Kong’s standing as a stable financial center.
There’s $3 trillion in dollar-denominated debt issued by Chinese companies, according to estimates. And Hong Kong, an important source of capital for China, provides roughly a trillion dollars of that amount, according to Victor Shih, a professor of political economy at the University of California–San Diego School of Global Policy and Strategy.
U.S. banks and investors have lent roughly $180 billion to Chinese banks and Chinese companies mainly through Hong Kong, Shih said in his testimony at a congressional hearing held by the U.S.–China Economic and Security Review Commission on Sept. 4.
U.S.-based pension and mutual funds also own additional billions in bonds issued by Chinese entities, he said.
“When you’re in debt to the tune of $3 trillion, you don’t want your creditors to suddenly compress your credit limit by $1 trillion,” Shih said at the hearing. “That would be a big problem for China. And I think that may be one of the reasons why China thus far has chosen, I would call it, a very moderate and soft-line approach in Hong Kong.”
The reason Chinese entities are borrowing through Hong Kong is that the financial institutions around the world, including the International Monetary Fund, legally treat Hong Kong as a separate entity, he said.
The debts are issued by the subsidiaries of Chinese companies headquartered in Hong Kong, allowing them to enjoy lower interest rates compared to debt issued in mainland China.
US president Joe Biden and China’s President Xi Jinping plan a virtual meeting next week, after months of rising tension between both economic giants. Political analyst Victor Shih sees the meeting as a step forward, he tells CNN.
