CHINA
THE GIANT JUGGERNAUT
PART 14
2023 APRIL ISSUE
Written by : Andrew Sia
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From the Desk of the Publisher
In this issue we are mainly focusing on Asia Pacific where all the countries are jockeying for their geopolitical power. We began with the Indo-Pacific region, where over the years we have seen many agreements have been signed between the nations. The have all started with political alliances and combined with trade agreements.
We have seen China shattered its zero-Covid policy that has brought hope to every country. The world is expecting the Chinese consumers to traveling again and to revive the economy. Even the vice-premier from China, Liu He, visited the World Economic Forum in Davos and assured that China is back to normal. I agreed the remark made by the European Commission President Ursula von der Leyer said that the EU would seek to “de-risk” rather than “decouple” its trade with China. At the meeting we saw that Liu He extended the olive branch to the world.
The Reincarnation of Indo-Pacific
It was the terms implying the joining of the Indian Ocean with the Pacific Ocean and for hundreds of years trade and exchange that had spanned the two oceans. We have seen over the centuries the Islamic spreading eastward from the Middle East and the Hinduism and Buddhism moving eastward as well. Asia is in the middle of this cultural melting pot and prospered from this merge.
Now this has becoming a strategy with so many countries like the United States, Australia, Britain, France, India, Indonesia, Japan, the Philippines, South Korea and even Mongolia in the so-call Indo-Pacific strategy. These countries jointly organized for action against China, whose attitude was scornful and it is not our interest here to regard it as correct or wrong. The purpose of this writeup is to take us down the period of time to look into every agreements that have been made to reflect the time during which those agreements were made.
Five Eyes (FVEY) – We decided to introduce this as the first agreement that came into our attention. It is an intelligence alliance comprising of Australia, Canada, New Zealand, the United Kingdom and the United States and it was a treaty for join cooperation in intelligence. It can be traced to informal meetings during World War II when this alliance was formed in August 1941.
Asian-Pacific Economic Co-operation (APEC) – It was a late 20th century initiative of 21 countries intended for uniting the economic dynamism of the Pacific Rim. The member states do not include those South Asian countries with India as the lead. But Russia is in the picture who doesn’t have much presence in the region from what we have seen.
China joined the APEC in 1991, more than 30 years ago, and it was a different China in those days. Unlike today, it has grown to become the world’s second largest economy and tries to flex its muscle to gain geopolitical recognition.
We have seen Australia who became a victim of Chinese economy boycotts and suffered from political penetration through its influence.
We have seen Sri Lanka whose sovereignty was eroded by its indebtedness to China under the infrastructure led by the Belt and Road Initiative.
We have seen the conflicts between the soldiers of China and India in the Himalaya passages.
Its military confrontation towards Taiwan across the Taiwan Strait has brought tensions in the region.
China’s fortification in South China Sea where they announced the “nine-dash line” as their territories. China went further to build naval strongholds on the coral reefs and on some of those reclaimed into islands where runways were built for military planes.
Furthermore, its “wolf warrior” diplomacy has reflected Xi Jinping’s nationalist grievances, and it is used to demonstrate to the Chinese nationals for propaganda in relating to its prowess.
APEC is now the ground for wrestling for China and the greatest geopolitical challenge.
Indo-Pacific Quadrilateral Dialogue – It was commonly known as QUAD and was established the first time in 2004, but only lasted until 2008. It was initiated by the Japanese Prime Minister Shinzo Abe in 2007 with the support of Indian Prime Minister Manmohan Singh, Australian Prime Minister John Howard and the U.S. Vice President Dick Cheney. The dialogue was both for diplomatic and for joint military exercises as the response toward China’s increasing economic and military power. China protested strongly to its members as “Asian NATO.”
Due to the Australian withdrawal from the QUAD and its policy changed over the tension between the U.S. and China in the Asia-Pacific, it only lasted until 2008.
In the 2017 ASEAN Summits in Manila, all four former members agreed to revive the quadrilateral alliance in order to counter China’s military and diplomacy in the Indo-Pacific region. Also this time China had expanded its military presence in the South China Sea and China and stated the “nine-dash line” and this time the QUAD was led by Japanese Prime Minister Shinzo Abe, Indian Prime Minister Narendra Modi, Australian Prime Minister Malcolm Turnbull and the U.S. President Donald Trump.
In March 2021, a joint statement “The Spirit of the QUAD” was announced and it was described as a Free and Open Indo-Pacific and it was a rules-based maritime order in the East and South China seas to counter China’s maritime claims.
A QUAD Plus was held and it included South Korea, New Zealand and Vietnam to work on the Covid-19.
As of 2022, QUAD countries have a combined GDP nominal of $34.5 trillion which represented 33.9% the gross world product.
Trans-Pacific Partnership (TPP) – It was a most highly contested and protested trade agreement between 12 Pacific Rim economies. This was drafted in October 2015 by Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the United States.
The proposal was signed on February 4, 2016 but was not rectified as it was opposed by many senators from Democrats and Republicans. And when President Donald Trump was newly elected, he withdrew the U.S. from TPP in January 2017 the first day he sworn into the office. TPP was unable to be rectified and entered into force.
Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) – This time it reached an agreement in January 2018 and the 11 countries, without the United States, signed and the agreement came into force on December 2018.
We have seen that India opted not to join in two occasions although efforts been spent to try to bring India into the agreement.
Basically it is a free trade agreement (FTA) between Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore and Vietnam.
Regional Comprehensive Economic Partnership (RCEP) – It was initiated by China. It is a free trade agreement among the Asian-Pacific countries of Australia, Brunei, Cambodia, China, Indonesia, Japan, South Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand and Vietnam.
The 15-member countries account for 30% of the world’s population at 2.2 billion and 30% of the global GDP of $29.7 trillion.
The RCEP was initiated in 2011 ASEAN in Bali and formally launched during the 2012 ASEAN in Cambodia.
It was signed in November 2020 ASEAN in Vietnam and this time India still opted not to join.
This agreement is expecting to eliminate about 90% of the tariffs on imports with its member states within 20 years of coming into force. But there are remaining many criticisms that would wait to be solved. China poised to take the lead in writing the trade rules for the region, but reactions from others were neutral or negative.
AUKUS – It is a trilateral security pact between Australia, the United Kingdom and the United States. It was announced on September 15, 2021 for the Indo-Pacific region and under this pact, the U.S. and U.K. would assist Australia to acquire nuclear-powered submarines and other weaponry and military technology.
This pact also included cooperation in advanced cyber, artificial intelligence, quantum technologies, undersea capabilities, hypersonic and counter-hypersonic, electronic warfare, innovation and information sharing. It will focus on military capability, but separating from the Five Eyes, an intelligence-sharing allies that also included New Zealand and Canada.
This pact drawn the criticism from France who was supposed to provide Australia with the nuclear-powered submarines which were supposed to be delivered in the later years. The complaint from France was that the deal was worth $56 billion without notice to them.
Summary of all the Agreements
With so many initiatives and organizations that have been formed over the years, they were all, one way or another, the purposes of forming the geopolitical powers and financial powers.
If these have not been handled in the best, this could lead to the prelude of the Cold War as it has all the alliances and agreements set up between the core parties.
It is very clear to see that it is the world against the communist China where the global value is different and there are other issues, and one of them being the most crucial is the human right. It is found that China can’t take any criticism and applied its relentlessly provocative behavior. This brings us back to the beginning that we pointed out Xi Jinping’s nationalist grievances and through the use of China’s propaganda machine the West have found it hard to tolerate.
I can’t see any win-win situation of the two powers if they can’t sit down and come to talk in peaceful terms.
Written at this time for the World and the Communist China
There is a “love and hate” relation first of all.
First of all, the number of Chinese who made their trips outside China in 2019 was some 155 million people, it is roughly the total population larger than Russia, South Korea, Mexico, and the Philippines. It is only 10% of its population.
Chinese overseas spending is $255 billion and on luxury goods was larger than the current $90 billion market capitalization of General Electric. It is the 33rd largest company in the U.S. by gross revenue.
Its worldwide travel spending was roughly the size of Portugal’s gross domestic product, or just over a quarter of a trillion dollars.
We can go on and on.
Its lifting of the requirements for a PCR test and quarantine on arrival in China has removed a big obstacle and we will see business travels picking up in China again after the absence of many of those foreign business travelers.
With overseas traveling open up for the Chinese tourists, we have seen the first port of calls like Hong Kong, Macao, Japan, South Korea and Thailand, the pharmacies were sold out of flu and cough medicines.
It is believed that the first-tier Chinese tourism will resurrect by the first quarter of 2023, and the second tier, or the mass market travelers in the second quarter.
We have seen the three years of Covid and the juggling on the geopolitical between the U.S. and China, made us in the believing of decoupling of the two countries, the uprooting of globalization and entering into Cold War. Once the lockdown is eliminated, businesses, tourism, all kinds of collaborations, exchange of students and stock market will all return like nothing has ever happened.
We assume that everything will be back in normal in three months and people can be very forgetful. If we look back, it was all in the hands of a handful of world leaders, who were mediocre and had no visions and lacked of the skill for negotiation. All those challenges we mentioned at the end of 2202—Russia’s invasion in Ukraine; conflicts between the U.S. and China; Covid-19 pandemic; and climate change—can all be put to work and to be resolved.
Challenges of China After the Disrupted Quitting from Zero-Covid Policy
With the sharp surge of the Covid cases, workers have quickly fallen ill, and the stretching of the staff has slowed down the operations. To recover is dimmed by unpredictable and uncontrollable of the pandemic, although the government is saying that it is over and no longer threatening the health, and the uncertainty of the global finance is also playing another important factor.
The overall global economy is still affected by it slowing down due to the high inflation, an energy crisis and geopolitical turmoil. That doesn’t leave China in a comfortable spot where its economy is largely relied to exports from the international market and a smaller part from its domestic market.
Weaker spending has further depressed the profit margin which has been razor-thin and many small private enterprises are struggling for survival. Many of their businesses have plunged by as much as two-third in many cases. And competitions are not only from within, but also from the other Southeast Asian countries who were fighting for business.
China factory activities further contracted in December when the infections for Covid were spreading and grounded the workers. It has affected once again all the functions along the supply chain.
Many European manufacturers in China have been forced to operate with half of their workforce and this have affected their output.
To save cost, some decided to stopped the operation early this year and told their workers to take the Chinese Lunar Year vacation earlier this time. The new year will only start on January 22 this time.
The damage Covid has brought to China is unmeasurable at this point of time and to see the recovery doesn’t show anywhere in the horizon.
For three years China closed its borders and enforced the strictest quarantine for travelers resulted many are expanding their sourcing operations from Cambodia, Vietnam, Bangladesh and India.
The manufacturers are looking for investments in Mexico, to be near to the North American market. But training the workers in foreign countries has proved to be difficult. It takes a lot of patience and time to train them and in some countries you would never find the same level of quality of work like you can find in China.
Three years of stop-start activities and punishing lockdowns plus the mass testing of Covid to its people have proved to be inhumane and unscientific. Xi Jinping’s zero-Covid policy further destroyed China’s already high levels of social inequality. Lockdowns have often been more strict in rural areas, upending hundreds of millions of students in their education.
Taking classes through the mobile phones in a crowed home where patchy internet doesn’t allow uninterrupted reception during the day. Many young people from rural areas or even the urban lower classes have been forced to study online and have been separated from their parents for the past three years as many of them have been working in places far away from home.
This sudden abandon of the net-Covid has led to a sudden rise of Covid-19 infections and it has been predicted affections would be 600 million and deaths would reach a million over the winter.
India’s Answer to China’s Belt & Road
China’s Belt and Road Initiative is also a multibillion-dollar infrastructure lending program to the developing countries. Instead of watching China lending money to Maldives to link up their scattered islands by road, for example a two kilometers Sinamalé bridge that connected its capital to its airport, India is funding a $500 million Greater Malé Connectivity Project. It is a 7 kilometers bridge linking the capital to several surrounding islands.
Watching China moving in the South Asia and Indian Oceans with their BRI is not a solution, India’s Prime Minister, Narendra Modi, is ramping up its own infrastructure lending in the region. It is also a geopolitical contestation with China.
India doesn’t have the capacity to scale up to the extent of Belt & Road, realizing that it was launched nine years ago and the American Enterprise Institute think-bank estimated to have reached $836 billion in 2011. India’s cumulative development assistant since its independence in 1947 has reached $107 billion.
Since then India began projects such as: a cement factory in Djibouti; bridge in Maldives; hydropower projects in Nepal; numerous projects in Afghanistan; extended a line of credit of $8 billion to fund the construction of cross-country network for Bangladesh to link India’s remote north-east and the rest of the country via Bangladesh.
In May 2022, Sri Lanka became the first Asia-Pacific country who went bankrupt after they have run out of foreign reserves. This caused the island’s 22 million people ran out of everyday basics and India provided nearly $4 billion in loans and grants for supplies of fuel, medicine and food.
This was caused by Sri Lanka’s debt crisis which was exacerbated by the BRI loans from China for projects which failed to generate returns. The enormous but underutilized Hambantota port which was completed by China in 2017 on a 99-year lease. Sri Lanka requested a debt restructuring for a total around $7 billion, but it was turndown by China. It was found out that China was charging the loan interest at 3.2% while India was only at 1%.
India has been showing concern about Beijing’s presence at the Hambantota port due to Sri Lanka’s authorities allowed Chinese military surveillance ship to dock there.
Previous state-owned companies from India would take part in these neighborhood contracts, but under its current Prime Minister Narendra Modi, private companies like Tata, Adani Group, Larsen & Toubro and GMR Group are involved in the projects in that region. Due to the risk of operating in certain South Asian countries, large private companies are requiring New Delhi’s diplomatic power for support.
The Indian groups are looking for regulation and transparency about the lobbying and liaison with the Indian government authorities at this infant stage. Knowing that they are going to compete with the big player, China’s BRI, and it will take years to show that they are offering the same or hopefully better terms to the neighboring countries.
It is already said that with India-funded projects in the archipelago of Maldives, it is a cover to New Delhi to get a foothold there. It has been the same for Beijing when they started as these bigger nations all have their own agenda. The only question is to find whose deal can be more favorable and fair.
Liu He’s Speech at the World Economic Forum
Liu He began with assuring the world that China has returned to normalcy sooner than expected when it announced to drop its zero-Covid policy.
During his visit he also held talk with U.S. Treasury Janet Yellen to rebuild the diplomatic relationships. And in response to European Commission President Ursula von der Leyen, who said the EU would seek to “de-risk” rather than “decouple” its trade with China and would use all its tools to deal with the “unfair practices”. Liu He reassured Beijing’s commitment to globalization and marketisation. He even mentioned that China would not pursue a planned economy.
Liu He’s appearance in this kind of the international forum could be his last one as at the 20th Congress of the Chinese Communist Party last year, he and several top officials responsible for economy and finance would step down from the party posts.
Liu continued to mention that Beijing’s “common prosperity” policy aimed only to prevent economic polarization and high levels of inequality.
But the Western researchers took those comments as market-reformist school of thought and it has the lack of a free market that can give equality of opportunities to the private business sectors. It’s desire to have control over private firms and entrepreneurs hasn’t changed at all.
High Sea Out There
The South China Sea is about a third larger than the Mediterranean. It has a very large stock of fish, untapped oil and gas reserves and uncharted enclaves. It is the passage connecting East Asia with much of the rest of the world. It is the global maritime trade and plays the national security to the seven countries—China, Taiwan, the Philippines, Brunei, Malaysia, Vietnam, and Indonesia. In total it has an area of 1.35 million square miles.
We have seen that one of the seven countries, China, has claimed nearly the entire maritime expanse as its own. It has transformed the reefs into airbases and airstrips. It uses its navy and coastguards, and even armored its shipping fleets to intimidate its Southeast Asian neighbors.
China infamous “nine-dash line” is a map extending out over 700 nautical miles from the Chinese coast. Its proclaim of the whole region of approximately 90% of the 1.35 million square miles is unfounded in international law. In 2016, the Philippines brought the case to The Hague and China’s claim was overruled. Since then other countries with rival claims in the South China Sea have insisted their international law must form the basis of any settlement of their disputes.
China only gave way in the signing of the bilateral fisheries agreements with individual countries but denied on deals to jointly exploitation of offshore oil or gas.
So far there is no open provoke of any kind, but the undercurrent is strong.