2021 OCTOBER
CHINA
THE GIANT JUGGERNAUT
PART 8
Contents:
The World that China is Crafting Geopolitically
Radiation Leaking From Nuclear Power Plants in China
China is Introducing a Digital Currency
Reshaping of China Through the News Media
China is Becoming the Maritime Superpower
Dominance of Electric Vehicle
China’s Clampdown on Tech Industry
Semiconductor Industry of China is Lagging Behind
Written by : Andrew Sia
The World that China is Crafting Geopolitically
In the latest NATO meeting, the transatlantic alliance between 28 European and two North American countries, cited the latest calling for China to act responsible in the international system, including in the cyber, space and maritime domains and keep itself as the role of a major power. Concern over Chinese military cooperation with Russia and the rapid expansion of China’s nuclear arsenal and its rapid accumulation of nuclear warheads and sophisticated delivery systems. And also with its participation in Russian military exercises in Atlantic water.
Another trend that is troubling the NATO allies is China’s involvement of Chinese companies in critical infrastructure in Europe, such as the sea ports. Through the ambitious Belt & Road Initiative, China’s presence has extended into the Mediterranean Sea as far to the African continent.
The violations of the human-rights in Xinjiang, Tibet, Mongolia and lately for the crackdown on Hong Kong’s pro-democracy movement. The harassing of Taiwan across the Taiwan Strait by sending the military jets over Taiwan has created an uneasiness in the region where Japan and the other SE Asian countries are presence.
Last and not the least, the lack of transparency over the origins of coronavirus pandemic are not helping the image of China as a major power.
Followed by President Biden’s meeting with the G7 and then the NATO, China criticized that the Biden administration accelerated its efforts to build a united front against China at the summits of the G7 and NATO. It continued to stress that it will stand firm on its principles and not distract by anti-China hostility. It even stated that in the long-term China will have a larger economy than the US and time is on China’s side.
Radiation Leaking From Nuclear Power Plants in China
Nuclear power is central to Xi Jinping’s environmental goals since he pledged net zero carbon dioxide emissions by 2060. There are about 50 nuclear reactors operating in China and this is accounting for 5% of its total power generation.
Lately, the French state-backed nuclear utility, EDF, released a report of a possible radiation leak of its joint venture nuclear power plant in China. An increase of certain noble gases—helium, xenon and radon, in the first reactor at Taishan Nuclear Power Plant, has been spotted. This power plant is 70% held by China General Nuclear Power Corp. and the rest is held by the French, EDF.
China General Nuclear (CGN) and EDF are also collaborating an EPR nuclear plant in the UK, which is under construction at Hinkley Point in Somerset, south-west of England.
China is saying that the plant is operating within the safety parameters.
China is Introducing a Digital Currency
It is known as ECNY which is the yuan basically, but it can be managed in an ECNY app in a digital wallet link to the person’s identity number. China is the world’s leader in mobile payments. It is using this digital currency to increase its surveillance capabilities; it will allow the state to have more control over money; and will challenge the dollar for dominance.
But in any case the digitization is not doing anything more than what Alipay and WeChat can do. The Chinese regulators can see how people spend in real time. China can already manage both the money supply and interest rates in different sectors. And with the half a million of people selected late last year in a trial of China’s digital currency, and they already expressed that the current Alipay and WeChat are more convenient as they are tied to commercial and social-message networks. It is already predicted in three years ECNY will only account for 5% of mobile payment.
Worldwide, yuan is only 2% of international payments. For payments, people would consider how easy for the conversions to other currencies and the trust of the issuing countries’ legal systems. China is maintaining far tighter capital controls than any other major economy. When companies transfer money in and out of China, they already use currency in digital format, and the use of electronic messages on the SWIFT payment networks which connects with more than 11,000 financial institutions is remaining the most efficient conduit of sharing payment information across borders. SWIFT system, with its headquarters in Belgium is still indispensable.
Reshaping of China Through the News Media – The Shapes of Things To Come
The international journalists’ association were puzzled about what China was up to during the fall of 2019. The Chinese government was distributing versions of its propaganda newspaper—China Daily in English and other languages. Not only circulated internationally, but through their international offices in major cities like New York and London, and also in Kathmandu for instance. It has 12 printed editions—African edition, China Daily European Weekly, China Asia Weekly, Hong Kong edition, and US edition.
Already a journalist estimated that more than half of the stories on a Philippines newswire came from the Chinese state agency Xinhua. It seemed that China is creating an alternative to another global news media dominated by the BBC and CNN , and to exert their power and perspective through money pouring into media in almost every country in the world.
We can find insert pages from China Daily in our daily newspapers like the New York Times, Wall Street Journal and the like, with their news about China’s achievements around the world. We know that they are only advertising.
China is using the media as the tool to promote their “Belt and Road” campaign to allure the developing countries with investments and debts plus expectation of support of votes in the United Nations.
It is using the media to cover its expanding authoritarianism and its treatment of the Uyghurs and its crackdown of the democracy movement in Hong Kong. Lately, their hiding of the truth about the coronavirus pandemic that happened in Wuhan. These have all been damaging China’s global image and the media together with its diplomacy are trying to repair. But already the media regulators in Britain and the United States have revoked the license of the main Chinese state broadcaster.
When the Western countries are challenging China for their using of their propaganda machine, the Chinese Foreign Ministry is defending itself by saying that China is doing what the United States have been doing all along. But come to the core of it, when we talk about China’s influence, it is often in the context of an imagined titanic global struggle between the two giants represented by their countries and systems that are so much in contrast to one another.
China is to Become the Maritime Superpower
China is busy building up its fishing fleet and it has grown to become the world’s largest and it is becoming more aggressive and has provoked tensions around the world. An analysis done by a London-based researcher, the Overseas Development Institute, indicated the Chinese boats involved in distant-water operations totaled at 17,000 vessels at an average of 200 feet each, which can be twice as large as any naval patrol boats. The same data and analyst indicated the closest competitors in this industry—Taiwan and South Korea, have a combine of some 2,500 vessels.
This fishing fleet is bringing in millions of tons of seafood a year to feed its booming middle class. Foreign governments, fishermen and conservation groups have accused China for illegal fishing by using banned equipment and trespassing into other countries’ territory. Not only it upended their economy, but also destroy their ecosystems. The vessels are equipped with heavy poles and winches that can pull giant nets.
It is building worldwide network of ports and set up island settlements in dispute waters.
Complains have been brought to World Trade Organization and China agreed to cap its fishing vessels at 3,000 in 2017 and cut government subsidies and its foreign ministry said that legally registered vessels were far lower, at 2701 as of 2019.
China is in the top of the list of illegal fishing, according to Geneva-based Global Initiative. And as the key part of Xi Jinping’s Belt and Road global infrastructure plan, the ocean routes are important. The fishing industry is also ensuring the national food security. The plan also called for worldwide developing 29 distant-water fishing bases which put Beijing at the center of the web of global infrastructure.
As the strategy, China has established the fishing port in West Africa in Mauritania, a fishing port in Pakistan, close to a major oil route, and together with the Chinese navy, set up settlements for fishermen in the South China Sea where the Chinese navy built artificial islands with military facilities and protect their fishermen.
Since 2015, China’s distant-water catch harvested 20,000 metric tons of seafood each year. Not only it consumers all, but it is also the world’s third largest seafood importer after Europe and the US. In 2019 the import was $15 billion, double the figure four years ago.
Three-quarters of the fishing fleet are privately owned. The nation’s largest distant-water operation, China National Fisheries Corp. is the unit of an agricultural conglomerate directly managed by the central government and also owned by the state.
China is using the fishing industry to secure the food to its vast middle class, has the presence in 29 distant-water fishing bases and maintain some of them as fishing ports, it plays the role in the Belt Road Initiative and the sea routes are important. We can find that China is becoming unstoppable.
Dominance of Electric Vehicle
The speed of China building factories for electric cars is almost as fast as the rest of the world combined. We have seen Xpeng, a Chinese start-up in this area, opening an assembling plant in southeastern China, It is building a second factory nearby, and a third one that they have just announced. Its plan is to reach 300,000 cars by 2024. But last year they were barely selling 10% of that. The owner, Mr. He owns 23% of Xpeng’s share, and Alibaba holds 12%, In 2020, he raised $5 billion in an initial public offering in Wall Street. He invested heavily into automation by using robots. Xping is already exporting cars to Europe. Its research and development is focusing in autonomous driving.
Nio, another electric car company has opened a new factory in central China and preparing for another one nearby.
Zhejiang Geely, who also owns Volvo, is building one in eastern China near Ningbo, and named its car Zeekr. It is using robots by ABB of Sweden and plans for an initial capacity of 300,000 cars a year.
Evergrande, a giant real estate developer, who just went defunct, mentioned about their building electric car factories in Shanghai and Guangzhou.
With the billions of dollars they raised from international investors and local lenders they want to build electric cars not only for the China market, but also the global market. They sound a bit like rookies and expect the car owners to buy cars for $40,000+ from brands unheard of.
According to LMC Automotive, a global data firm, who estimated by 2028 China will be making eight million cars by then, compared with one million in 2020. Europe will be on track to build 5.7 million also in 2028. But North America is very behind. According to LMC, it will only build 1.4 million electric vehicles by 2028, and it was only building 410,000 last year.
China is not only the biggest electric car manufacturer in the world, but it is also the largest market. Global car companies are flocking into the market to produce and market. Its electric car manufacturing facilities are set up to catch the wave. The government is helping by rolling out 800,000 public charging stations nationwide. You have to know that this is twice as many as the world combine.
Although it was since 2018, the Trump administration imposed 25% taxes for cars imported from China, we believe that the electric cars are under the same tariffs and many of the electric car parts are also covered the same.
In April of this year, President Biden called for the US car industry to step up its manufacturing of electric cars. He mentioned that the US is running very behind China.
China’s Clampdown on Tech Industry
Since Jack Ma of Alibaba openly blasted Chinese regulators in last October for their action against innovation, Xi Jinping squashed Ma’s plan to take Alibaba’s Ant Group from going public and followed an antitrust case against Alibaba. Just days after DiDi’s $4.4 billion initial public offering in the US, China’s regulators ordered a security review, and removed the mobile stores from DiDi’s apps.
The list included Tencent, ByteDance, Pinduoduo, Meituan, and they have all been under the investigation by China’s regulators.
The latest to come under the clampdown is the new regulatory framework for the online education industry.
This signals a new era of harsher oversight by companies that have registered in Caymans and their financial power they have amassed. China is trying to ring-fence the powerful Big Tech and apply the antitrust cases against Alibaba and the like in a matter of four months, whilst it will take years for the US and EU regulators to go after tech giants like Facebook, Google and Amazon who are already retaliating.
In the late 1990s, China emulated Silicon Valley’s approach to innovation. With the US capital and tech entrepreneurs plus many of their graduates from overseas, they built up offices there and learned from those startups in the Silicon Valley. We have seen remarkable Chinese versions of eBay and Amazon as Alibaba, AOL and Facebook as Tencent, and Google as Baidu. While they were growing in China, the government protected them from the US competitors from entering into the China market. Very soon they outgrew by the number of users in comparison of their competitors and created their super apps, including Tencent’s WeChat and Alibaba’s Alipay. Tech-titans were created in China and they went on further to snatch the smaller competitors and integrated them into their platforms to speed up their growth.
We have seen Apple, Facebook and all the other apps are mimicking features from the Chinese competitors and for the first time they are copying the other way around.
What is happening today in China is the government taking the power back from the hands of those tech giants and set out the rules for what they can do now. Everything is government-centric, and the clampdown is only gearing to protect the government’s policy. It is very clear that the full alignment with China’s leadership is a must to operate in China.
The data from the tech companies is an essential and strategic resource and this is the part the central government has been craving in recent years. This will now be nationalized and the data-sharing system that can turn into a system together with the AI and the machine learning, will serve as a kind of digital data-sharing infrastructure. What this data can be used is very powerful for the Chinese Communist Party to control its people.
This will chill off the innovation back in China as it will be unclear for the future of the tech industry. Knowing that it will be homegrown and remain as very small or otherwise they will still draw the government’s attention. But the attitude for the startups would all be different as China is a very big country for them to try out their new business formulas.
Not to forget that it was not so long ago that Washington has passed legislation that threaten to delist the stocks of Chinese companies that do not submit financial documents for audits, but to the Chinese government this is the potential of exposing the data that China wants to keep as secret.
This time the clampdown of the tech companies resulted DiDi to lost $29 billion in its market value in less than a month. On July 29, China forced the companies that offer school tutoring to turn into nonprofit making companies, Gaotu Techedu, New Oriental Education & Technology Group, TAL Education Group, are those companies traded in the US lost more than half of their value. On July 26, food delivery super-app Meituan followed the Chinese government to resolve to protect the gig workers and lost $30 billion of their market value immediately.
China is very suspicious of companies who have the skillset to raise capital from overseas and there is one practice for the most concern is the variable interest entity (VIE) corporate structure commonly deployed by the hottest unicorns. They are mostly incorporated in the Cayman Islands, raise their capital and list their shares offshore. With their money raised, they get pumped into China for further business developments. China feels that it is under threat and hijacked by foreign capital.
This time the investors in bond and stock market have suffered a great lost, but I would think that China doesn’t care the money SoftBank or George Soros lost and China would say that for the past twenty years the money they made out of those Chinese stocks this is only the small change. They could all have left the China stock for the time being, but as the saying goes, “money has no smell”, and I am sure that soon they will come back and invest in China again.
Semiconductor Industry of China is Lagging Behind
China’s aspiration is to become a true technological rival to the US is hindered by the fact that it doesn’t control the semiconductors that are the building blocks for everything—from smartphones to automated vehicles. And in 2020 alone, it spent $350 billion buying chips, more than it spent on oil.
It has been decades that the country tried and failed to create an operation from designing and manufacturing microchips on its own. It is staying at the stage of only able to manufacture 28 nm chips although it claimed to the outside world that it can do 14 nm chips now. By comparison, Taiwan Semiconductor Manufacturing Co. is producing 4 nm now and in 2022 it is going to produce 3 nm chips.
China is at least five to six years behind, if not a decade away. Not that China has not invested in the chip industry, it already spent $10.8 billion ten years ago, and in 2014, another $53 billion, but China would need to understand that money can’t solve all the problems. For more than twenty years of China’s effort, it was plagued by unaccomplished promises, premature projects, and most important the waste of resources by government bureaucracy. As the result, China can’t keep its pace when the semiconductor giants have all moved ahead with smaller chips in nanometers that enable faster operation speed and use less energy.
Huawei Technologies Co. further jeopardize the situation due to its aggressive marketing strategy, it is also threatening the national security for those countries who have used their telecommunication system. It resulted to receive from the Trump administration to cut off its chip supply undermining the company to make devices.
During this Covid-19 period, there is the global shortage of semiconductors that disrupted the supply and China is more aware for its self-independent in order to survive.
The country is set to invest $1.4 trillion on advance technologies through 2025. But in this area China will need to know that by looking inward for solution is not enough for China to move ahead in the hi-tech arena. Due to the interest and the urge from Beijing to develop chips for its own use, new semiconductor companies are coming from every township. They are all chasing government money by championing unrealistic projects in hope of securing subsidies and gaining political prestige on the other hand. This is doomed to fail one more time.
Closing
During this quarter, China is like going through the rollercoaster. There is never a dull moment and it continues to surprise the western world.
Xi Jinping’s interest is to secure his power and making sure that in the next Chinese Communist Party Congress that will come up in the fall of 2022 that he can continue to lead. Everything he is directing now is pointing to all the reasons why he should remain in power and lead China imminently.