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Expats Shun China Over Covid Policies, Forcing Foreign Firms to Scale Back.

Expats Shun China Over Covid Policies, Forcing Foreign Firms to Scale Back.

China has long been a coveted assignment for business executives and diplomats, a prestigious posting in a rising power and a valuable addition to one’s résumé.

 

Now, it is an assignment that few are eager to take on, as China’s “zero-Covid” isolation deepens and concerns about geopolitical tensions and economic delinking rise.

 

 

Since March 2020, China’s borders have been closed to most foreigners. Flights into the country remain scarce and pricey and come with a minimum seven-day hotel quarantine. Covid-19 restrictions remain strict, and some international schools have shut or shrunk as students and teachers depart. Geopolitical tensions have become a constant concern.

 

With little sign of a major shift in policy after 2½ years, many Western companies and embassies have concluded that the challenges they face in the country are no longer temporary. Goldman Sachs, in a report this week, said it doesn’t expect China to begin reopening to the world until near the middle of 2023. The European Union Chamber of Commerce in China isn’t expecting a full reopening until at least the second half of next year.

 

As the restrictions have dragged on, many organizations have suffered an outflow of talent in China, a country that is the world’s most populous and its second-largest economy. Many of the departures have taken place ahead of schedule and without backfills to replace those leaving. In response, some China-based units are pleading with headquarters for extraordinary measures, while some companies are overhauling their organizational charts.

 

In some cases, “companies are even questioning whether it is responsible for them to deploy foreign staff to China when the numerous restrictions mean they are unable to guarantee a basic duty of care for them and their families,” the European business lobby in China said Wednesday in its annual report on the state of business in the country.

 

Many of the chamber’s member companies, multinationals with a longstanding presence in the country, are downsizing, localizing and hiving off their operations in China as the number of Europeans and Britons living there roughly halved from prepandemic levels to around 60,000 in recent months, according to the chamber’s estimate.

 

 

China’s own census, the most recent version of which was published last year, showed the number of China-based nationals from the U.S., Germany, France, South Korea, Japan and India falling by double-digit percentages over the prior decade, though China enjoyed a sharp rise in inbound migration from poorer neighbors like Myanmar.

 

For some organizations, the inability to bring in new blood has left them scraping to get by in what for many of them was once a growth driver, either as a critical market or manufacturing base.

 

While China has made it difficult for businesspeople and their family members to secure new visas to relocate to the country, even foreign embassies, which don’t face such restrictions, are struggling to staff their operations.

 

Quarantines, the increasing frequency of sudden lockdowns and the prospect of extended school closures have made a China posting prohibitive for many, especially those with children.

 

Souring relations between Beijing and many countries in the West have also hurt China’s image in recent years, as well as a perceived hostility to foreigners, business executives say. The chief epidemiologist at the Chinese Center for Disease Control and Prevention warned the Chinese public this week to avoid skin-to-skin contact with foreigners to avoid contracting monkeypox, in a statement that has prompted charges of xenophobia among expatriates in China.

 

Jörg Wuttke, the European chamber’s president, said China’s stringent Covid-19 controls had the effect of inhibiting human-level exchanges between China and the rest of the world, which he warned “inevitably leads to less understanding” of the country.

 

In one example, Brazil’s consulate in Shanghai is set to shrink to two diplomats next year, from a regular staffing level of five, as a result of scheduled departures and a lack of diplomats willing to move to China. Meanwhile, the number of Brazilian support staff—nondiplomats usually drawn from the local pool of expatriates—is expected to fall to zero from the usual seven, according to a Brazilian diplomatic cable seen by The Wall Street Journal.

 

The cable sent to Brazil’s foreign minister in July by the head of its consulate in Shanghai calls for exceptional measures to be taken to address the staffing-shortage issue, including offering diplomats a promise to be posted to a preferred location after China. Otherwise, the cable warned, “it wouldn’t be feasible to operate the Consulate.” Brazil’s foreign ministry didn’t immediately respond to a request for comment.

 

 

The U.S. diplomatic community has also been hit by China’s pandemic-control policies. In April, the State Department ordered the departure of nonemergency U.S. government employees and family members based at the American consulate in Shanghai as Covid cases surged in the city. An official at the U.S. Embassy in China said that the ordered departure in Shanghai has ended, and most people are back in place.

 

To make assignments in China more attractive, the State Department has recently reduced the typical length of assignment for diplomats in the country to two years from three, and raised the additional compensation rate for all posts in China, the official said.

 

“Our diplomats feel a deep sense of mission in working here. It can also be very challenging to serve in China as the zero-Covid policy and pandemic play out,” said Nicholas Burns, the U.S. ambassador to China.

 

Vacancies are often taking longer to fill than in the past. One European nation has been holding online recruitment sessions in recent months to explain what it is like to work in China in hopes of drawing more recruits, diplomats from the country said.

 

Many multinational companies doing business in China have seen their expatriate ranks shrink. German auto maker Volkswagen AG, which has a large presence in China, has plans to shed 30% of its China-based expatriates over the next two to three years, to around 1,000 people, Volkswagen’s then-China chief said in January, adding that China’s travel restrictions had made the country an unattractive place to work. Other large multinationals, including Apple Inc., which manufactures many of its devices in China, have localized more functions, hiring Chinese nationals to fill positions once held by foreign expatriates.

 

The exodus of foreign talent also includes international schoolteachers. For the current school year, the British Chamber of Commerce in China forecasts a turnover rate of at least 40% of teachers in international schools in China for foreign-passport holders. As student numbers have fallen since the pandemic’s onset, some international schools have closed or adjusted their operations.

 

Should new teachers not come in sufficient numbers to replace those on the way out, “international families will be forced to relocate to ensure continued education for their children,” the British Chamber said in its April report. “Those considering moving to China will look elsewhere. This will exacerbate further the flow of talent from China.”

 

Some organizations have had to get creative to retain talent in China. Beijing-based multinational lender Asian Infrastructure Investment Bank began allowing China-based employees to work for weeks or even months outside the country, The Wall Street Journal has reported.

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Source: The Wall Street Journal.

 

 


 

The Myth of the Chinese Debt Trap

The Myth of the Chinese Debt Trap
Over the past two decades, China has built large infrastructure projects in almost every developing country, possibly because, through their own experience they are so good at it. However this is making some Western powers uncomfortable amid wider concerns about Beijing’s intentions global intentioan. A deeper look shows that accusations of so-called debt trap diplomacy are, at least so far, unfounded.
 

China, we are told, inveigles poorer countries into taking out loan after loan to build expensive infrastructure that they can’t afford and that will yield few benefits, all with the end goal of Beijing eventually taking control of these assets from its struggling borrowers. As states around the world pile on debt to combat the coronavirus pandemic and bolster flagging economies, fears of such possible seizures have only amplified.

 

 

Seen this way, China’s internationalization—as laid out in programs such as the Belt and Road Initiative—is not simply a pursuit of geopolitical influence but also, in some tellings, a weapon. Once a country is weighed down by Chinese loans, like a hapless gambler who borrows from the Mafia, it is Beijing’s puppet and in danger of losing a limb.

 

The prime example of this is the Sri Lankan port of Hambantota. As the story goes, Beijing pushed Sri Lanka into borrowing money from Chinese banks to pay for the project, which had no prospect of commercial success. Onerous terms and feeble revenues eventually pushed Sri Lanka into default, at which point Beijing demanded the port as collateral, forcing the Sri Lankan government to surrender control to a Chinese firm.

 

The Trump administration pointed to Hambantota to warn of China’s strategic use of debt: In 2018, former Vice President Mike Pence called it “debt-trap diplomacy”—a phrase he used through the last days of the administration—and evidence of China’s military ambitions. Last year, erstwhile Attorney General William Barr raised the case to argue that Beijing is “loading poor countries up with debt, refusing to renegotiate terms, and then taking control of the infrastructure itself.”

 

As Michael Ondaatje, one of Sri Lanka’s greatest chroniclers, once said, “In Sri Lanka a well-told lie is worth a thousand facts.” And the debt-trap narrative is just that: a lie, and a powerful one.

 

Chinese banks are willing to restructure the terms of existing loans and have never actually seized an asset from any country, much less the port of Hambantota. A Chinese company’s acquisition of a majority stake in the port was a cautionary tale, but it’s not the one we’ve often heard. With a new administration in Washington, the truth about the widely, perhaps willfully, misunderstood case of Hambantota Port is long overdue.

 

The city of Hambantota lies at the southern tip of Sri Lanka, a few nautical miles from the busy Indian Ocean shipping lane that accounts for nearly all of the ocean-borne trade between Asia and Europe, and more than 80 percent of ocean-borne global trade. When a Chinese firm snagged the contract to build the city’s port, it was stepping into an ongoing Western competition, though one the United States had largely abandoned.

 

It was the Canadian International Development Agency—not China—that financed Canada’s leading engineering and construction firm, SNC-Lavalin, to carry out a feasibility study for the port. We obtained more than 1,000 pages of documents detailing this effort through a Freedom of Information Act request. The study, concluded in 2003, confirmed that building the port at Hambantota was feasible, and supporting documents show that the Canadians’ greatest fear was losing the project to European competitors. SNC-Lavalin recommended that it be undertaken through a joint-venture agreement between the Sri Lanka Ports Authority (SLPA) and a “private consortium” on a build-own-operate-transfer basis, a type of project in which a single company receives a contract to undertake all the steps required to get such a port up and running, and then gets to operate it when it is.

 

The Canadian project failed to move forward, mostly because of the vicissitudes of Sri Lankan politics. But the plan to build a port in Hambantota gained traction during the rule of the Rajapaksas—Mahinda Rajapaksa, who served as president from 2005 through 2015, and his brother Gotabaya, the current president and former minister of defense—who grew up in Hambantota. They promised to bring big ships to the region, a call that gained urgency after the devastating 2004 tsunami pulverized Sri Lanka’s coast and the local economy.

 

A second feasibility report, produced in 2006 by the Danish engineering firm Ramboll, that made similar recommendations to the plans put forward by SNC-Lavalin, arguing that an initial phase of the project should allow for the transport of non-containerized cargo—oil, cars, grain—to start bringing in revenue, before expanding the port to be able to handle the traffic and storage of traditional containers. By then, the port in the capital city of Colombo, a hundred miles away and consistently one of the world’s busiest, had just expanded and was already pushing capacity. The Colombo port, however, was smack in the middle of the city, while Hambantota had a hinterland, meaning it offered greater potential for expansion and development.

 

To look at a map of the Indian Ocean region at the time was to see opportunity and expanding middle classes everywhere. Families in India and across Africa were demanding more consumer goods from China. Countries such as Vietnam were growing rapidly and would need more natural resources. To justify its existence, the port in Hambantota would have to secure only a fraction of the cargo that went through Singapore, the world’s busiest transshipment port.

 

 

Armed with the Ramboll report, Sri Lanka’s government approached the United States and India; both countries said no. But a Chinese construction firm, China Harbor Group, had learned about Colombo’s hopes, and lobbied hard for the project. China Eximbank agreed to fund it, and China Harbor won the contract.

 

This was in 2007, six years before Xi Jinping introduced the Belt and Road Initiative. Sri Lanka was still in the last, and bloodiest, phase of its long civil war, and the world was on the verge of a financial crisis. The details are important: China Eximbank offered a $307 million, 15-year commercial loan with a four-year grace period, offering Sri Lanka a choice between a 6.3 percent fixed interest rate or one that would rise or fall depending on LIBOR, a floating rate. Colombo chose the former, conscious that global interest rates were trending higher during the negotiations and hoping to lock in what it thought would be favorable terms. Phase I of the port project was completed on schedule within three years.

 

For a conflict-torn country that struggled to generate tax revenue, the terms of the loan seemed reasonable. As Saliya Wickramasuriya, the former chairman of the SLPA, told us, “To get commercial loans as large as $300 million during the war was not easy.” That same year, Sri Lanka also issued its first international bond, with an interest rate of 8.25 percent. Both decisions would come back to haunt the government.

 

Finally, in 2009, after decades of violence, Sri Lanka’s civil war came to an end. Buoyed by the victory, the government embarked on a debt-financed push to build and improve the country’s infrastructure. Annual economic growth rates climbed to 6 percent, but Sri Lanka’s debt burden soared as well.

 

In Hambantota, instead of waiting for phase 1 of the port to generate revenue as the Ramboll team had recommended, Mahinda Rajapaksa pushed ahead with phase 2, transforming Hambantota into a container port. In 2012, Sri Lanka borrowed another $757 million from China Eximbank, this time at a reduced, post-financial-crisis interest rate of 2 percent. Rajapaksa took the liberty of naming the port after himself.

 

By 2014, Hambantota was losing money. Realizing that they needed more experienced operators, the SLPA signed an agreement with China Harbor and China Merchants Group to have them jointly develop and operate the new port for 35 years. China Merchants was already operating a new terminal in the port in Colombo, and China Harbor had invested $1.4 billion in Colombo Port City, a lucrative real-estate project involving land reclamation. But while the lawyers drew up the contracts, a political upheaval was taking shape.

 

 

 

Rajapaksa called a surprise election for January 2015 and in the final months of the campaign, his own health minister, Maithripala Sirisena, decided to challenge him. Like opposition candidates in Malaysia, the Maldives, and Zambia, the incumbent’s financial relations with China and allegations of corruption made for potent campaign fodder. To the country’s shock, and perhaps his own, Sirisena won.

 

Steep payments on international sovereign bonds, which comprised nearly 40 percent of the country’s external debt, put Sirisena’s government in dire fiscal straits almost immediately. When Sirisena took office, Sri Lanka owed more to Japan, the World Bank, and the Asian Development Bank than to China. Of the $4.5 billion in debt service Sri Lanka would pay in 2017, only 5 percent was because of Hambantota. The Central Bank governors under both Rajapaksa and Sirisena do not agree on much, but they both told us that Hambantota, and Chinese finance in general, was not the source of the country’s financial distress.

 

There was also never a default. Colombo arranged a bailout from the International Monetary Fund, and decided to raise much-needed dollars by leasing out the underperforming Hambantota Port to an experienced company—just as the Canadians had recommended. There was not an open tender, and the only two bids came from China Merchants and China Harbor; Sri Lanka chose China Merchants, making it the majority shareholder with a 99-year lease, and used the $1.12 billion cash infusion to bolster its foreign reserves, not to pay off China Eximbank.

 

Before the port episode, “Sri Lanka could sink into the Indian Ocean and most of the Western world wouldn’t notice,” Subhashini Abeysinghe, research director at Verité Research, an independent Colombo-based think tank, told us. Suddenly, the island nation featured prominently in foreign-policy speeches in Washington. Pence voiced worry that Hambantota could become a “forward military base” for China.

 

Yet Hambantota’s location is strategic only from a business perspective: The port is cut into the coast to avoid the Indian Ocean’s heavy swells, and its narrow channel allows only one ship to enter or exit at a time, typically with the aid of a tugboat. In the event of a military conflict, naval vessels stationed there would be proverbial fish in a barrel.

 

The notion of “debt-trap diplomacy” casts China as a conniving creditor and countries such as Sri Lanka as its credulous victims. On a closer look, however, the situation is far more complex. China’s march outward, like its domestic development, is probing and experimental, a learning process marked by frequent adjustment. After the construction of the port in Hambantota, for example, Chinese firms and banks learned that strongmen fall and that they’d better have strategies for dealing with political risk. They’re now developing these strategies, getting better at discerning business opportunities and withdrawing where they know they can’t win. Still, American leaders and thinkers from both sides of the aisle give speeches about China’s “modern-day colonialism.”

 

Over the past 20 years, Chinese firms have learned a lot about how to play in an international construction business that remains dominated by Europe: Whereas China has 27 firms among the top 100 global contractors, up from nine in 2000, Europe has 37, down from 41. The U.S. has seven, compared to 19 two decades ago.

 

Chinese firms are not the only companies to benefit from Chinese-financed projects. Perhaps no country was more alarmed by Hambantota than India, the regional giant that several times rebuffed Sri Lanka’s appeals for investment, aid, and equity partnerships. Yet an Indian-led business, Meghraj, joined the U.K.-based engineering firm Atkins Limited in an international consortium to write the long-term plan for Hambantota Port and for the development of a new business zone. The French firms Bolloré and CMA-CGM have partnered with China Merchants and China Harbor in port developments in Nigeria, Cameroon, and elsewhere.

 

The other side of the debt-trap myth involves debtor countries. Places such as Sri Lanka—or, for that matter, Kenya, Zambia, or Malaysia—are no stranger to geopolitical games. And they’re irked by American views that they’ve been so easily swindled. As one Malaysian politician remarked to us, speaking on condition of anonymity to discuss how Chinese finance featured in that country’s political drama, “Can’t the U.S. State Department tell the difference between campaign rhetoric that our opponents are slaves to China and actually being slaves to China?”

 

The events that led to a Chinese company’s acquisition of a majority stake in a Sri Lankan port reveal a great deal about how our world is changing. China and other countries are becoming more sophisticated in bargaining with one another. And it would be a shame if the U.S. fails to learn alongside them.

 

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Can the yuan be a key world reserve...

Can the yuan be a key world reserve currency?

The yuan, or renminbi, China’s currency unit, has been touted as a contender to become a key world reserve currency on par with the greenback and surpassing the euro, yen and British pound. But is this feasible?

 

Given that China is the biggest trading nation, with around 125 countries counting it as their biggest trade partner, the answer is probably yes.

 

 

China’s trade was valued at around US$6 trillion in 2021, according to the country’s General Administration of Customs. If China and its trade partners agreed to use their respective currencies for bilateral transactions, the demand for the yuan would be astronomical. This would accelerate the yuan toward becoming a key world reserve currency.

 

Indeed, the yuan being a major world currency or serving as an alternative to the greenback is not necessarily a bad thing. Trade partners using each other’s currencies for investment settlements and other interactions would reduce transaction costs, minimize exchange-rate volatility and bypass US sanctions, for instance.

 

Effect of US sanctions

Sanctions against nations deemed “unfriendly” to the United States have had a devastating effect not only on the targeted countries, but also on global economies, ironically including America’s. The latest instance is the US and its European and Asian allies sanctioning Russia for invading Ukraine.

 

The harsh sanctions are not only crippling the Russian economy, but also hurting other economies, including those that themselves have sanctioned Russia. Oil and food prices have shot through the roof, threatening a global recession.

 

In the US and Western Europe, many families are making hard choices between eating and keeping warm, for example. Though the West’s economies are growing, the numbers of impoverished and homeless have risen, suggesting that the growth is not equitably distributed.

 

Yuan as medium of exchange

It is perhaps because of the impact of US sanctions on their own economies that some countries are ditching the US dollar and accepting the yuan in settlements for trade. Most recently, Saudi Arabia is said to be finalizing a deal with China to settle oil transactions in yuan.

 

Equally noteworthy is that around 70 central banks around the world held the yuan in their foreign-reserves portfolios in 2019, according to the People’s Bank of China (PBOC), the country’s central bank. That number is sure to expand as China’s economy continues to grow. Another factor prompting countries to hold yuan is fear that they may be the next target of US sanctions.

 

Challenges to yuan as world currency

However, some would argue that the internationalization of the yuan to the extent that of the greenback will be challenging, primarily because of China’s governance and development architectures. Single-party rule, lack of universal suffrage, and absence of an orderly and peaceful transfer-of-power mechanism cause some concern over China’s political stability.

 

Another challenge is that the yuan is not fully convertible, thus posing a problem for cross-border fund transfers. And China’s economic development model is not in sync with neoliberalism, including the way in which the yuan is evaluated. For example, the PBOC applies administrative measures to determine the US-yuan exchange rate.

 

Political stability

Political stability is important in determining acceptance of a currency because that implies minimum political risk. Case in point is the US dollar.

 

The US seems politically chaotic with the two major parties battling each other, culminating in nothing getting done or creating divisions between ideological or racial groups. But its governance system of “checks and balances” – equal power among the executive, legislative and judicial branches – keeps everyone “honest.”

 

For example, the president can only implement policies that are within the power given him or her under the constitution. And the Congress controls the purse, limiting the president’s power.

 

Simply put, there is no reason to believe that the US government will collapse any time soon, regardless of its policies that may suggest otherwise. This is one reason that the American dollar will continue to be a safe haven for the world’s investors and savers. The greenback has proved to be a good storage of value.

 

So the question is, can China deliver the same level of confidence for the yuan? Many in the West would say no.

 

But the Communist Party of China seems to be able to sustain if not increase its popularity among the Chinese population, garnering a more than 90% approval rate, as Harvard University found. A primary reason for that high level of support is the CPC’s resilience and adaptability. That is, the party has kept “reinventing” itself since Mao Zedong’s days, responding to the people’s needs and wants.

 

So if the party continues to evolve, it will likely be in power for a very long time. Indeed, one can even argue that the CPC is one of the very few political parties in the world, including the West’s, that actually fulfill their fiduciary duties.

 

For example, the CPC vowed to eradicate dire poverty, and it did. In the West, governments talk about poverty reduction or climate change, but have not “walked the talk.”

 

From this perspective, the CPC has shown that a single-party system can achieve political stability. In this sense, the yuan is an acceptable medium of exchange and storage of value, paving the way for it to become a world reserve currency.

 

Economic reform, currency convertibility

China is taking a gradualist approach in economic reforms and floating its currency freely to avoid costly policy mistakes and prevent external shocks.

 

In many ways, China is still on the learning curve regarding economic reforms, particularly transforming its social market economy to a private market economy. Maintaining state-owned enterprises and banks has acted as an economic and social stabilizer because they offered affordable prices and prevented financial-system collapses.

 

To dismantle SOEs and SOBs without a clear orderly transformation mechanism would be unwise. Privatizing SOEs, for example, could spike energy or transportation costs. That, in turn, could lead to economic dislocation and social discontent.

 

With regard to not freely floating the yuan, that is largely meant to sustain export growth and prevent foreign hedge funds from attacking the renminbi. A freely floating yuan could very well cause an appreciation of its value, with China thus losing a pricing advantage.

 

An undervalued yuan would make attacking it difficult, particularly when China has more than $3.25 trillion in foreign reserves. Besides, China’s international debt is less than $2 trillion, so it has more than enough to meet its foreign debt obligations.

 

Taking the analysis to its logical conclusion, the yuan as a reserve currency at par with the US is a question of when, not if.

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By Ken Moak for the Asia Times

 

 

 


 

 

Neighbors, Partners, Competitors: Driver...

Neighbors, Partners, Competitors: Drivers and Limitations of China-Russia Relations
Over the course of the last thirty years, China and Russia have demonstrated that their partnership is resilient and expanding. Any pragmatic leadership in the Kremlin—even a democratic one that seeks to improve ties with the West—will try to maintain stable and friendly relations with China, just as any pragmatic Chinese leadership will do with Russia.
 
 
 

“While not being a military and political alliance, such as those formed during the Cold War, Russian-Chinese relations exceed this form of interstate interaction. They are not opportunistic, are free of ideologization, involve comprehensive consideration of the partner’s interests and non-interference in each other’s internal affairs, they are self-sufficient,” reads a joint statement adopted by the Chinese and Russian leaders Xi Jinping and Vladimir Putin during their virtual summit on June 28, 2021 commemorating the twentieth anniversary of the Treaty of Good Neighborliness and Friendly Cooperation.

 

Despite obvious diplomatic finesse, this official formula has a ring of truth to it. In the thirty years since the collapse of the Soviet Union, China and Russia have vastly improved their relationship. They have managed to resolve a territorial dispute that had dogged ties since the Sino-Soviet border conflict of 1969; Beijing and Moscow are engaged in a multifaceted political dialogue; and trade between the two neighbors has seen a fourteenfold increase since 2001. Thus, when Xi and Putin characterize the relationship as “the best it has ever been,” this depiction is correct—at least for now.

 

There are, however, multiple limitations to the China-Russia entente, not to mention headwinds that could disrupt this partnership in the future.

 

Drivers

There are four major drivers behind the improved China-Russia ties. First, both countries want to maintain peace along their 4,200-kilometer border, and do not want to go back to the years of costly and risky confrontation. Overcoming that confrontation took a resolute effort by political leaders in the Kremlin and Zhongnanhai going back to Mikhail Gorbachev and Deng Xiaoping, and since 1989, Beijing and Moscow have been remarkably consistent. By 2006 the territorial dispute was fully resolved, removing the major irritant in bilateral ties.

 

Moreover, since China’s population is rapidly aging, and its economy provides better employment opportunities at home compared to the depressed Russian Far East, Moscow’s fears about China’s demographic expansion to that part of the country have been significantly allayed. Good markers of this changed attitude are the Vostok 2018 military drills that included a large contingent of Chinese troops for the first time, as well as infrastructure projects to link the two banks of the Amur River border by bridges. The sheer distance between Moscow and Beijing serves to ease the security concerns of both sides, including the Russian leadership’s fears over Chinese intermediate range missiles. Nor are there any countries in between Russia and China that are as significant to the Kremlin’s sense of security and national pride as Ukraine or Belarus on Russia’s western flank.

 

Second, the two economies naturally complement each other. Russia has a huge endowment of natural resources, but needs technology and capital. China is, in many ways, the opposite, which means there is a potential to explore these synergies. Beijing has pledged to decarbonize its economy by 2060 but switching power generation away from coal to natural gas is part of China’s strategy to achieve that target. Trade between the two neighbors has grown from $10.7 billion in 2001 to nearly $140 billion in 2021 and is set to expand more with existing projects like the Power of Siberia gas pipeline reaching full capacity of 36 bcm/year and the launch of new projects like Power of Siberia 2 with 50 bcm/year capacity. Beijing wants to ensure access to commodities transported over secure land routes from a friendly state, while Moscow wants to decrease its dependency on European markets and monetize Russia’s natural resources before the global energy transition takes its toll on hydrocarbon prices in coming decades.

 

Third, despite significant differences between their domestic political setups, both China and Russia are ultimately authoritarian regimes. They don’t interfere in each other’s domestic politics, and issues like the imprisonment of the opposition leader Alexei Navalny in Russia or Beijing’s human rights record in Xinjiang and Hong Kong never poison the exchanges between the two governments. Moreover, as two permanent members of the United Nations Security Council, Beijing and Moscow cooperate on multiple issues such as global internet governance, with both leaderships sharing an outlook and pushing back against the United States and its allies. Cementing the political dimension of the relationship is the strong personal bond between Putin and Xi.      

 

The complementary economies, the need to maintain peace along the border, and the authoritarian nature of the two regimes are the three internal drivers of the China-Russia rapprochement that would force the two sides to move closer to each other even with the West out of the picture. It’s the parallel confrontation with the United States, however, that is driving Beijing and Moscow even closer together and amplifying the effect of those three factors.

 

Russia and China trade arms, are developing new weapons together, and have expanded the scope of joint annual military drills. They both engage in parallel disinformation campaigns against the West. Amid U.S./EU sanctions against Russia, Moscow is increasingly reliant on its neighbor as an alternative source of capital and technology to withstand Western pressure, while Beijing’s money targets members of Putin’s inner circle in order to win more friends for China in the Kremlin. In a similar way, Beijing turns to Moscow for support on weapons design and has tapped into Russia’s pool of IT talent to help the embattled tech company Huawei, which recently tripled the number of its research staff in the country. Putin and Xi’s drive to make their countries great again and push back against the American global leadership is another ingredient in the secret sauce of the China-Russia entente.

 

Limitations

Despite the bilateral relationship reaching new depths, there are several significant factors limiting Chinese-Russian cooperation. Most importantly, both countries are extremely sensitive about their strategic autonomy, and therefore will seek to avoid entering into legally binding security guarantees with one another like those that knit together NATO or the United States’ alliances in the Indo-Pacific. The two countries also have different global security interests. For example, China is not incentivized to support Russia’s annexation of Crimea, the war in eastern Ukraine, or Moscow’s military operations in Syria and Africa. By the same token, Moscow has few reasons to support China on Taiwan beyond paying lip service to the One China policy, or on the nine-dash line in the South China Sea.

 

As two independent great powers, China and Russia are also engaged in espionage against each other. In 2020 and 2021, evidence mounted over the level of Chinese spies’ aggression in Russia, including hacking attempts aimed at stealing designs for the latest weapons systems. Despite the professional concerns of the Russian counterintelligence community, these activities are unlikely to cause an overly emotional response in the Kremlin, as Moscow firmly believes that every great power will inevitably conduct espionage, even against its closest allies. The degree of mutual mistrust between the Chinese and Russian intelligence and secret services will, however, most likely prevent deeper cooperation on sensitive issues like joint information warfare against common adversaries.

 

There are also obstacles to expanding economic ties between China and Russia. The Russian investment climate is becoming increasingly hostile for foreigners, and historically Russia has not been a major investment destination for Chinese companies. Constantly changing rules, rampant corruption, and state dominance in many lucrative sectors make Russia a very hard place for Chinese companies to invest in, despite the burgeoning bilateral trade relationship.

 

In addition, U.S. economic sanctions against both China and Russia complicate their cooperation even further. Ever since the United States and the EU levied sectoral sanctions against Russia, Chinese commercial banks have been extremely cautious in providing loans and services to Russian entities, partly due to their limited exposure to the Russian market, and the scarcity of resources available to do compliance for existing or prospective Russian clients. Large-scale loans from Chinese political banks for major projects like Yamal LNG are more an exception driven not only by market considerations, but to a large extent by politics.

 

In a similar vein, Russian imports of Huawei cellphones have collapsed in the wake of U.S. export restrictions against that company, and Moscow generally has become more cautious in deepening its partnership with Huawei to develop 5G communications in Russia. Politically driven efforts to expand bilateral trade in the countries’ national currencies are also facing headwinds due to capital controls in China, causing frustration among Russian oligarchs who want to diversify away from Western capital markets, and among Russian officials who want to safeguard trade with Beijing against potential U.S./EU sanctions.

 

Taken together, these political and economic limitations will serve to prevent China and Russia from forging a full-fledged anti-Western alliance, as well as slow down plans for joint economic projects. 

 

Potential Friction

There are several issues that could push the relationship toward a more confrontational direction in the medium- to long-term. The key factor here is the rapidly growing strategic asymmetry between the two parties. Across numerous metrics, China is poised to either expand its lead over or close the gap with Russia. Later in this decade, for instance, China is projected to possess a significantly larger and more potent nuclear deterrent than its present-day posture, and its expanded investments in overall military capabilities will likely generate significant advantages over Russia’s navy, air force, and army.

 

In economic terms, Moscow is increasingly reliant on Beijing. China’s share in Russia’s external trade has increased from 10.5 percent in 2013—right before the war in Ukraine—to nearly 20 percent this year, and is set to increase even further in the coming years, as Western sanctions and the energy transition in the EU take their effect on Russia’s economic exposure to traditional partners in the West. Meanwhile, Beijing’s economic dependency on Moscow is hardly growing: Russia’s share in China’s trade stands at 2.4 percent at the end of 2021.

 

The bottom line is that Russia needs China more than China needs Russia. Over time, as the strategic balance tilts increasingly in Beijing’s favor, Chinese leaders could become tempted to use this growing leverage to coerce Russia into accepting commercial agreements benefitting Beijing more than Moscow or making more explicit gestures of support for China’s foreign policy decisions. They could even take a hardliner stance against Russia on issues over which the countries disagree.

 

On trade and investment, China increasingly has the stronger hand in dictating the terms of commercial deals. Whereas Beijing is diversified in terms of its imports of energy resources, in Asia, the Russian gas monopoly Gazprom is set to operate expensive pipelines that only serve Chinese customers, while Rosneft, the state-owned oil giant, is also heavily reliant on the Skovorodino-Mohe oil pipeline that ships 30 million tons a year to China only.

 

If Beijing opts to temporarily halt imports via these pipelines or threatens to terminate contracts altogether, China will be able to switch to new import sources, while the Russian energy companies will be hit very hard. This asymmetry may enable Beijing to renegotiate existing contracts and seek lower prices from Gazprom and Rosneft, while Moscow will have limited options for pushing back. There was a recent precedent for such developments in 2011, when Rosneft offered China National Petroleum Corporation a discount of $1.50 per barrel because of a contractual dispute. As Moscow’s customers are projected to become less reliant on Russian hydrocarbons over time, China’s influence over Russia will grow even larger.

 

Of course, Russia is no stranger to commercial disputes and the use of market power to extract economic concessions. Moscow’s experience on the European gas market is a good example, with Gazprom customers in the EU taking advantage of low prices and Gazprom’s vulnerability to push for compensation and contract reviews over the last decade, and Moscow taking its revenge during the European energy crunch. These developments will have prepared the Russian leadership for the eventuality of China becoming tempted to play its stronger hand due to altered market conditions, and the Kremlin is unlikely to be overly emotional about any commercial concessions it may be forced to grant its neighbor.

 

A potentially much more disruptive scenario for the China-Russia partnership could see Beijing using its economic leverage over Moscow to secure some major adjustments to Russian foreign policy in the Indo-Pacific, specifically with respect to its relationships with China’s rivals in the region: India and Vietnam. For many decades going back to Soviet times, the Kremlin has been trying to cultivate deeper ties with Hanoi and New Delhi, particularly through arms sales.

 

Russian weapons sales to India have grown significantly in the last five years, accounting for 23 percent of Moscow’s global arms exports between 2016 and 2020, while arms sales to Vietnam have been steadily growing since the mid-1990s.

 

Historically, China has viewed Russia’s arms trade with India and Vietnam as an irritant, but has refrained from elevating the issue to become a major strain on the bilateral relationship. However, China’s recent successes in closing the gap with Russia in terms of military technology support Beijing’s broader attempts to rapidly extend its security presence in the South China Sea and along its border with India, which has caused serious friction with Vietnam and India. Amid this rapidly shifting security landscape, Beijing has the opportunity and rationale to pressure Moscow to limit its partnerships with India and Vietnam. Although China is not presently in a position to coerce the Kremlin to abandon arms sales to these two countries, it might be increasingly tempted to do so in the future.

 

As China’s assertiveness grows, so do Beijing’s ambitions in its shared neighborhood with Russia in Central Asia. Over the last few decades, Beijing’s economic clout in the region has grown dramatically in tandem with increases in Central Asian exports of raw materials to the vast Chinese market.

 

Despite China’s growing influence in Central Asia, Moscow has managed to find ways to co-exist with Beijing thanks to a significant overlap in bilateral interests. Both powers want to see the region stable, secular, governed by authoritarian rulers, and not hosting U.S. troops. Russia and China have developed a division of labor, in which Beijing’s demand for commodities and infrastructure investments has been the key economic driver for regional development, while Moscow has remained the key external security guarantor. China has also opted not to challenge the Russian-led Eurasian Economic Union with its Belt and Road Initiative, while Beijing and Moscow have even found ways to symbolically link the two frameworks.

 

Still, China’s security footprint in the region is gradually growing, with more arms deals and military aid to Central Asian nations, as well as two facilities built in Tajikistan by the Chinese People’s Armed Police to patrol the Wakhan corridor that links China and Afghanistan. The carefully crafted co-existence formula could be jeopardized if Beijing continues to push for a bigger security role for itself in Central Asia, for example, through deployments of private military companies. So far, however, Moscow and Beijing have demonstrated a remarkable ability to compete in a way that is not disruptive to the joint pursuit of shared interests. The Kremlin is aware that strong anti-China sentiment in the region, particularly in Kyrgyzstan and Kazakhstan, is a factor that will significantly limit Beijing’s freedom of movement on regional security issues. Still, a stronger push to deepen security partnerships with Russia’s treaty allies without even notifying Moscow may be an irritant.

 

The Arctic is another region where Russia and China cooperate and compete at the same time. Moscow is a member of exclusive Arctic Council, which possesses a unique legitimacy over Arctic governance. Despite multiple sources of conflict with other members, including the United States and other NATO countries, Russia has a keen interest in preventing outside powers from having a say in Arctic affairs.

 

Although China is an observer in the Arctic Council and thus has no voice in setting the rules for regional governance, it has officially defined itself as a “near-Arctic state” and is actively seeking ways to become more involved in scientific research and the commercial exploration of natural resources. Russia is China’s biggest partner in this endeavor through two separate cooperation agreements to develop Russian-led LNG projects in the Arctic: Yamal LNG and Arctic LNG 2.

 

So far, Beijing has not sought to use these investments as leverage to co-opt Russian support for its broader objective of exerting greater influence in Arctic governance affairs. That could be a consequence of Moscow’s successful attempts to mitigate risk by raising financing from non-Chinese investors. Attempts by Beijing to leverage Moscow’s dependence on Chinese assistance in the Arctic can’t be ruled out, however, particularly if there are new Western sanctions targeting Russian economic efforts in the region.

 

Finally, despite the legal settlement of the territorial dispute between China and Russia, historical issues might come back to haunt the relationship in the future. As Beijing’s power grows, so does the assertiveness of its leadership and the strong nationalist feeling among the population, rooted in the narrative of reemerging after the “century of humiliation” that followed China’s defeat in the Opium Wars. Imperial Russia was one of the colonial powers that took advantage of China’s weakness back then to gain control over territories in the Far East that the Qing rulers considered part of their empire.

 

So far, Beijing has demonstrated little desire to address the national perception of the problematic chapters of China-Russia history. Problems are toned down in the official media, but never fully resolved, and the memory of Russia’s predatory behavior is preserved in history textbooks and museums. Dormant anti-Russian sentiment is present in Chinese society, and becomes visible online when triggered by events like the celebration of the 160th anniversary of the city of Vladivostok, which prompted a wave of angry criticism by Chinese netizens.

 

With China growing ever stronger than Russia, and the nationalist emotions of China’s society and leadership playing a bigger role in Beijing’s foreign policy (as evidenced by the “wolf warrior diplomacy” phenomenon), historical issues are likely to become a factor in the relationship once again. Stronger Chinese nationalism, if directed at Moscow, is likely to fuel a revival of Sinophobia in Russian society too, complicating the relationship even further.

 

Over the course of the last thirty years, China and Russia have demonstrated that their partnership is resilient and expanding. Despite several limiting factors, Beijing and Moscow have so far sought to cooperate in areas where there is significant complementarity of interests while carefully addressing sources of mutual concern. Any pragmatic leadership in the Kremlin—even a democratic one that seeks to improve ties with the West—will try to maintain stable and friendly relations with China, just as any pragmatic Chinese leadership will do with Russia.

 

The key variables that will determine the future of the increasingly asymmetrical bilateral relationship are China’s growing assertiveness and nationalism, and whether Beijing will seek to manage relations with Moscow in the same careful way as it does now, or whether it will use its growing leverage to seek concessions from a weaker partner. On the Russian side, the level of anti-American obsession and the progress of domestic reforms will be the key variables in defining the future of ties with China.

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Source: Carnegie Moscow Center

How Will China Deal With the Taliban...

How Will China Deal With the Taliban in Afghanistan?

Even before the Taliban took control of Kabul, China started deepening diplomatic ties with the group, hosting a Taliban delegation in July. Since then, Chinese officials have said that Beijing respects Afghans’ right to decide their future, implying that the Taliban’s victory reflects the people’s will.

 

 

What kind of relationship will Beijing have with the Taliban?

Beijing’s relationship with the Taliban will be twofold. First, it will be mercantilistic. China will seek to revive business ventures inside Afghanistan, which the Taliban is likely to support because investment will provide badly needed revenues. The Afghan economy is fragile and highly dependent on Western donors’ foreign aid, which will almost certainly be cut off. So any sort of investment, especially if it is not accompanied by lectures on human rights, will be welcome.

 

Second, the relationship will depend on each side not interfering in the other’s internal affairs. For Beijing, that means the Taliban cannot export extremism into China’s troubled Xinjiang region, which shares a tiny border with Afghanistan, or condemn the Chinese government’s policies in that region. For the Taliban, it means China will not question the group’s human rights abuses unless Chinese citizens are involved.

 

In some ways, Afghanistan under the Taliban is China’s perfect partner: dysfunctional, dependent, and happy with whatever China can do for it.

 

What are the Chinese government’s interests in Afghanistan?

The economic interests are important but not decisive. At the end of the day, Afghanistan is an insignificant market and has only a few sources of raw materials.

 

Much has been made of Chinese projects in Afghanistan, but these have been limited in scope. Even in stable countries, many Chinese projects that are announced, including those through the Belt and Road Initiative, are often not completed. So it is unlikely that China immediately becomes an investing juggernaut in Afghanistan.

 

Instead, China’s goal is likely to be at least as much political as economic. Beijing aims to head off any potential support for Muslims in Xinjiang that could come from Afghanistan.

 

And perhaps most importantly, China’s engagement in Afghanistan can show other countries how China supports regimes: with few questions asked as long as they support Chinese interests.

 

Does China view the chaotic withdrawal as an example of U.S. decline?

Chinese politics remain opaque, but it is clear that one important faction of the ruling apparatus holds that the United States and the West are in decline. This line of thinking is found in Chinese think tanks, academia, and government. It is not unchallenged, but those who argued, for example, for cooperating with the United States in Afghanistan will be weakened, and those who see the West as in decline will be emboldened.

 

It will also become easier for China to argue that when push comes to shove, the United States is unreliable—it talks a good talk but will walk away when it loses interest. Those in China who cautioned that the chaos of the past few years was mainly due to one unusually disorganized administration will find their voices weakened. Instead, it will be easier to argue that the United States is in a secular decline.

 

China pressed the previous Taliban regime to end support for Islamist extremism. Does it have similar concerns now?

China is fighting what it calls a war against extremism in Xinjiang and argues that international extremist groups have aided Islamists there. There is little evidence for this—certainly not in recent years—but China is wed to this story, so leaders will have to push the Taliban not to admit extremists back into Afghanistan and especially not to allow the country to become a haven for extremists, like it was in the late 1990s. The Taliban will likely agree to this because it needs the investment and because China is much more powerful now than it was twenty years ago.

 

Of course, for China, recognizing the Taliban makes for strange optics: fighting Islamists at home but embracing them abroad. But it shows that China could be the ultimate realpolitik nation.

 

How likely is it that Beijing and Washington will work together to promote stability in Afghanistan?

In theory, this could work because they both want to fight terrorism. In reality, however, it is hard to see how the United States can now be engaged in any meaningful way in Afghanistan. It just walked away from its best option for promoting stability there, effectively deciding instead to turn the country over to the Taliban (even if the takeover was sooner than expected).

 

At the same time, the United States is unlikely to pursue business interests there—one can imagine sanctions being imposed after the first human rights abuses are reported. Thus, the United States will basically be absent from Afghanistan’s future, allowing countries such as China and Pakistan to pursue their interests unilaterally.

 

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Source: By Ian Johnson for the Council on Foreign Relations

 

 

Why China is attacking its own big tech...

Why China is attacking its own big tech sector

The market capitalisations of several of China's major tech companies have taken a severe beating in the last few weeks.

 

On the face of it, it seems strange.

A national government deliberately and effectively wiping billions of dollars of value from a group of companies that at one time had been grouped together under the banner of “national champions.” Big Tech in China has taken a pummelling on the markets in recent weeks, but not because trading conditions have turned sour, but because the government has.

But just as China is much more multifaceted than it initially appears, so too is its tech sector, and not every company is suffering the same fate.

So, while one-time darling of Chinese cheerleaders Jack Ma has now fallen from grace and the multi-billion dollar listing of his company Ant Financial has been scuppered, tech conglomerate Huawei sails on unmolested.

 

 

So what’s going on?

It’ likely part of a deliberate strategy. After all, China is not the country it once was just a couple of short decades ago, when any kind of growth was to be championed, and a sector like software, where margins are traditionally large, was given every encouragement in the name of the onward march of GDP.

Now, China has to some extent arrived. To be sure, it can’t quite challenge America properly yet. But it’s got within shouting distance, and the time has come for the government, under  Premier Xi Jin-Ping, to start to think strategically.

In fact, consumer-facing tech hasn’t had a clear run in China for some time. The collapse into scandal of various bike-sharing apps a few years ago heralded a certain souring of the public mood towards the tech sector in general, especially as there are, as in the Western world, concerns about data security.

That might seem ironic in a country that wields the most advanced surveillance systems in the world, but the difference with the consumer tech was that it wasn’t only impacting consumers’ freedoms, it was hitting them in their wallets.

So, it’s been widely held for some time that companies like food-delivery service Meituan, ride-hailing service Didi and online travel service Ctrip are engaged in what’s known locally as “big data back-stabbing”, or mining consumer data in order to manipulate prices upwards.

The Chinese consumer is at last beginning to make demands and, on this issue at least, the government is willing to take notice.

That’s because the Chinese government also has its own agenda when it comes to tech companies. Last year, President Xi made a pronouncement the significance of which was missed by many observers.

“We must recognize the fundamental importance of the real economy,” he said, “and never deindustrialize.” 

On one level that might be seen as a response to the cultural and economic conflicts now wracking the USA, where several decades of deindustrialization are now seen as root causes of many of the country’s social ills.

 

But it goes deeper than that.

The Chinese economy has always been centrally controlled, and anyone who suggests otherwise is dreaming. The periodic disappearances of the leaders of its top conglomerates serve to remind not only the industrial and economic elite but also to the rest of the population who’s in charge. The founder of Alibaba, Jack Ma, is the latest to disappear and then to reappear, chastened.

That this latest round of wing-clipping only goes to underline the point is incidental, though. The point is that the control has always been there, and those that pull the levers of that control are now seeking to take the country down a different path.

Note the parallel attack on for-profit online educational companies. This is essentially a harking back to the old days, a top-down reinforcement of equality that prevents the bourgeoisie pulling too far away from the masses.

The attack on consumer-facing big tech is similarly ideological, and runs in part in the tradition of moral regeneration programmes that have their roots back beyond the rule of the CCP to the times of Chiang Kai-Shek.

Profit is not the be-all and end-all of a communist state. That the consumer-facing tech companies were profitable was useful as long as it helped the Communist Party in enhancing its power. But if that same tech becomes merely a series of sophisticated leisure-oriented applications, then its’ utility becomes more questionable.

In and of itself, that might not matter. But there’s still the question of China’s standing and power in the world to consider. And the Chinese Communist Party is becoming increasingly aware that its hard technology rather than consumer software that will be essential in pursuing that agenda. It’s no good whatsoever if the best Chinese minds are being sucked away into consumer-facing technology by the promise of higher wages and the glamour that Jack Ma once enjoyed. Much better to set those minds to work creating the next generation of artificial intelligence, of robotics, and of electronic engineering.

That’s why Huawei, which makes hard technology is able to continue unmolested. And its no coincidence either that shares in China’s semiconductor champion, SMIC, have surged recently.

 

2020 in Review: Chinese Companies Suffer...

2020 in Review: Chinese Companies Suffer as Global Technology Tensions Intensify

2020 was not an easy year for Chinese tech companies. Officials around the world became warier of the potential national security threats posed by their growing power. A slew of bans, restrictions, and sanctions on Chinese tech companies strengthened China’s resolve to shore up indigenous innovation and self-reliance. And while the Biden administration will likely take a more measured policy approach than the Trump administration, it is unlikely that things will get much easier for Chinese tech companies in 2021.

 

The year started out with a few major wins for Huawei. In January, the United Kingdom (UK) decided to allow Huawei to play a limited role in its 5G network. Officials in Italy and South Africa also indicated they would allow Huawei network equipment in their networks. Kenya outright rejected U.S. security warnings and warmly accepted Huawei. Chancellor Angela Merkel, more in favor of tightening security requirements for all telecoms, pushed back against more hawkish German legislators aiming to ban Huawei outright and delayed Germany’s decision on 5G security standards.

Unfortunately for Huawei, the winning streak did not last long. In May, the U.S. Department of Commerce amended export controls rules on the telecom giant to close a loophole in the original sanctions that allowed it to continue designing semiconductors using U.S. technology—effectively preventing it from making the advanced chips needed to power its higher-end products. As a result of these additional sanctions, the UK’s National Cyber Security Centre determined that Huawei could be forced to use untrusted technology, raising unacceptable risks to the UK’s network. Boris Johnson’s government reversed the decision, banned purchases of Huawei network equipment, and declared that all Huawei network equipment must be removed from the UK’s network by the end of 2027. In the fall, Italy vetoed a 5G deal involving Huawei, and reports suggested that Germany, while not banning Huawei outright, could raise bureaucratic obstacles that would make it impossible for the company to participate in Germany’s 5G network.

 

The cards continued to fall as the U.S. government increased its lobbying efforts against Huawei 5G abroad. In Central Europe, the U.S. Department of State convinced several countries to sign on to its “Clean Network” initiative and reject Huawei. In September, the Czech Republic denied Huawei’s request to participate in its 5G tenders as the company failed to receive the security clearance necessary. A few weeks later, Romania came to a similar conclusion. Below the equator, U.S. officials aggressively worked to convince their Brazilian counterparts to exclude Huawei. After offering up to $1 billion in financing for Brazil to buy 5G equipment from Huawei competitors, reports suggest Brazilian President Jair Bolsonaro’s government is considering using a presidential decree to ban Huawei from Brazil’s 5G networks.

 

Despite the heavy focus on Huawei, other Chinese tech companies did not escape 2020 unscathed. In July, the U.S. Department of Defense released a list [PDF] of Chinese companies with connections to the Chinese military for the first time since initially required by the 1999 National Defense Authorization Act. The list includes SMIC and Hikvision, whose securities will be removed from U.S. stock exchanges under an executive order signed by President Trump.

 

The Trump administration also used executive orders to target popular Chinese-made apps. In August, President Trump signed executive orders banning TikTok and WeChat due to the risks posed by Chinese censorship and collection of U.S. users’ data. These efforts are being fought in the courts, and the U.S. government has not extended the now-passed deadline for ByteDance to divest from TikTok nor enforced the ban.

 

Sparked in June by skirmishes in the Ladakh region of the China-India border, India banned more than 200 Chinese apps this year, including TikTok, PUBG mobile, Baidu Maps, AliExpress, DingTalk, Taobao Live, and WeChat. The Indian government cited national security risks posed by these apps’ collection and transmission of Indian user data to servers outside of India. Chinese tech investment in India has cratered.

 

In the face of all these developments, the Chinese government has routinely criticized actions that restrict Chinese tech companies’ access to foreign markets. The Chinese Ministry of Foreign Affairs has argued that the national security justifications that foreign countries use to restrict Huawei, TikTok, WeChat, and other products are baseless and infringe on market competition principles and global trade rules. The irony that Beijing has used similar arguments to block foreign tech companies seems to be lost on them.

 

While Chinese companies have lobbied foreign officials to reverse decisions that ban or restrict them from foreign markets, many of these companies have worked to insulate themselves from geopolitics by increasing R&D investment in critical components. The Chinese government has supported these efforts, with self-reliance and dual circulation, an economic strategy that aims to reduce dependence on foreign markets, displayed prominently in a communique outlining objectives for the upcoming Fourteenth Five-Year Plan.

 

The world will not become more hospitable for Chinese tech companies in 2021. While the Biden administration will be less volatile than the Trump administration, global tech competition will remain. It is unlikely that the Biden administration will remove U.S. export controls on Huawei, raising questions about how Huawei will be able to operate after its semiconductor stockpile runs out sometime in early spring.

 

In addition, the Biden administration is poised to bolster the United States’ technological dominance by ramping up investment in basic research, reducing immigration restrictions for high-skilled workers, and working with allies on export controls, investment restrictions, and technical standards to put up a more “united front” against Chinese technology. These efforts are likely to accelerate global technology tensions and China’s pursuit of indigenous innovation.

 

----------------------------------------------------------------

Source: Council on Foreign Relations

Preferential market access in EU-China...

Preferential market access in EU-China Investment Agreement on ratification.
Should the EU – China Investment agreement be ratified, European companies should receive preferential market access in a number of these sectors in China and Chinese companies will be permitted to push forward on their green energy and NEV investment strategies into the EU. The Key elements of the agreement are layed out below.
 

The cumulative EU foreign direct investment (FDI) flows from the EU to China over the last 20 years have reached more than €140 billion. For Chinese FDI into the EU the figure is almost €120 billion. EU FDI in China remains relatively modest with respect to the size and the potential of the Chinese economy.

 

As regards investment, the EU-China Comprehensive Agreement on Investment (CAI) will be the most ambitious agreement that China has ever concluded with a third country. In addition to rules against the forced transfer of technologies, CAI will also be the first agreement to deliver on obligations for the behavior of state-owned enterprises, comprehensive transparency rules for subsidies and commitments related to sustainable development.

 

The CAI will ensure that EU investors achieve better access to a fast growing 1.4 billion consumer market, and that they compete on a better level playing field in China. This is important for the global competitiveness and the future growth of EU industry.

 

 

Ambitious opening by China to European investments

Firstly, the CAI binds China's liberalisation of investments over the last 20 years and, in that way, it prevents backsliding. This makes the conditions of market access for EU companies clear and independent of China's internal policies. It also allows the EU to resort to the dispute resolution mechanism in CAI in case of breach of commitments.

 

In addition, the EU has negotiated further and new market access openings and commitments such as the elimination of quantitative restrictions, equity caps or joint venture requirements in a number of sectors. These are restrictions that severely hamper the activities of our companies in China. The overall package is far more ambitious than what China has committed to before.

 

On the EU side, the market is already open and largely committed for services sectors under the General Agreement on Trade in Services (GATS). EU sensitivities, such as in the field of energy, agriculture, fisheries, audio-visual, public services, etc. are all preserved in CAI.

 

Examples of market access commitments by China:

  • Manufacturing: China has made comprehensive commitments with only very limited exclusions (in particular, in sectors with significant overcapacity). In terms of the level of ambition, this would match the EU's openness. Roughly half of EU FDI is in the manufacturing sector (e.g. transport and telecommunication equipment, chemicals, health equipment etc.). China has not made such far-reaching market access commitments with any other partner.

 

  • Automotive sector: China has agreed to remove and phase out joint venture requirements. China will commit market access for new energy vehicles.

 

  • Financial services: China had already started the process of gradually liberalising the financial services sector and will grant and commit to keep that opening to EU investors. Joint venture requirements and foreign equity caps have been removed for banking, trading in securities and insurance (including reinsurance), as well as asset management.

 

  • Health (private hospitals): China will offer new market opening by lifting joint venture requirements for private hospitals in key Chinese cities, including Beijing, Shanghai, Tianjian, Guangzhou and Shenzhen .

 

  • R&D (biological resources): China has not previously committed openness to foreign investment in R&D in biological resources. China has agreed not to introduce new restrictions and to give to the EU any lifting of current restrictions in this area that may happen in the future.

 

  • Telecommunication/Cloud services: China has agreed to lift the investment ban for cloud services. They will now be open to EU investors subject to a 50% equity cap.

 

  • Computer services: China has agreed to bind market access for computer services - a significant improvement from the current situation. Also, China will include a ‘technology neutrality' clause, which would ensure that equity caps imposed for value-added telecom services will not be applied to other services such as financial, logistics, medical etc. if offered online.

 

  • International maritime transport: China will allow investment in the relevant land-based auxiliary activities, enabling EU companies to invest without restriction in cargo-handling, container depots and stations, maritime agencies, etc. This will allow EU companies to organise a full range of multi-modal door-to-door transport, including the domestic leg of international maritime transport.

 

  • Air transport-related services: While the CAI does not address traffic rights because they are subject to separate aviation agreements, China will open up in the key areas of computer reservation systems, ground handling and selling and marketing services. China has also removed its minimum capital requirement for rental and leasing of aircraft without crew, going beyond GATS.

 

  • Business services: China will eliminate joint venture requirements in real estate services, rental and leasing services, repair and maintenance for transport, advertising, market research, management consulting and translation services, etc.

 

  • Environmental services: China will remove joint venture requirements in environmental services such as sewage, noise abatement, solid waste disposal, cleaning of exhaust gases, nature and landscape protection, sanitations and other environmental services.  

 

  • Construction services: China will eliminate the project limitations currently reserved in their GATS commitments.

 

  • Employees of EU investors: Managers and specialists of EU companies will be allowed to work up to three years in Chinese subsidiaries, without restrictions such as labour market tests or quotas. Representatives of EU investors will be allowed to visit freely prior to making an investment.

 

Improving level playing field – making investment fairer

  • State owned enterprises (SOEs) - Chinese SOEs contribute to around 30 percent of the country's GDP. CAI seeks to discipline the behaviour of SOEs by requiring them to act in accordance with commercial considerations and not to discriminate in their purchases and sales of goods or services. Importantly, China also undertakes the obligation to provide, upon request, specific information to allow for the assessment of whether the behaviour of a specific enterprise complies with the agreed the CAI obligations. If the problem goes unresolved, we can resort to dispute resolution under the CAI.

 

  • Transparency in subsidiesThe CAI fills one important gap in the WTO rulebook by imposing transparency obligations on subsidies in the services sectors. Also, the CAI obliges China to engage in consultations in order to provide additional information on subsidies that could have a negative effect on the investment interests of the EU. China is also obliged to engage in consultations with a view to seek to address such negative effects.

 

  • Forced technology transfersThe CAI lays very clear rules against the forced transfer of technology. The provisions consist of the prohibition of several types of investment requirements that compel transfer of technology, such as requirements to transfer technology to a joint venture partner, as well as prohibitions to interfere in contractual freedom in technology licencing. These rules would also include disciplines on the protection of confidential business information collected by administrative bodies (for instance in the process of certification of a good or a service) from unauthorised disclosure. The agreed rules significantly enhance the disciplines in WTO.

 

  • Standard setting, authorisations, transparencyThis agreement covers other long-standing EU industry requests. China will provide equal access to standard setting bodies for our companies. China will also enhance transparency, predictability and fairness in authorisations. The CAI will include transparency rules for regulatory and administrative measures to enhance legal certainty and predictability, as well as for procedural fairness and the right to judicial review, including in competition case.

 

Embedding sustainable development in our investment relationship

  • In contrast to other agreements concluded by China, the CAI binds the parties into a value-based investment relationship grounded on sustainable development principles. The relevant provisions are subject to a specifically tailored implementation mechanism to address differences with a high degree of transparency and participation of civil society.

 

  • China commits, in the areas of labour and environment, not to lower the standards of protection in order to attract investment, not to use labour and environment standards for protectionist purposes, as well as to respect its international obligations in the relevant treaties. China will support the uptake of corporate social responsibility by its companies.

 

  • Importantly, the CAI also includes commitments on environment and climate, including to effectively implement the Paris Agreement on climate.

 

  • China also commits to working towards the ratification of the outstanding ILO (International Labour Organisation) fundamental Conventions and takes specific commitments in relation to the two ILO fundamental Conventions on forced labour that it has not ratified yet.

 

Monitoring of implementation and dispute settlement

  • In the CAI, China agrees to an enforcement mechanism (state-to-state dispute settlement), as in our trade agreements.

 

  • This will be coupled with a monitoring mechanism at pre-litigation phase established at political level, which will allow us to raise problems as they arise (including via an urgency procedure).

 

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Source: European Commission.


 

China's economy has rebounded: challenge...

China's economy has rebounded: challenges ahead

China’s economy returned to growth in the second quarter after a deep slump at the start of the year, but unexpected weakness in domestic consumption underscored the need for more policy support to bolster the recovery after the shock of the coronavirus crisis.

 

 

Asian share markets and the Chinese yuan fell, partly reflecting the broad challenges facing the world's second-largest economy as it grapples with the double-whammy of the pandemic and heightened tensions with the United States over trade, technology and geopolitics.

 

 

Gross domestic product (GDP) rose 3.2% in the second-quarter from a year earlier, the National Bureau of Statistics said on Thursday, faster than the 2.5% forecast by analysts in a Reuters poll, as lockdown measures ended and policymakers ramped up stimulus to combat the virus-led downturn.

 
 

The bounce was still the weakest expansion on record, and followed a steep 6.8% slump in the first quarter, the worst downturn since at least the early 1990s. “As we previously highlighted, policy support is still needed despite recovering growth momentum,” Betty Wang, ANZ bank’s senior China economist.

 

 

“The possibility of resurgences in local COVID-19 cases, global economic uncertainty and the deteriorating China-U.S. relationship all pose downside risks to China’s H2 growth outlook,” Wang said. Those risks were partly reflected in separate retail data that showed Chinese consumers kept their wallets tightly shut, pointing to a bumpy outlook at home and overseas, as many countries continue to grapple with the COVID-19 pandemic - led by surging infections in the United States.

 

 

Though June indicators and GDP numbers largely beat expectations, Rodrigo Catril, a foreign exchange strategist at NAB in Sydney, said they also revealed “the China consumer remains behind in terms of the recovery story.”

 

 

“It’s very much a story of government stimulus-led recovery, which is very much focused on the industrial side. The consumer remains very cautious. That cautiousness is something the market is looking at in terms of countries where the consumer plays a bigger role, so that’s obviously relevant for the U.S. as well.”

 

 

Retail sales were down 1.8% on-year in June - the fifth straight month of decline and much worse than a predicted 0.3% growth, after a 2.8% drop in May. Domestic job losses have been one of the worries for consumers, as many businesses struggled to stay in the black. Wanda Film, for example, China’s largest cinema chain operator which has more than 600 cinemas, on Tuesday warned of a first half net loss of 1.5-1.6 billion yuan (£170.4-£181.6 million), after the coronavirus kept its cinemas shut for almost the entire period.

 

 

U.S. Tensions, Structural Issues

In the first half of the year, the economy contracted 1.6% from a year earlier, underscoring the sweeping impact of the virus which first emerged in China late last year and has killed over 583,000 people worldwide. The rising tensions with the United States and the pandemic have added to structural issues that China has been facing for years, including demographic changes, over-investment, low industrial productivity and high debt levels. On a quarter-on-quarter basis, GDP jumped 11.5% in April-June, the NBS said, compared with expectations for a 9.6% rise and a 10% decline in the previous quarter.

 

The IMF has forecast China to expand 1.0% for the full year.
Image: IMF

The government is expected to offer more support on top of a raft of measures already announced, including fiscal spending boost, tax relief and cuts in lending rates and banks’ reserve requirements. But debt worries have kept a leash on China’s stimulus tap. Net fiscal stimulus unveiled so this year amounted to just over 4 trillion yuan ($571.76 billion), much restrained compared the spending burst in other major economies including the United States and Japan. The Institute of International Finance estimates China’s total debt rose to 317% of gross domestic product in the first quarter of 2020, up from 300% in late 2019 and the largest quarterly increase on record.

 

 

The industrial economy offered some hope for the nation as it tries to regain its footing, with output in the vast sector rising 4.8% in June from a year earlier, the third straight month of growth, the data showed, quickening from a 4.4% rise in May. 

 

 

Fixed asset investment fell a less-than-expected 3.1% in the first half from the same period in 2019, moderating from a 6.3% decline in the first five months, while real estate investment growth also quickened to 8.5% in June, thanks to the credit boost.

 

 

While the International Monetary Fund has forecast China to expand 1.0% for the full year, the only major economy expected to report growth in 2020, many analysts caution about the outlook. “Domestic demand will drive China’s recovery ahead, but external demand could be a risk to the growth outlook given the possibility of large second round of coronavirus infections overseas,” said Oshimasa Maruyama, chief market economist at SMBC Nikko Securities in Tokyo.

 

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Source: Reuters Gabriel Crossely, Kevin Yao

 

 

 

Greater Bay Area can be the sandbox...

Greater Bay Area can be the sandbox for China’s next stage of market liberalization.

By Andrew Lo, Senior Managing Director & Head of Asia Pacific, Invesco

From the launch of Stock and Bond Connect to the opening of its financial sector to more foreign investments, China has rapidly liberalized its capital markets with great results.

 

 

Yet, the sheer size of China’s capital markets and the complexity of its financial system make opening and integrating with the rest of the world a hugely challenging task. China has traditionally resorted to controlled experiments – in the form of pilot programmes to mitigate potential shocks and secure flexibility to change course as needed. But they also come at the expense of policy optimality, policy consistency and, in some cases, policy confusion and frustration.

 

 

I believe that the Greater Bay Area (GBA) – a plan encompassing Guangdong province in southern China, Hong Kong and Macao – has what it takes to be the sandbox for China’s next stage of market liberalization. The GBA has 71 million people, and a GDP per capita of USD 23,342. We can appreciate the region’s diversity by considering tech hub Shenzhen and Guangdong’s manufacturing prowess.

 

 

Connecting with Hong Kong, an established global financial centre, allows the region to immediately tap into its world-class talent pool, sound legal framework and international best practices to help accelerate China’s plans to liberalize its financial markets.

 

 

Specifically, I see several areas where the GBA could take the lead to help transform China’s economic future, namely:

 

 

  • Developing China’s pension system
  • Liberalizing cross-border financial products
  • Deepening the liquidity pool of offshore renminbi for payments

 

 

The region already offers a rich and deep pool of renminbi savings. The planned pension reform will release more retail investors’ savings into the region’s financial markets. Demand for well-designed and globally diversified investment products and services is on the rise. Investment management industry participants in both Shenzhen and Hong Kong could play a critical role.

 

 

The natural starting point is to allow GBA residents to invest in a wide range of investment and retirement products in the mainland and/ or Hong Kong. To swiftly address product and service gaps, the authorities could implement easy passporting of investment products (including cross-border products) that are already authorized in the GBA’s constituent jurisdictions.

 

 

Capital must be able to flow and convert freely within the GBA. Reinventing the wheel is unnecessary – China has already embarked on several localized schemes to liberalize its currency and markets, so we can start by broadening their scope within the GBA. If oversight of Chinese offshore accounts can be devolved to corporate fiduciaries – starting with the four largest state-owned Chinese banks, for example – I believe that funds can flow more freely within the region.

 

 

Lastly, competition must be encouraged to fuel innovations and help lower the cost of products and services to benefit consumers. The authorities in mainland China and Hong Kong could collaborate to level the playing field for existing capital market participants onshore and offshore within the GBA. This would help foster more vibrant and global institutional participation, thereby deepening China’s financial markets to pave the way for greater internationalization of the renminbi.

Download the full report here.


 

 

Shortening Supply Chains: Mexico's Gain?

Shortening Supply Chains: Mexico's Gain?

The 1990s saw a dramatic shift in manufacturing from sites in North America to sites in developing China. At that time, Chinese labor costs were minuscule, and the economy provided seemingly limitless workers. But that was then. Now, we see a shift in the reverse direction to companies that are moving manufacturing from China to Mexico. Chinese and other Asian companies seeking access to foreign markets are moving manufacturing operations to Mexico or expanding existing production facilities there in order to shorten their supply chains and be more regional.

 

 

In recent years Chinese exports have faced increasing obstacles. Tariffs on Chinese goods and an unfavourable political climate have been complicating exports to the USA. In response to this, Mexico has become an increasingly attractive place for Chinese industry to establish a foothold on the continent:  China’s Hisense Co. announced they were doubling their Mexican investment earlier this year. Foxconn (which currently has five factories in Mexico mainly making televisions and servers) and Pegatron are among companies eyeing new factories as they re-examine global supply chains.

 

 

As the value of the Chinese yuan has been rising, the cost of overseas shipping has surged, and increased competition among Chinese factories has resulted in labor shortages and longer lead times. Due to both distance and fluctuating oil prices, shipping costs are exponentially higher when manufacturing in China. In 2018, shipping a 53-foot container from China to Los Angeles cost close to $5,000. The same container from the border of Mexico (Tijuana) to Los Angeles costs about $600. Thanks to the North American Free Trade Agreement (NAFTA), goods imported from Mexico can enter duty free.

 

 

Mexico's wages are 40 percent higher than China's, at about $3.50 an hour. As a result, overall production costs are comparable in the countries, once you factor in Mexico's lower transport and customs cost. But Chinese factory wages are climbing 14 percent annually. Some analysts, believe that this strong trend will actually position Mexican wages to be 30% less than Chinese wages just two years from now.

 

 

Moving manufacturing from China to Mexico also means less travel expenses for executives, resulting in increased and more effective oversight into operations in similar time zones and, thus, more quality in production and increased productivity. While Mexico still relies on the US and China for inputs, its supply chain is well established. Given the high concentration of manufacturing operations in several industries, businesses can make use of established infrastructure and supply chain networks.

 

 

By bringing the goods of Chinese firms closer to the customer, Chinese firms can increase the demand for their goods. Industries such as automotive and electronics  require fast deliveries. Also delivered is the opportunity to diversify their products into not just the North American market, but also the markets of Latin America..

 

 

The two countries have recognized their mutual goals and complementing assets over the past few years, and taken noticeable steps to form a partnership. Mexico also has a strong reputation for protecting intellectual property, a valuable advantage over China where counterfeit products and IP protection remain a concern. Mexican business sees the current Covid crisis and US-China Trade War as allowing Mexico to attract more investment, lure companies and create jobs from both Chinese Companies looking to take advantage of Mexico’s location and the new North American trade deal (USMCA) and US businesses looking to relocate remote operations from China. Conversely the new government of President Andres Manuel Lopez Obrador is slashing investment in the kinds of infrastructure that manufacturers need: the proposed budget for new roads is down 45 percent, rails and ports don’t fare well and plans have been cancelled for a new world-class airport outside of Mexico City. The government’s new energy policies don’t ensure Mexico will have enough reliable and affordable electricity to support a manufacturing surge in the future. Mexico’s retreat right at the moment of a global manufacturing shakeup means it might just be losing an opportunity for significant gain in the years to come.

How China is strengthening its electric...

How China is strengthening its electric vehicle market during Covid

While COVID-19’s impact to China’s car market has been dramatic, there are already signs of a recovery. The country’s reaction to the crisis shows a commitment to new technologies, signaling how the crisis could build resiliencies moving forward.

 

 

Impact to the economy
The negative impact brought by COVID-19 is becoming more and more significant. As of 28 May, there have been 5.7 million confirmed cases of COVID-19, including 356,000 deaths, reported by the WHO. According to a forecast from International Monetary Fund in April, public health measures to prevent the spread of virus have severely disrupted business activities and international travels. As a result, the global economy is projected to contract sharply by -3% in 2020 while China sees 1.2% growth.

 

 

The automotive sector is one of the top pillar industries for China’s economy and a major employer. In 2019, for example, the automotive sector contributed 9.6% of the total retail sales of consumer goods. The sector also accounted for around 10% of total employment in China (when the entire value chain is considered).

 

 

In China, the so-called “5-6-7-8-9 Characteristics” describes the private economy, which comprises approximately 50% of tax, 60% of GDP, 70% of technology innovation, 80% of urban employment, and 90% of total companies. For light passenger vehicle market, roughly 70% of new car buyers in China come from the private economy sector, mainly small and medium sized enterprises (SMEs), according to the data from State Information Center.

 

COVID-19 placed significant burdens on small- and medium-sized enterprises, the most vulnerable group in China during this crisis. This impact was seen in China’s first quarter vehicle sales. According to the China Association of Automobile Manufacturers (CAAM), sales of passenger cars declined 42.4% year over year during that period. SAIC, one of China’s largest manufacturers, reported a 44.9% percent drop year to date in April. Its SAIC-Volkswagen and SAIC-General Motors joint ventures, which comprise the majority of its sales volumes, dropped 50.4% and 47.7% year over year in retail sales from January to April respectively.

 

 

New energy vehicle incentives and plans
To stimulate the automotive market, several government policies were launched. 10 cities released incentive schemes. For instance, Guangzhou announced a subsidy of 10,000 RMB for New Energy Vehicles sold between March and the end of December. Additionally, a State-level subsidy to New Energy Vehicles that was planned to phase out by the end of 2020 was extended until 2022. Additionally, new commitments were made to investments in infrastructure. The State Grid plans to build 78,000 charging stations at a cost of 2.7 billion RMB in 2020.

 

 

Signs of a rebound
With the gradual resuming of industry activities, auto sales are starting to recover. Retail sales of new light passenger vehicles surged ahead in March, as reported by the China Passenger Car Association (CPCA). While just 250,000 units were sold in February, March’s numbers were four times that amount. Year over year, March 2020 sales were still below 2019 levels, but 40% lower, not the 80% drop seen in February. Sales in April have begun to catch up with just a 3.6% drop year over year.

 

 

China has a 2-month lead on addressing COVID-19 and may be the recovery example for large economies able to contain the spread of the virus and get its citizens back to work.

 

 

Car ownership per 1,000 people vs. GDP per capita in 2019 for main countries
Image: Peng He, using World Bank data

Despite the significant impact of COVID-19 on China’s automotive industry, the market potential is still quite huge. China is still expected to become the largest vehicle market with around 260 million units in operation or 186 units on average per every 1,000 people. At 173 units per person now, there is room in China for more light passenger vehicle purchases. However, after COVID-19, the market will definitely not simply snap back to where it was before the pandemic. According to a forecast from IHS Markit on 21st April, light vehicle sales will decline 15.5% in China for 2020.

 

 

Beyond sales, the real opportunity after COVID-19 lies in the shift from internal combustion engines to cleaner, electric vehicles with the government and industry working jointly. Though oil prices have fallen, reducing the total cost of ownership for internal combustion engine vehicles, China is set to keep its long-term strategic goals for automobile electrification and meet climate change and temperature raise goals set by the Paris Agreement.

 

 

These approaches are the continuation of policies that had been part of a national strategy since the early 2010s. This tact can help the country 'leapfrog' in the automotive space while also tackling key energy and environmental issues, ensuring the country remains both resilient and competitive.

 

 

Other industry leaders could learn from this type of long-term thinking, leveraging the sectors hard times ahead to help further accelerate the development of New Energy Vehicles. That's a move that would surely represent "building back better."

 

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Source: World Economic Forum Research

 

China ushers in the era of Building...

China ushers in the era of Building Economy 3.0

The evolving context of “building” in modern real estate market
In the Chinese language, the word “building” literally refers to the combined meaning of two characters “lou” and “yu”. Chinese characters “lou yu” not only incorporate architectural structure but also the concept of functionality, and has had this interpretation since ancient times. Architecturally speaking, the term embodies different variations of floor area, structures, facades, underground and other aspects.. In terms of functionality, besides residence, the term covers a wide spectrum of functions including research, manufacturing, storage, retailing, working and other economy-related activities. Therefore, in the modern real estate context, the concept of “lou yu” is not just limited to office buildings, but also comprises retail, hotels, apartments, industrial parks, logistics and manufacturing, all of which are a part of the scope of the “building economy”.

 

 

What is the Building Economy 3.0?
Entering 2018, China transitioned its economy from pure growth orientation towards a period of industrial restructuring and upgrading, marking the beginning of a new era for China’s building economy. We define it as the Building Economy 3.0. The difference is the capability of integrating the property market and industries. During the 3.0 era, buildings and the economy will integrate in an unprecedented way, as buildings will no longer be limited to serving as hardware or real estate properties, but rather as a means to drive the economy. Moreover, impetus for the development of the building economy has shifted from being market-oriented to technology-driven.

 

 

An analytical model of the key trends of Building Economy 3.0
Enterprises and people are central to the building economy. The horizontal axis views the needs of enterprises and their people, while the vertical axis measures the economic drivers. Each quadrant demonstrates a future trend of building economy as follows.

 

 

Conclusion
The Building Economy 3.0 is almost at its most technically advanced stage, as it has strongly integrated technological implementation into the entire lifespan of real estate projects, ultimately changing their future development paths. The building economy will continue to put emphasis on the concepts of sustainability and health, collectively realizing China’s strategic goals for sustainable development. Growth of the sharing economy allows idle resources to be better utilized, increasing overall efficiency.

 

 

Investors, occupiers and third parties are all facing new opportunities amid the headwinds and challenges in today’s market. Space and amenities built by investors will continue to highlight the elements of technology and sustainability, while operations will focus on further developing the themes of sharing and inclusiveness. Occupiers will enjoy more eco-friendly, green and healthy building spaces, which should in turn stimulate productivity and work efficiency, and enhance overall enterprise competitiveness. Third parties are dedicated to integrating the latest trends into their services so that their clients will receive the most cutting-edge technology services, helping them achieve value add and promote market change. We look forward to Building Economy 3.0 as a sustained driving force for the future development of the economy and industry.

 

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Source: By Jacky Zhu, Head of Research for West China, JLL

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