LAC Talks, Commentaries on India, 7 Tigers Taken Down, National Security Day, Tech Rectification, Record GDP Unpacked, Kerry's Visit & Suga-Biden Summit

Before we begin, I’d like to share this new research paper jointly authored by my colleague Suyash Desai and ORF’s Kartik Bommakanti. They discuss China’s nuclear policy, focussing on ambiguity and its potential implications for India.

I. India-China Ties

There has been commentary and source-based reportage from both sides after the latest Corp Commander-level talks, which I covered last week. First, Shehesh Alex Philip reports for ThePrint that the PLA now wants de-escalation before disengagement. In other words, it wants both sides to withdraw additional troops brought in as back-up to those in the front. India wants the frontline troops withdrawn first. 

The report adds that “De-escalation before disengagement could give China an advantage as it can move troops back to the frontline much faster than India due to the better infrastructure on its side of the Himalayan frontier, experts said. The China Study Group, the sources said, will meet soon to take stock of the talks and discuss the proposal sent by China, and the Indian response.” This meeting could get delayed due to ongoing state elections, however, the report claims. Clearly, there is little urgency it seems. 

Shishir Gupta’s report in HT quotes an unidentified official as saying that “complete disengagement in this area (Gogra-Hot Springs) will take time and more persuasion.” Gupta writes that “the PLA clearly wants that Indian Army recognise its new positions along the Ladakh LAC beyond patrolling point 15 and 17A and is very reluctant to go back to its dug-outs before April 2020.” He then quotes another official as saying that “there are some 60 Chinese troops ahead of its April 2020 positions in the Gogra-Hot Springs area and disengagement remains incomplete till status quo ante is restored. Once this step is completed, the next step would be to address the patrolling rights of Indian Army in Depsang Bulge, a 2013 legacy issue.”

Krishn Kaushik reports for the Indian Express that quotes an unidentified, but “highly placed source” as saying that at Patrolling Point 15 and PP-17A in Hot Springs and Gogra Post, the Chinese “had agreed earlier” to pull back troops but “later refused to vacate”. In the recent talks, according to the source, China said India “should be happy with what has been achieved.” There’s more in the piece about PLA troop strength in the area. It is said to be down from a company strength to a platoon strength. This suggests somewhere around 30-odd troops. The report then delves into some detail about the situation at Depsang plains. The key points it makes:

  • The PLA has been blocking Indian patrols in Depsang since 2013; this is attributed to better infrastructure connectivity allowing it to do so. At one point, the source quoted says this blocking of Indian patrols even predates 2013.

  • As of April 2020, the status quo has not changed in Depsang.

  • The Indian side added the Depsang issue to the current talks around the fourth-fifth round of Corp-Commander level talks. So that’s somewhere around mid-July to early August. This is well before the initiative to take the heights in the Kailash range.

Some more interesting bits: The source says that during the crisis, the PLA were “not organised” for combat except in the Pangong Tso region where there was “some deployment” on the north bank and in the Kailash range. In addition, he/she points out that while initially it was thought that the PLA had focussed on Ladakh due to India’s infrastructure build-up and the DSDBO road in particular, the Chinese side has not raised the road issue in talks. “It was a planned move, and was not done at the local level, unlike previous incidents. They had come in at multiple locations. It was a well-planned operation and was different,” the source added.

My thought: This was not a local operation; that’s not been in question for a long, long time. But the Chinese in their public statements have very clearly pointed to Indian infrastructure development as one of their concerns. An example is their account of the Galwan valley clash. Even if they don’t discuss this in talks, their actions essentially impede India’s infrastructure development and connectivity drive. Also, I’d really like to know from the source whether the Chinese explained why they did what they did? Because officially, we still don’t seem to know.

SCMP’s Rachel Zhang’s report on the boundary talks, meanwhile, quotes a bunch of Chinese analysts.

  • Zhu Yongbiao, a professor of international relations at Lanzhou University, as saying that the two sides are now “in a stage of substantive negotiations.” Zhu believes this will not be resolved via military talks. “It might even be necessary for leaders of both states to meet on bilateral or multilateral occasions,” he says. 

  • Liu Zongyi believes that “an escalation of tensions in the future is possible, given that the international environment is evolving and getting increasingly complex. India may get more aggressive.” He also points to the terseness of the Chinese statement after the 11th Corp-Commander level talks, suggesting that the Quad summit likely had something to do with it. 

  • Lin Mingwang from Fudan, meanwhile, is quoted as saying that “The Chinese side thinks it has made compromises to achieve the disengagement at Pangong Lake in February, in the hope that India could also make compromises during the disengagements from other areas, such as Hot Springs and Depsang Plain. However, it seems that India didn’t do so.

While we are at it, let me discuss some of the commentaries in Chinese media that discussed India. First, this interview with Zhou Bo. He makes some noteworthy points about the boundary dispute and his perceptions of Indian policy. 

First, he talks about the dialogue on the boundary issues from the 1990s; he mentions that there was a process of exchanging maps, and then suggests that Beijing eventually walked away from this because they found India’s claims on the map exaggerated to areas where China thought no dispute existed at all. I read this bit and went back to Amb. Shivshankar Menon’s book Choices. In it he writes that this process of LAC clarification stalled in 2002. He writes: “Once the Chinese saw the Indian map of the Western sector, they balked at continuing.”

Second, Zhou goes into some details about the different approaches of both sides with regard to the boundary issue. He says that there are three lines along the boundary to consider. The first is the Chinese claim; second, the Indian pre-1962 claim and then the actual ground situation or LAC, which is not demarcated. He says Beijing’s approach is of “mutual understanding” and “mutual concession,” i.e., engaging in some sort of give and take. In outlining this, he mentions India giving something in the Eastern sector. In contrast, he says that India wants a clear line drawn first and then the two sides can start a discussion about give and take. And then he talks about how once a line is drawn it will make concessions difficult, essentially making it the de-facto boundary.

Third, he talks about Doklam being a bit of a turning point, in that India intervened in what Beijing believes was an issue with a third party. The argument is that India’s rationale for intervention was “far-fetched.” Fourth, on the Quad, he’s not raising alarms. His view is that things will be complicated. He terms intelligence and logistics cooperation between India and the US as low-hanging fruit. He highlights India’s dependence on Russian weapons imports and also a culture of non-alignment. There’s realism blended with wishful thinking here, I would say. 

A few other pieces to note. First, Xie Chao writes in Global Times that the US-India EEZ fracas shows that “India is not willing to accept a secondary role in US-India relations, but the US will not allow India to sit with it on an equal footing. If Quad is systemized and develops as mini-NATO, it means India can hardly retract its formal commitments to the US as requested in an alliance. India does not want to be attached to the US chariot, because this will deal a heavy blow to India-Russia relations.” He adds that “military cooperation between the US and India has past its periodic peak and bilateral relations face pressure in the foreseeable future. The political disharmony between the US and India is expected to intensify. For India, its center of foreign policy is never the US. India will not give up other opportunities for the sake of the US, especially the chance of claiming hegemony in the Indian Ocean. This also demonstrates that Quad has reached its ceiling and internal contradictions are expected to emerge.” 

Second, Liu Zongyi wants the US to get tougher on India on human rights. But this is the core point he is making:

“the Biden administration may use India's human rights issues as a bargaining chip, demanding India to make concessions at the economic level, or cooperate with the US in the containment strategy against China. It may also ask India to offer more support to the US within the Quad group.” 

Moving away from all this to Tibet; there’s a new report by Sudhi Ranjan Sen for Bloomberg, which talks about conversations with regard to the selection of the next Dalai Lama. The report says that:

“senior security officials in India, including in the prime minister's office, have been involved in discussions about how New Delhi can influence the choice of the next Dalai Lama, two officials with direct knowledge of the matter said, asking not to be identified given the sensitive nature of the matter...From January through March, along its Himalayan border with China, India convened five separate assemblies of senior monks from various sects and schools in the region-the first time such gatherings have taken place in more than 2,000 years. The government hopes that this group will grant international legitimacy to the current Dalai Lama's successor and help fill a power vacuum, as it could take two decades or longer for a reincarnation to be identified and to come of age.” 

The report quotes Samdhong Rinpoche, who is part of the Dalai Lama's personal office, as saying that until last year there was “semi-official communication” between the Chinese government and the Dalai Lama, with the government trying to persuade the Dalai Lama to return to Tibet. His return wouldn't be possible under the current political situation. 

Finally, a few interesting comments that are worth noting:

  • Indian CDS Bipin Rawat said this week that China tried to change the status quo by the use of disruptive technologies without using force…They have been able to create disruptive technologies which can paralyse systems of the adversary, and therefore, they feel that just by doing a little bit of shove and push, they will be able to compel nations to give in to their demands.”

  • Indian navy chief Admiral Karambir Singh said that “China’s navy has the wherewithal and intent, and I envisage a continued focus on their growth in the near future. They want to replicate US Navy carrier battle groups but developing carrier air wing will take time.”

  • Rear Admiral Sudarshan Shrikhande (retd): “They have come here (IOR) to stay, play and have a say. Through sustained and overlapping deployments, potentially more bases and partners; China’s multi- dimensional military power with sea power in the lead is something to think about carefully.”

  • NATO Secretary General Jens Stoltenberg said: “Very often the main tool of NATO is not military operations but political dialogue, partnerships, capacity building. So there is huge potential for NATO to work with India in different ways learning from each and sharing experiences. Without being part of military cooperation there are many ways to work together which doesn’t involve military operations.”

  • Indian Air Force chief Rakesh Kumar Singh Bhadauria addressed a commanders’; conference this week. He “emphasised the need for incorporation of new technologies such as AI and 5G, enhanced utilisation of cyber and space domains and continuous update of doctrines, tactics and procedures.” Also note, Defense Minister Rajnath Singh’s comments at the meeting. He talked about a “perceptible shift of focus from Trans-Atlantic to Trans-Pacific,” adding that “changing dimensions of war would now include advanced technologies, asymmetric capabilities and info-dominance, and it was very important that the IAF’s preparations for the future must include these aspects.”

China’s ambassador to India Sun Weidong also spoke at an ICWA event this week. The key points he made:

  • Sun played up the identity of China and India being developing countries, emerging economies and ancient civilisations. He added that both sides should “correctly understand and view each other to avoid any strategic miscalculation.”

  • “We hope that India could provide a fair, transparent and non-discriminatory business environment for Chinese companies, instead of ‘erecting walls’ or pursuing ‘decoupling’.”

  • He wants “positive and constructive suggestions” from scholars from both sides keeping in mind “the bigger picture and long-term perspectives” to guide public opinion and development of ties. (Here’s one: disengage, de-escalate, clarify the LAC and start the proposed Hu Chunhua-Nirmala Sitharaman-led dialogue on trade and investments in manufacturing. Also, stop lecturing Indian media; it’s counter-productive to your public opinion goals. Instead, respect the right to freedom of speech.)

  • On the boundary tensions, he reiterated Beijing’s position and added the need to “sustain the current momentum of de-escalation, and avoid relapse of the situation on the ground.”

  • He wants India to work with China on a “fair, democratic and reasonable multipolar international order.” This means “uphold independence, oppose hegemonism and power politics in any form, and reject zero-sum game and the Cold War mentality” and “reject ‘small circles’ of closeness and exclusion targeting other countries.”

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II Centenary, 7 Tigers, & National Security

The Party’s centenary celebration campaign is now getting into high gear. The General Office of the CCP issued a new notice outlining a campaign of activities titled “Forever Follow the Party.” These are essentially aimed at reinforcing the message about the Party-led system, reform and opening up, ethnic unity, fulfilling the 14 FYP agenda and so on. The thematic publicity and education activities will be implemented in two stages. The first stage will end by May 2021. The focus here is going to be on the outcomes of the Fifth Plenary, the Two Sessions, poverty alleviation campaign for which a commendation conference is planned and showcasing achievements during the 13 FYP and publicising the 14 FYP. “The second stage is from May to the end of 2021, with a climax in June and July. Focusing on studying, propagating and implementing the spirit of General Secretary Xi Jinping’s important speech at the celebration of the 100th anniversary of the founding of the Communist Party of China…”

Next, there have been a few interesting developments in terms of the ongoing (unending, I guess is a better adjective) anti-corruption crackdown. First, Dong Hong, former deputy head with the central disciplinary inspection team, has been expelled from the Party for “grave violations of Party discipline and laws.”Dong apparently “lost his ideals and convictions and was dishonest and disloyal to the Party.” Xinhua English reports that “an investigation found that Dong had violated the eight-point frugality code on Party and government conduct. He did so by entering private clubs in disregard of rules and attending banquets that may have compromised the fulfillment of his duties. Dong also took advantage of his posts to seek benefits for others in business operations and project contracting. He accepted large amounts of money and gifts in return.” The investigation against Dong was announced in September-October 2020. He was a close aide to Xi’s vice president Wang Qishan.

Also, on April 9, reports emerged that Liu Xinyun, deputy governor of Shanxi Province and director of the Provincial Public Security Department, i.e. the province’s police chief, had been taken down for disciplinary violations. Reports inform of Liu being the “seventh tiger” to be taken down by the authorities this year. Media reports indicate that this came some 10 days after a central team arrived in the province, and that this was a rather sudden takedown, since Shanxi Daily had published positive news about Liu on April 9. This report in The Paper offers a sense of how the system falls in line to central demands after such a high-level takedown. It talks about how soon after action against Liu was reported “public security organs around Shanxi held intensive meetings to purge Liu Xinyun’s influence.” The piece mentions reports from different cities where police departments are holding meetings and pledging to purge Liu’s “poisonous influence” as a “major and serious political task.”

Liu, of course, is the latest in a string of senior officials in the public security apparatus being targeted as part of a rectification campaign that began last year. One of the first big scalps in April 2020 was the deputy public security minister Sun Lijun. Sun was followed by Deng Huilin, Deputy Mayor of Chongqing City and Director of the Public Security Bureau, and then Gong Dao’an, deputy mayor of Shanghai and the director of the Municipal Public Security Bureau.

Among the 7 tigers to fall this year, apart from Liu Xinyun, are:

  • Li Wenxi, former vice chairman of the Liaoning Provincial Committee of the CPPCC

  • Song Liang, vice governor of the Standing Committee of the Gansu Provincial Committee

  • Wang Fuyu, the former chairman of the Guizhou Provincial Committee of the CPPCC

  • Zhang Xinqi, former deputy director of the Standing Committee of the Shandong Provincial People's Congress 

  • Peng Bo, former vice director of the Office of the Central Leading Group on Prevention and Handling of Cult Issues

  • Yin Jiaxu, former party secretary and chairman of weapons-maker NORINCO.

Finally, April 15 marked China’s National Security Education Day. The People’s Daily published a front-page piece comprising statements from Xi Jinping over the years about managing and mitigating risks. My thoughts on the piece are:

  1. This is about Xi Jinping more than the actual content of what he is saying. This is about telling cadres that the “ship” that is China has been guided by someone with “profound insight” who has done so “courageously.”

  2. The description of the external situation goes from “changing” in 2012-13 to “unprecedented” in 2016-17 to eventually becoming “profound” in terms of the adjustment of the global balance of power by around 2019. 

  3. Very early on, the leadership understood that counterbalancing was underway and believed that there’s little it could do to prevent this. For instance, this quote from 2013: “During the National Two Sessions in 2013, General Secretary Xi Jinping emphasized: The great rejuvenation of the Chinese nation can never be achieved easily and smoothly. The more we develop and grow, the greater the resistance and pressure we will encounter and the external risks we face. There will be more. This is an unavoidable challenge in the development of our country from large to strong, and it is a threshold that cannot be bypassed in achieving the great rejuvenation of the Chinese nation’.” 

  4. There is a constant underlying and then overt call for struggle in Xi’s messages. There are repeated warnings to cadres about the challenges that lie ahead. This becomes even more intense as the years go and external challenges intensify. Tells us something about the mentality that leads to securitisation of all governance domains.

The Party Committee of the Ministry of State Security also put out a piece on the occasion. You can read my breakdown of this in my weekday People’s Daily Tracker. In addition, do check out this piece, which talks about four “typical cases” wherein students have violated national security. The idea here is to warn youth and show that even being overseas does not mean that they will escape Chinese law. 

So one case talks about a journalism student from Hebei who “opened an overseas social media account” and engaged with foreign, “hostile,” “anti-Chinese” forces. This led to the student imbibing “reactionary” thoughts like the need for “democratic constitutional government.” The piece also accuses the student of working with the “Beijing bureau of a well-known Western media” outlet, publishing articles and providing them with information, and setting up an overseas “reactionary website spreading all kinds of anti-propaganda information and political rumors to viciously attack our country.” 

Two of the four cases talk about mainlanders having traveled to Hong Kong, supporting the movement there through strategizing with protest groups and criticising the new regulations by Beijing largely via their online activities. The piece says that:

“The case (of these two individuals) reflects that anti-China hostile forces in Hong Kong have taken advantage of the fact that mainland students coming to Hong Kong have not yet formed their values, have little political discernment, are eager to integrate into the new environment, and are in pursuit of personal interests, etc., and are trying to infiltrate through political brainwashing and interest inducement.”

Continuing with the Hong Kong theme, the other noteworthy bit on the day were events in the city, where the new National Security Committee organised its first-ever event for the day. PD’s story carries comments from Carrie Lam, Luo Huining, chief of the HK Liaison Office, and Zheng Yanxiong, chief of the National Security Office. Lam said that HK is an “inseparable part of” China and that maintaining national security was everyone’s responsibility. She praised the new legislation, saying that it had allowed HK to emerge from “black storms.” 

And then this: “She emphasized that national security and regime security are inseparable. To truly achieve national security, the power of governance must be firmly in the hands of patriots.” Luo said “national security is the country's top priority and the central government will unswervingly shoulder the fundamental responsibility of maintaining national security.” He lashed out at “foreign and external forces...interfering in HK” and using it as a “pawn.” He termed the national security law and the changes to the electoral system as “sharp swords and strong shields for maintaining social stability and safeguarding Hong Kong's future.”

You can read through the range of activities that were held and international press coverage of the events in Hong Kong here in my People’s Daily Tracker.

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III. Record GDP, Trade Data & Meeting Entrepreneurs

As expected, China’s GDP grew by a record figure in Q1 this year. Bloomberg reports that GDP climbed 18.3% in the first quarter from a year earlier. This record-breaking figure was mainly due to comparisons with a year ago when much of the economy was shut due to coronavirus. But as this WSJ report points out “the more telling figure might be the economy’s 0.6% expansion compared with the quarter before—a historically sluggish pace that suggests momentum is slowing.” Also noteworthy is the comment by the National Bureau of Statistics’ spokesperson about that the “domestic economic recovery is yet to solidify.” 

Some key data points to note:

  • Inbound investment into China rose almost 40% to $45 billion in the first three months of 2021.

  • The jobless rate for workers aged between 16 and 24 was 13.6% at the end of March, up 0.3 percentage point from a year earlier and far higher than the headline urban unemployment rate of 5.3%.

  • March industrial output was up 14.1% from a year earlier, down from the 35.1% pace of January-February.

  • Growth in fixed-asset investment slowed as well, to 25.6%, decelerating from a 35% rise in the January-to-February period.

  • Infrastructure investment in terms of road and railway construction rose 29.7% year-on-year in the January-to-March period, decelerating from a 36.6% increase in the first two months. 

  • Investment in real estate development rose 25.6% year-on-year, decelerating from a 38.3% rise in the January-to-February period.

  • Retail sales jumped 34.2% in March year on year; but were also 12.9% higher than the March 2019 figure.

  • In Q1, average household disposable income per capita rose 13.7% year-on-year, while the average household consumption expenditure per capita rose 17.6%

  • In Q1, central SOEs earned record profits. Caixin reports that they made 415.3 billion yuan ($63.7 billion) in net profits, more than 200% the amount reported for the same period last year and up 31.1% from the same period in 2019.

Also this week, the General Administration for Customs put out trade data. It says that:

  • total imports and exports of goods surged 29.2 percent year on year to 8.47 trillion yuan (about 1.29 trillion U.S. dollars) in Q1. 

  • Exports jumped 38.7 percent from a year earlier and imports climbed 19.3 percent in yuan terms. Trade surplus expanded 690.6 percent to reach 759.29 billion yuan. 

  • Foreign trade by private enterprises expanded by 42.7 percent to 3.95 trillion yuan. 

Other key data points, which are drawn from Xinhua and from these comments by GAC spokesperson Li Kuiwen are:

  • Biggest export items were mechanical and electrical products; biggest import items were iron ore, crude oil, natural gas, soybean, corn and wheat. 

  • ASEAN, with 14.7% of China’s total value of foreign trade, was the largest trading partner followed by the EU and then the US. 

  • Trade with RCEP countries accounted for 31.5 percent of China’s total imports and exports 

  • Trade with BRI countries was at 2.5 trillion yuan, an increase of 21.4%. 

  • Cross-border e-commerce imports and exports amounted to 419.5 billion yuan, a year-on-year increase of 46.5%

Also this week Premier Li Keqiang spoke at a symposium with Chinese entrepreneurs. PD reports that “at the symposium, experts such as Zhang Xiaojing, Peng Wensheng, Ma Bin and the heads of Guangzhou Baiyun Electric Group, Zhejiang China Commodity City Company, and made statements. They believed that the national tax and fee reduction policies are both practical and effective. The production and operation of enterprises have continued to recover, but the sharp rise in international commodity prices has brought great pressure on enterprises to increase costs. Everyone also put forward suggestions on stabilizing economic operation, the development of small, medium and micro enterprises, import and export trade, and tourism development.”

Li Keqiang said that over the past year, the “majority of market entities have worked hard with perseverance, and the economy has shown a stable recovery trend.” But “the current complex and severe international environment has added new uncertainties. The domestic economic recovery is not balanced.” He added that “analysis of the economic situation should be comprehensive and objective, both to see the year-on-year growth rate and look at the chain growth rate, both to see the macroeconomic data and look at the personal feelings of market participants, both to see the overall situation of economic operation and pay close attention to the new situation and new problems...” 

He added, as per Xinhua English: “Efforts should be made to maintain the continuity, stability and sustainability of macro policies, in a bid to ensure that the country's economy runs within an appropriate range and promote high-quality development, Li said. The premier underscored paying attention to the changing situations at home and abroad, adding that the policy support for securing employment, people's livelihoods and the operations of market entities will not weaken. Li urged implementing measures aimed at supporting small and micro-sized businesses and self-employed individuals, better leveraging policies to promote the innovation and upgrading of the manufacturing sector, as well as channeling more funds to the real economy.”

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IV. Tech Rectification Drive

This has been a critical week in terms of the future of the governance of China’s technology sector. In the aftermath of the $2.8 billion fine on Alibaba, we then saw the company putting out a statement outlining its commitment to rectification. In a statement on its WeChat account, Ant Group said that “On Dec. 26, 2020, financial regulators put forward five requirements to Ant Group for the rectification of its key businesses. Ant Group attaches great importance to the seriousness of the rectification. Under the regulators’ guidance, and in accordance with regulatory requirements, Ant Group has completed the formulation of our rectification plan.” The company also promised to put “growth proactively within the national strategic context.” The plan includes: 

  • Reconstituting Ant Group as a financial holding company. 

  • Pivoting to serve consumers and SMEs by focusing on micro-payments

  • Setting up a personal credit reporting company 

  • The Jiebei a consumer loan service and the Huabei virtual credit card product will be operated by our consumer finance company

The regulators have also asked the company to reduce the balance of its Yu’ebao money-market fund.

The same day Pan Gongsheng from the People’s Bank of China told the media that platform companies should focus on serving the real economy and “should not use technology as a “camouflage” for illegal activities.” All financial activities, he warned, should fall under financial supervision. The following day, reports emerged that the State Administration for Market Regulation, together with the Central Cyberspace Administration of China, and the State Administration of Taxation met with representatives of 34 tech companies, reading them the riot act. The officials gave the companies a month to come up with their rectification plans, and promised that this would be the creation of a “new order for the platform economy” in China.

PD reported that as per the regulators, “platform enterprises should grasp the right direction, enhance the sense of responsibility, adhere to the priority of national interests, adhere to the operation of the law and regulations, adhere to fulfill social responsibility, to achieve five strict preventions and five ensures.” These are: 

  • strictly prevent the disorderly expansion of capital to ensure economic and social security; 

  • strictly prevent monopoly to ensure fair market competition; 

  • strictly prevent technology stifling in order to ensure innovation (严防技术扼杀,确保行业创新发展);

  • strictly prevent the abuse of algorithms that can infringe people’s legal rights; and

  • strictly prevent the use of closed systems to ensure development of open and shared ecosystems

FT points out that in the official statement, the regulators made it clear that they wanted to use the “cautionary case of Alibaba” to warn other companies. SCMP reports that SAMR said it would carry out follow-up checks after the rectification period and those that failed to address misconduct would be “severely” punished. It adds that “redlined behaviour included forcing merchants to pick one platform, abusing dominant market position, making hostile bids to acquire top players in specific market segments, misusing big data to charge unfair pricing to certain clients, turning a blind eye to inferior quality products, leaking customer data, as well as evading tax payments.”

Later in the week, Caixin reported that each of the 34 Chinese internet giants hauled in for a dressing-down by China’s market regulator this week has now issued a public statement vowing to obey the nation’s laws. The SAMR published the statements in three batches on its website between Wednesday and Friday. Also, Alibaba has reportedly announced a raft of measures to assist the thousands of third-party merchants that sell products on its sites. This is prompt action with regard to one of the key demands of the regulators to eliminate the practice of “choose one of two,” i.e., a model whereby choices for vendors and sellers are limited as companies create walled gardens.

Finally, while all of this is about regulation, it’s also fundamentally about politics, strengthening Party control over big tech and settling some personal scores too. For instance, Reuters reports that Ant Group is exploring options for founder Jack Ma to divest his stake in the financial technology giant and give up control. The report adds that “officials from the central bank, People’s Bank of China (PBOC), and financial regulator China Banking and Insurance Regulatory Commission (CBIRC) held talks between January and March with Ma and Ant separately, where the possibility of the tycoon’s exit from the company was discussed, according to accounts provided by the source familiar with the regulators’ thinking and one of the sources with close ties to the company. Ant denied that a divestment of Ma’s stake was ever under consideration. ‘Divestment of Mr. Ma's stake in Ant Group has never been the subject of discussions with anyone,’ an Ant spokesman said in a statement.”

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V. Region Watch

“Because of the debt situation, we're not interested right now in taking more loans…”

Sri Lankan Foreign Secretary Admiral Jayanath Colombage said in an interview. Days after news about the depreciating Lankan rupee and draining foreign reserves, the Foreign Secretary responded to criticism on Chinese investment into the island. He added that Sri Lanka is keen to attract foreign direct investment (FDI) by capitalising on its strategic location and will welcome investment from any interested nation. It happens that China is the biggest investor at this time. In the interview with CGNT, he highlighted that port-related infrastructure is essential for the economy. This statement came as opposition parties have risen against the proposed Colombo Port City Economic Commission bill. The bill aims to create a special economic zone to establish a committee that will allow registrations, licenses, authorisations and other approvals to businesses within the zone. Multiple petitions have been filed in the Supreme Court this week by opposition parties, civil society groups and labour unions against the controversial legislation, alleging that the billion-dollar project violates the country's sovereignty and its Constitution. The China-backed Colombo Port City project is said to be the single largest private sector development ever on the island. 

While the political tussle over Chinese projects continues in Sri Lanka, the Padma Bridge rail link in Bangladesh has hit a bump due to the suspension of passenger flights. The China Railway Group (CREC), as the contractor of the rail link project represents the Chinese companies in Bangladesh, has requested the Bangladesh government to resume flights between China and Bangladesh. The Padma Bridge rail link project is an important cooperation project between China and Bangladesh but the pandemic-induced delay has incurred high port charges and additional port storage charges, and fuel charges have caused the project severe financial losses. The transportation of steel beams, rails had to be paused, adding to the growing challenges of the project.

A noteworthy development comes from Tibet. According to intelligence reports and communications intercepts, People’s Liberation Army (PLA) officials are carrying out recruitment drives across the Tibet Autonomous Region to pick up Tibetan recruits who were already at PLA camps. Sources believe that the PLA intends to create a Special Tibetan Army Unit. Should a unit like this come to form, it would be the first PLA formation comprising a specific ethnicity. 

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VI. China-US Ties

Let’s begin with some news about Sino-US cooperation. First, Biden’s climate envoy John Kerry was in Shanghai this week, meeting with China’s Special Envoy for Climate Change Xie Zhenhua. After two days of talks, the two sides issued a joint statement. They said they are “committed to cooperating with each other and with other countries to tackle the climate crisis, which must be addressed with the seriousness and urgency that it demands.” The two sides agreed to “strengthen implementation of the Paris Agreement.” Both sides also agreed to create long-term strategies aimed at net zero GHG emissions/carbon neutrality by COP 26 and “take appropriate actions to maximize international investment and finance in support of the transition from carbon-intensive fossil fuel based energy to green, low-carbon and renewable energy in developing countries.” Let’s see if Xi joins the Biden climate summit next week.

Second, Li Keqiang met with board chairmen and CEOs from the US-China Business Council and over 20 US multinational companies this week. Henry Paulson, former US Secretary of the Treasury, hosted the meeting, PD reports. Li talked about the challenges in the bilateral relationship, while promising more opportunities for American businesses. 

Just take a look at some of this from Xinhua: “‘Problems that occur in cooperation should be resolved through cooperation,’ said Li, adding that decoupling does no good to either side and will hurt the world. Li expressed the hope that China and the U.S. can meet each other half-way, promote cooperation by making a bigger pie of common interests and safeguard the safety and stability of the industrial and supply chains.” Also this: “China will further open up, work toward a market-based and law-governed business environment that is up to international standards, and promote reforms to delegate power, streamline administration and optimize government services, ensuring a level playing field for both domestic and foreign enterprises.” 

Also, it’s interesting that Li says that Biden and Xi had a “consensus” to “uphold the principles of non-conflict, non-confrontation, mutual respect and win-win cooperation, respecting each other's core interests and major concerns, enhancing dialogue and communication, expanding practical cooperation and properly handling differences.” In Xinhua’s February reporting of the call between the two, this is what Xi had proposed; nowhere did it say that Biden agreed with this formulation in its entirety.

Next, China’s holdings of U.S. Treasuries rose in February to the highest since mid-2019, reports Caixin. The holdings increased by $9 billion in Feb. to $1.1 trillion, the highest total since July 2019. China’s buying came in the middle of the worst quarter for Treasuries since 1980, with the Bloomberg Barclays U.S. Treasury Index posting a 1.8% drop in February alone. The benchmark 10-year Treasury yield increased about 34 basis points during the month to 1.40% and stood at around 1.54% on Thursday. “China has been reopening for exports sooner than anyone else, with the rise in purchases of their goods triggering a big inflow of money into the country,” said Peter Tchir, head of macro strategy at Academy Securities Inc. “That influx of cash likely translated into a need to buy more Treasuries.”

Now, let’s look at some of the challenges in the relationship. First, Secretary of State Antony Blinken’s comments on NBC’s Meet the Press this week covered Covid-19’s origins, Taiwan and more. Here are some excerpts:

  • “I think China knows that in the early stages of COVID, it didn’t do what it needed to do, which was to in real time give access to international experts, in real time to share information, in real time to provide real transparency.  And one result of that failure is that the vaccine – the virus, excuse me – got out of hand faster and with I think much more egregious results than it might otherwise.”

  • All I can tell you is we have a serious commitment to Taiwan being able to defend itself.  We have a serious commitment to peace and security in the Western Pacific.  And in that context, it would be a serious mistake for anyone to try to change that status quo by force.

  • On Xinjiang, he said “we need to be able to bring the world together in speaking with one voice in condemning...”; the US needs to make sure that “none of our companies are providing China with things that they can use to repress populations”; 

  • He at present dismissed any talk about the possibility of boycotting Beijing 2022.

On the Covid-19 criticism, MoFA’s Zhao Lijian responded saying “you can't wake up someone who pretends to be asleep.” He added, “Four words summarize China's handling of COVID-19: open, transparent, scientific and responsible. But for the US' response to the epidemic: blame-shifting, responsibility-shifting, smearing and politicizing.” On Taiwan, however, there was much more happening than just Blinken’s remarks. 

On Tuesday, the Biden administration dispatched an unofficial delegation comprising former Senator Chris Dodd and former senior State Department officials Richard Armitage and James Steinberg to Taiwan. This report in the Diplomat covers the visit. It says that the delegation met with Taiwan’s president Tsai Ing-wen, with Senator Dodd promising that the Biden “administration will help you expand your international space and support your investment in self-defense.” According to reports in Taiwanese media, members of the U.S. delegation asked KMT legislators to clarify their interpretation of the so-called 1992 consensus. KMT legislator Chiang Wan-an, who met with the US delegation, said Friday the consensus does not mean “one country, two systems” but remains a historical basis for cross-strait interaction.

Beijing reacted angrily to all of this. Officially, MoFA said that “the US should fully grasp the highly sensitive nature of the Taiwan question, earnestly abide by the one-China principle and the three China-US joint communiqués, prudently handle Taiwan-related issues...” At the same time, Taiwan reported that 25 Chinese air force aircraft including fighter jets and nuclear-capable bombers entered Taiwan’s air defence identification zone (ADIZ) on Monday. Also, Chinese aircraft carrier Liaoning conducted drills near Taiwan before heading off into the South China Sea on Saturday.

Finally, three more stories. First, China’s foreign ministry had two biting interventions against the US this week. On Wednesday, Zhao criticised the Biden administration’s plan to pull out of Afghanistan, although not entirely. Here’s part of what he said: “the security situation in Afghanistan remains complicated and grave. Terrorism is far from being eradicated. China's position is consistent and clear. We hold that foreign troops in Afghanistan should withdraw in a responsible and orderly manner to ensure a stable transition and prevent terrorist forces from taking advantage of potential chaos to fester. The US is the single largest external factor in the Afghanistan issue. When making decisions and taking actions, the US should respect Afghanistan's sovereignty, independence and territorial integrity, safeguard progress made in peaceful reconstruction, and fully accommodate regional countries' legitimate security concerns.” He then criticised the idea of linking the pullout to US-China tensions as Cold War mentality and said that Beijing would like to work with all relevant parties for peace in Afghanistan. 

To me, this was a sort of muddled message. It seems as though Beijing’s still weighing the pros and cons of not having the US engaged in Afghanistan. At one level, withdrawal takes American forces away from China’s Western frontiers and creates greater space for Beijing to play a role in Afghanistan; on the other hand, it ends a drain on US forces, allows US recalibration with regard to China, instability in Afghanistan and cross-border terrorism as a threat remains, which impacts China’s security and its investments, etc. 

The next criticism from Zhao was with regard to Xinjiang. He used a publication by the Australian Citizens Party to suggest that the US had funded extremism in Xinjiang. Here’s a Xinhua report that came later on. It says that:

“Facts have proved that exporting turmoil and jeopardizing the world for Washington's own gain is engraved in the DNA of American hegemony. Destabilizing the world by exporting turmoil is an original sin of the United States that cannot be glossed over. And China was not the only U.S. target in its such sinister drive. Over the years, the United States, in order to maintain its hegemony, has repeatedly launched wars and incited terrorist activities, creating turmoil in other parts of the world.”

Second, Reuters reports that Congressional China hawks are urging the Biden administration to restrict sales of chip-making tools to Chinese companies. This comes in the form of a letter sent to the Commerce Department by Representative Michael McCaul and Senator Tom Cotton calling the application of the rule that requires U.S. licenses to sell semiconductors made abroad with U.S. technology to Huawei to be applied to any Chinese company designing more advanced chips at 14-nanometers or below. The letter, which is dated April 13 and was made public on Thursday, seeks licenses for the sale of electronic design automation (EDA) software, among other curbs on chip-related sales to Chinese companies.

Finally, the summit meeting between Biden and Japan’s Yoshihide Suga; this ended with a joint statement that talked about a partnership for a new era. It said that “our Alliance advances a shared vision for a free and open Indo-Pacific based on our commitment to universal values and common principles, and the promotion of inclusive economic prosperity. We respect sovereignty and territorial integrity and are committed to peacefully resolving disputes and to opposing coercion.” The US reiterated its commitment to Japan’s security, adding that “Article V of the Treaty applies to the Senkaku Islands. Together, we oppose any unilateral action that seeks to undermine Japan’s administration of the Senkaku Islands.” 

They also:

  • “exchanged views on the impact of China’s actions on peace and prosperity in the Indo-Pacific region and the world, and shared their concerns over Chinese activities that are inconsistent with the international rules-based order, including the use of economic and other forms of coercion.” 

  • The statement mentions China’s actions in the East and South China seas; it underscores the “importance of peace and stability across the Taiwan Strait and encourage(s) the peaceful resolution of cross-Strait issues.” 

  • They expressed “serious concerns regarding the human rights situations in Hong Kong and the Xinjiang Uyghur Autonomous Region. The United States and Japan recognized the importance of candid conversations with China, reiterated their intention to share concerns directly, and acknowledged the need to work with China on areas of common interest.” 

  • On 5G, it talks about working with “trusted vendors,” and adds that “we will also partner on sensitive supply chains, including on semi-conductors, promoting and protecting the critical technologies that are essential to our security and prosperity.” 

  • They also called for a “transparent and independent evaluation and analysis, free from interference and undue influence, of the origins of the COVID-19.”

Beijing responded angrily, saying that the U.S.-Japan joint leaders’ statement has grossly interfered in China's domestic affairs and severely violated basic norms governing international relations. “China deplores and rejects it. We have stated our solemn position to the U.S. and Japan through the diplomatic channel,” said MoFA’s spokesperson. The Chinese embassy in the US also pushed back, particularly highlighting the issue of Japan discharging the Fukushima wastewater into the oceans. Do the U.S. and Japan want to forge a nuclear contaminated Indo-Pacific?” a spokesperson said.

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VII. The Long & Short of It…

a. Fukushima Wastewater Controversy

Chinese officials have been pushing back against Japan’s plan to discharge the wastewater from the Fukushima plant into the ocean. The Foreign Ministry said this week that “the oceans are not Japan's trash can; and the Pacific Ocean is not Japan's sewer. Japan should not expect the world to pay the bill for its treatment of wastewater. As for the individual Japanese official's remarks that the water is okay to drink, why doesn't he take a sip first?” South Korea has also expressed its concern with regard to the Japanese decision, and Chinese and South Korean officials discussed the matter this week. But the IAEA’s Director General Rafael Mariano Grossi says that Tokyo’s decision “is in line with practice globally.” 

The Chinese foreign ministry later in the week summoned the Japanese ambassador Hideo Tarumi. Assistant Minister Wu Jianghao told Tarumi that the “relevant Japanese decision to disregard the global marine environment, international public health and safety and the vital safety and interests of the people of neighboring countries, is suspected of violating international laws and international rules, and is not the work of a modern civilized country. China expresses its strong dissatisfaction and firm opposition to this.” Beijing has put forward the following proposal: 

  • Tokyo should to re-examine its decision on wastewater disposal; 

  • It should set up a working group including Chinese experts under the framework of international institutions; and 

  • It should not start the discharge of nuclear waste water without authorisation before reaching a consensus.

b. Xi meets Merkel & Macron

Xi Jinping held a “summit” meeting with Angela Merkel and Emmanuel Macron. Xinhua says that they spoke about cooperation in coping with climate change, China-Europe relations, anti-pandemic cooperation, and major international and regional issues. Xi said that China will stick to its commitments “to peak carbon dioxide emissions by 2030 and achieve carbon neutrality by 2060.” He called on developed economies to “set an example in reducing emissions and take the lead in fulfilling their funding commitments,” too. 

Then there was this: “Responding to climate change is the common cause of all humanity, he said, adding that it should not be a bargaining chip for geopolitics, a target for attacking other countries, or an excuse for trade barriers.” This comes in the context of the EU’s plans to develop a carbon border adjustment mechanism, which is due to be unveiled by the Commission in June. Under this, there would be a levy on imports from carbon-intensive countries to protect EU industry from cheaper, climate-damaging competition abroad. The idea is to prevent “carbon leakage” – EU industry moving to third countries where it is cheaper to pollute. The scheme is likely to be phased in, starting with the most carbon-intensive industries, like steel and chemicals.

Xi also said that China has decided to accept the Kigali Amendment to the Montreal Protocol and strengthen the control of non-carbon dioxide greenhouse gases such as hydrofluorocarbons. He spoke against “vaccine nationalism;” he promised a “fair, just, and non-discriminatory business environment for foreign-invested enterprises” and wants “that Europe can also treat Chinese enterprises with such a positive attitude.” According to Xinhua, Macron wants to work with Xi on development in Africa, debt reduction, equitable distribution of vaccines and managing the Iran nuclear issue. Merkel, among other things, expressed the hope that with joint efforts from both sides, the EU-China investment agreement will take effect at an early date. 

There’s little information from the French and German side; but the German government’s spokesperson did say that Merkel and Macron welcomed Xi's reaffirmation of China's goal of becoming carbon-neutral before 2060. They also expressed support for China to adjust its shorter-term emissions goals.

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