Quad Summit & Reactions - Meng Wanzhou Returns - India-China Disconnect - Xi's UNGA Speech - Evergrande Crisis - A New Red Deal? - IPR Guideline - Backing Taliban - 10th CPEC JCC - AmCham Survey
Dear Subscribers,
It’s a really long newsletter today, with so much happening in the week. But I hope you’ll find it engaging. Before you get on to it, I want to share two things:
First, my colleagues at Takshashila have been engaged in sustained research on India’s space policies and their strategic implications. Earlier this year, we developed a Space Doctrine for India which proposes a series of principles and approaches that we believe ought to define India’s approach to security in outer space. Most recently, we’ve put together a document that makes explicit the key propositions that undergird our space doctrine. That document, Space as a Geopolitical Environment, also serves as a brief and ready reference for issues relating to geopolitics in space. With the Quad looking at space as a domain for partnership, this work is more salient than ever.
Second, I cannot recommend enough that you read my breakdown of the 48th piece in the Xi Thought Q&A series in the People’s Daily, which was published on Friday. To me, its criticism of the Mao, Hu and Jiang eras was really noteworthy.
And with that, I hope you enjoy the rest of the newsletter.
I. The Quad Summit
The leaders of the four Quad countries met in Washington DC for the first in-person summit meeting. I am summarising below the Quad leaders statement and the Fact Sheet. The statement talks about “unflinching” cooperation.
They said that the summit was “an opportunity to refocus ourselves and the world on the Indo-Pacific and on our vision for what we hope to achieve. Together, we recommit to promoting the free, open, rules-based order, rooted in international law and undaunted by coercion, to bolster security and prosperity in the Indo-Pacific and beyond. We stand for the rule of law, freedom of navigation and overflight, peaceful resolution of disputes, democratic values, and territorial integrity of states.”
They backed “ASEAN’s unity and centrality and for ASEAN’s Outlook on the Indo-Pacific” with "ASEAN and its member states being termed as “the heart of the Indo-Pacific region.” They also welcomed the EU’s Indo-Pacific strategy.
##Pandemic & Vaccines
There’s a Quad Vaccine Experts Group that’s driving the effort in this regard. The statement commits to deliver “1.2 billion doses globally of safe and effective COVID-19 vaccines” apart from their COVAX commitments. So far, they have delivered “nearly 79 million safe, effective, and quality-assured vaccine doses to countries in the Indo-Pacific.” The adjectives attached to the vaccine are as important as the number, if not more.
Biological E LTD’s production of doses in India will come on line later this year. By the end of 2022, at least 1 billion doses are to be manufactured.
This is the Johnson & Johnson/Janssen COVID-19 vaccines. Indian Foreign Secretary Harsh Vardhan Shringla elaborated on this, informing that some 8 million doses being made available by the end of October.
Japan will continue help regional partners purchase vaccines through $3.3 billion of COVID-19 Crisis Response Emergency Support Loan.
Australia will deliver $212 million in grant aid to purchase vaccines for Southeast Asia and the Pacific.
Australia will allocate $219 million to support last-mile vaccine rollouts and lead in coordinating the Quad’s last-mile delivery efforts in those regions.
Quad will conduct a joint pandemic-preparedness tabletop or exercise in 2022.
Japan, through Japan Bank for International Cooperation, will work with India to enhance key investments of approximately $100 million in the healthcare sector related to COVID-19, including vaccine and treatment drugs.
##Climate Change
Quad “will pursue efforts to limit it to 1.5°C above pre-industrial levels.”
“Quad countries intend to update or communicate ambitious NDCs by COP26”
Focus is across three thematic areas: climate ambition, clean-energy innovation and deployment, and climate adaptation, resilience and preparedness.
The statement talks about the aim of “achieving global net-zero emissions preferably by 2050, and taking into account national circumstances.”
I thought this was also interesting: “We will cooperate to establish responsible and resilient clean-energy supply chains.”
Also, there’s now a new Quad Shipping Taskforce, aiming to form a network dedicated to greening and decarbonizing the shipping value chain. It aims establish two to three Quad low-emission or zero-emission shipping corridors by 2030.
The Quad will also establish a clean-hydrogen partnership and a Climate & Information Services Task Force.
##Critical and Emerging Technologies
The statement says that the aim in this regard is “to ensure the way in which technology is designed, developed, governed, and used is shaped by our shared values and respect for universal human rights.”
The fact sheet says that work in this regard has been organized around four efforts: technical standards, 5G diversification and deployment, horizon-scanning, and technology supply chains.
They talk about “the deployment of secure, open, and transparent 5G and beyond-5G networks.” The Fact Sheet says that the “Quad has launched a Track 1.5 industry dialogue on Open RAN deployment and adoption, coordinated by the Open RAN Policy Coalition.” — I guess Chinese vendors will continue to struggle for a role in India’s 5G ecosystem.
The statement says “we will work together to facilitate public-private cooperation and demonstrate in 2022 the scalability and cybersecurity of open, standards-based technology.”
There will be new Technical Standards Contact Groups, in order “to promote an open, inclusive, private-sector-led, multi-stakeholder, and consensus-based approach” on technical standards, along with coordination in “multilateral standardization organizations.” — This is significant.
There will be a Semiconductor Supply Chain Initiative “to map capacity, identify vulnerabilities, and bolster supply-chain security for semiconductors and their vital components.”
Currently, they are “mapping the supply chain of critical technologies and materials.” They plan to set up an Advanced Communications and Artificial Intelligence contact group. And they published the Quad Principles on Technology Design, Development, Governance - If you read this document, it’s clear that we are entering a new era of tech competition, underpinned by concerns related to values, security, resilience, and trust.
They also promised to monitor trends in synthetic biology, genome sequencing, and biomanufacturing.
##Infrastructure, Space, Fellowship & Terrorism
They launched the Quad infrastructure partnership. There will be a Quad Infrastructure Coordination Group leading this. The group will assess infrastructure needs and coordinate technical assistance and capacity-building efforts. The statement talks about cooperating with the EU and underscored “the importance of supporting open, fair, and transparent lending practice in line with international rules and standards for major creditor countries,” while calling on creditors to “adhere to these rules and standards.”
The Fact Sheet says that since 2015, Quad partners have provided more than $48 billion in official finance for infrastructure in the region.
They statement talks about cyberspace and space cooperation. There’s a new Quad Senior Cyber Group to work on the former. In terms of the latter, the focus is on sharing “satellite data for peaceful purposes” and consulting on “rules, norms, guidelines and principles for ensuring the sustainable use of outer space.”
There’ll be a new Quad Fellowship, which will provide “100 graduate fellowships to leading science, technology, engineering, and mathematics graduate students across our four countries.”
The statement talks about the aim to “closely coordinate our diplomatic, economic, and human-rights policies towards Afghanistan.” The paragraph also says that “Afghan territory should not be used to threaten or attack any country or to shelter or train terrorists, or to plan or to finance terrorist acts,” denounces “the use of terrorist proxies” and calls on the Taliban to “provide safe passage to any person wishing to leave Afghanistan, and to ensure that the human rights of all Afghans.”
The next paragraph talks about meeting the “challenges to the maritime rules-based order, including in the East and South China Seas.” — The language here is rather weak to be honest. The next paragraph talks about the denuclearisation of the Korean Peninsula and “building democratic resilience in the Indo-Pacific and beyond,” mentioning Myanmar.
Also worth noting the bipartisan support to the Quad in the US:
Finally, amid all the Quad coverage, this has gotten lost a bit. But the US will be releasing its strategy for Indo-Pacific region later this fall. In April, my colleague Aditya and I had done an assessment of the Biden administration’s evolving approach to the Indo-Pacific, if you are interested.
Now, let me turn to some reactions from China. Prior to the Quad meeting, the Chinese foreign ministry had said:
China always believes that any regional cooperation mechanism should not target or harm the interests of a third party. A closed, exclusive clique targeting other countries runs counter to the trend of the times and the aspirations of regional countries. It will find no support and is doomed to fail. China has always been an advocate of world peace, a contributor to global development, a defender of the international order and a provider of public goods. The growth of China’s strength means the growth of force for world peace. As a responsible major country, China’s contribution to peace, stability and prosperity in the Asia-Pacific region and the world is there for all to see. Relevant countries should view China's development in a correct light and do more to promote solidarity and cooperation among countries in the region.
I guess, we can expect an official post-summit reaction tomorrow. Anyway, we had a Global Times editorial in Chinese and English prior to the summit. It said that:
“the Quad mechanism is engaged in splitting the region and inciting various forces to oppose China. The summit in Washington can be seen as a twisted ribbon-cutting of shaping this confrontational pattern. The purpose of the Quad mechanism is to ‘encircle China.’ Its geographic situation gives a sense of comfort to the political elites of the four countries. It remains vague as to what to be encircled about China. Every element contains a great deal of imagination. As a result, the agenda of the Quad is rather distorted and full of paranoid extensions, like argots which are ambiguous but can be understood by conjecture.”
Yet later the piece adds:
“The Quad mechanism itself can do no harm to China. This is because it may form a siege of China, but will never block China's long-lasting development and rise, or Chinese people's diligence and resolve to make progress. This also applies to AUKUS. Nonetheless, these new alliances have declared the start of the era of conflicts and confrontations. They will bring about macro and profound changes to spheres from global structure to codes of conduct. The Asia-Pacific region needs to struggle with the “sinister gang” represented by the Quad and AUKUS, giving geopolitical hysteria no chance to destroy the future of the Asia-Pacific.
Another piece by Xiang Haoyu from the Asia-Pacific Research Institute of China Institute of International Studies argues that the Indo-Pacific “roughly corresponds to China’s ‘greater periphery’” - dà zhōubiān, and given China’s engagement in the region, any attempt to contain or isolate China will not work. The author argues that United States, Japan and Australia all currently have serious tensions with China and that the “political need” to contain China constitutes the “direct driving force” for them to join hands. — I found it odd that in this argument, he did not include India.
And then there’s this piece, which is such an incredible hack job, filled with personal attacks and disdain. Reading it, I kept wondering why, if the Quad is so meaningless and doomed to fail, does it arouse such angst?
Also, do note Hu Bo, Director of the South China Sea Strategic Situation Probing Initiative, clarifying for his readers that the Quad is not “a treaty-based alliance” and “does not commit members to collective security.” He argues that while the Quad talks about “free and open” and “rules-based” order, it is “neither open nor free” and the biggest criticism of the mechanism is its “exclusivity and china-oriented” nature. To substantiate this, he says that while many others have embraced the idea of the Indo-Pacific, they haven’t embraced the Quad. He then argues that rather than wondering about order and philosophies, it’s important to realise that the Quad countries are acting as “pragmatists” seeking a “favourable balance of power.” But he says that while it’s easy to talk and coordinate, it’s “difficult to carry out substantive cooperation” and it is “unlikely” that the Quad will become a military alliance. He highlights three challenges for the Quad: Geography, role of middle powers and China’s economic engagement around the world.
Also Read:
II. India-China Ties
Both the Indian ambassador to China and the Chinese ambassador to India spoke at a Track II dialogue on bilateral ties this week. I recommend reading through both the speeches. Doing so, helps understand the deep disconnect that exists between the two sides. I’ve done a breakdown of both in these threads on Twitter, if you’d like.
First, here’s my breakdown of Amb. Sun Weidong’s speech:
And here’s my breakdown of Amb. Vikram Misri’s speech.
To me, this bit from Amb. Misri’s speech is noteworthy:
For long, the Indian and Chinese sides have adhered to a well-understood distinction between resolving the Boundary Question and managing border affairs. The 1988 understanding between our leaders was precisely for keeping the resolution of the Boundary Question on a track separate yet parallel to the bilateral relationship, with maintenance of peace and tranquillity as the prerequisite. The Special Representatives mechanism, the Agreement on Political Parameters and Guiding Principles of 2005 and the three-phase framework were all designed in order to work on the Boundary Question, which we agreed was a complex and sensitive issue requiring time to work through. On the other hand, for managing border affairs on a daily basis, we evolved a mechanism, consisting of instruments such as the WMCC and a succession of agreements, protocols and CBMs, in order to govern behaviour on the ground and ensure peace and tranquillity. A serious violation of peace and tranquillity in the border areas naturally requires us to apply our minds on the basis of established agreements, protocols and mechanisms to resolve it. As we do so, any attempt to confuse border affairs with the Boundary Question is a disservice to the work of those involved in finding solutions. This is why the Indian side has been consistently saying that the current issue is about restoring peace and tranquillity to the border areas and is not about the resolution of the larger Boundary Question, on which our stance has not changed, despite what happened last year.
Moving on, there were a bunch of interesting developments to note. I am quickly summarising these.
First, SCMP reports that the Western Theatre Command has introduced more night drills for units stationed near the Himalayan border as it seeks to familiarise its troops with new-generation weapons and equipment. Since the start of the autumn, several forces in the Xinjiang military district have been carrying out night battle drills at altitudes of around 5,000 metres, according to the PLA Daily. The report talks about Type PHL-11 truck-mounted self-propelled 122mm multiple system rocket launchers being deployed in the area for precision strike drills. It also quotes Song Zhongping, a former PLA instructor, as saying that almost all the old generation J-7 fighter jets in the Western Military Command had been replaced by the advanced J-16 multirole strike fighter. Also, the PLA plans to replace all its 300 J-7s with around 200 J-16s by 2025.
Second, the Telegraph reports quoting an unidentified security official attached to the Union home ministry that “Intelligence reports suggest the Chinese have built at least 10 new airbases along the LAC in Ladakh, Uttarakhand and Arunachal Pradesh. This is very serious considering the 16-month-old border standoff in eastern Ladakh.” While on this, do check out ASPI’s new report providing a deep dive into developments in Doklam since the 2017 standoff. They use satellite imagery to great effect.
Third, a new report by cybersecurity firm Recorded Future Inc. informs that Chinese state-sponsored hackers apparently infiltrated and stole data from the Indian government’s agency responsible for a national identification database - the Unique Identification Authority of India - between June and July this year. The report also says that Bennett Coleman & Co., also known as the Times Group, was also targeted by the Chinese hackers. Apparently, data was exfiltrated from the company between February and August. The company said that the “alleged exfiltration” was blocked. The Chinese foreign ministry responded to the report saying that:
“This cybersecurity company has repeatedly fabricated similar incidents to smear the Chinese government…It is unprofessional and irresponsible.” Any allegations should be supported by “complete and adequate” evidence, the foreign ministry said, adding that it firmly opposes any form of cyberattacks. Beijing had previously rejected allegations that Chinese hackers had been responsible for other incidents, including the breach of Microsoft Exchange e-mail servers earlier this year.
Fourth, News18 reports that few “Chinese Army officers along with cartographers and local interpreters have been interacting with migrant Kashmiris presently in PoK, especially those who are working as guides and ex-terrorists who have good knowledge of the topography of Kashmir valley, Ladakh and Jammu regions,” as per an assessment following a top-level meeting, which was reviewed by News18. The report adds that there were reports earlier in September that Chinese Army officials were also spotted at various posts along with Pakistan’s side of the Line of Control. Reports said the Indian Army had noticed the presence of senior Chinese army officers close to forward posts in the Nowgam sector in North Kashmir and Chinese troops came to create infrastructure along the LoC.
Fifth, the Japanese Foreign Ministry’s statement after a meeting between the Indian and Japanese PMs said that “the two leaders shared strong opposition to the economic coercion and unilateral attempts to change the status quo by force in the East and South China Seas.” India’s MEA’s statement after the meeting does not mention this. Anyway, the Japanese statement got Beijing annoyed enough to state that:
“‘Lying diplomacy’ and ‘smearing diplomacy’ are not constructive at all and must be put to a stop. China is firmly committed to safeguarding its territorial sovereignty and maritime rights and interests. China is ready to continue to properly handle differences with countries concerned through consultation and negotiation. The origin and headquarters of the so-called ‘economic coercion’ are in Washington D.C. China does not wantonly bully others and impose sanctions, exercise long-arm jurisdiction, or arbitrarily oppress foreign companies. China can by no means be accused of ‘economic coercion’.” — I do agree with Zhao. China does not wantonly bully others; these are specific decisions made with clear political objectives in mind.
Also Read:
Chinese companies haven't invested in India's highway projects in recent times: Nitin Gadkari
India facing new war paradigm on borders: Rahul Gandhi on China's infra ramp up
Supply woes in China to keep steel prices elevated; India could see hike post monsoon: JPMorgan
Amid the regulatory churn in China: Indians lap up China-focused mutual funds
III. UNGA Speech, Marxist Colleges & Supervising the Supervisors
Let’s begin with Xi Jinping’s speech at the UNGA. Original Chinese is here; and full English speech is available here. Some of the key points that Xi made:
Speaking in the context of the pandemic, he said: “The world has entered a period of new turbulence and transformation. It falls on each and every responsible statesman to answer the questions of our times and make a historical choice with confidence, courage and a sense of mission.”
“Of pressing priority is to ensure the fair and equitable distribution of vaccines globally…” He added that China will provide 2 billion doses of vaccines to the world by the end of this year; donate $100 million to COVAX and 100 million vaccine doses to other developing countries. And “China will continue to support and engage in global science-based origins tracing, and stands firmly opposed to political maneuvering in whatever form.”
Xi pushed the vision of promoting “human rights through development” and the need to extend debt suspension and development aid to help developing countries.
On green technologies, Xi emphasised the need to “foster an open, fair, equitable and non-discriminatory environment for the development of science and technology” and to “jointly achieve leapfrog development.”
This was a noteworthy commitment: “China will step up support for other developing countries in developing green and low-carbon energy, and will not build new coal-fired power projects abroad.”
Just on this coal business for a bit. First, do note that Xi has provided no timelines. However, Bank of China has said that it will stop financing new coal mining and coal power projects outside China, as well as in Hong Kong, Macau and Taiwan, from the fourth quarter of this year.
Second, WSJ reports that:
“announcement is significant given that China has been the largest cross-border financier for coal-fired power plants. According to climate group Global Energy Monitor, China is funding 44 projects with a total capacity of 42 gigawatts, including plants in countries such as Bangladesh and Vietnam…Backing coal abroad may not make much sense for China anyway as the future of the commodity becomes more uncertain. Since 2015, when the Paris Climate Agreement was signed, the pipeline of proposed coal power plants has dropped by 76%, with 1,175 gigawatts of projects canceled, according to climate-advocacy group E3G. Falling costs for renewable energy has made coal a more unattractive option even in a purely financial sense. China may instead choose to sponsor green-energy projects abroad as many Chinese companies are market leaders in the wind and solar supply chains. It is much more important for China—the world’s biggest consumer and producer of coal—to make a similar commitment at home. China added around three-quarters of the world’s new coal plants last year, according to Global Energy Monitor.”
Back to Xi’s speech. Then we had the big pitch on multilateralism and the contestation that’s underway with the US, in particular.
“We need to pursue dialogue and inclusiveness over confrontation and exclusion. We need to build a new type of international relations based on mutual respect, equity, justice and win-win cooperation, and do the best we can to expand the convergence of our interests and achieve the biggest synergy possible...China has never and will never invade or bully others, or seek hegemony. China is always a builder of world peace, contributor to global development, defender of the international order and provider of public goods. China will continue to bring the world new opportunities through its new development.”
Also this:
“In the world, there is only one international system, i.e. the international system with the United Nations at its core. There is only one international order, i.e. the international order underpinned by international law. And there is only one set of rules, i.e. the basic norms governing international relations underpinned by the purposes and principles of the UN Charter.”
Next, we have the Opinions on Strengthening the Development of Marxist Colleges/Institutes in the New Era. This was put out by the General Office of the CPC Central Committee. The guideline talks about Marxism being the guiding ideology of the Party and the country and emphasises the role of political and ideological education to cast souls 铸魂 and educating people in Xi Thought. The report says that deepening research in Marxist theory is critical to train the new generation in the era of national rejuvenation. The objective is to guide the youth to “establish the lofty ideal of communism and the common ideal of socialism with Chinese characteristics.” The document talks about the development of Marxist institutes as a “strategic project” that must be undertaken.
The document calls for further developing Marxist theory as an academic discipline, curriculum development, improving and innovating pedagogy, building a contingent of high-quality teachers with firm belief and solid theoretical foundation and making teaching materials more political, contemporary, scientific, and readable. The final paragraph talks about Party committees taking a leading role in this and strengthening their leadership in this regard. It also talks about intensifying supervision with regard to the development of Marxist colleges/institutes. This effort will also form an important element of the assessment of Party building work carried out by a specific Party unit and the assessment of the institution where the Marxist college/institute is located. If you are interested in this further, do check out the translation by China Neican.
Finally, we have a report about the regulations regarding the implementation of the supervision law issued by the National Supervisory Commission. In a nutshell, this is about supervising the supervisors, or rather ensuring that they use “rule of law thinking and methods” in their conduct and “accept the strictest supervision and constraints” on their exercise of power. This point is repeatedly reiterated through the report.
The report gives us a bit of a background, reminding us of the establishment of the NSC after the 13th NPC meeting in March 2018. It also tells us that back then, it was mandated that the CCDI and NSC work together through one office; subsequently, the fourth and fifth plenary meetings of the 19th Central Committee “emphasized strengthening the leadership of the Party, deepening the reform of discipline inspection and supervision system, improving the functioning and supervision mechanism of supervision power, and perfecting the supervision system of the Party and the State.”
We are then told that the current regulation will “further strengthen the political attributes of supervisory organs, strengthen the unified leadership of the Party over discipline inspection and supervision, and constantly improve the national supervision system with Chinese characteristics...” 中央纪委国家监委法规室负责人表示,制定条例是深化国家监察体制改革这一重大政治体制改革的重要举措,对于进一步强化监察机关的政治机关属性,加强党对纪检监察工作统一领导,不断完善中国特色国家监察体制,健全集中统一、权威高效的监察体系将发挥重要作用. - This bit is coming from an unidentified official being quoted in the story.
Here’s something to note: “Throughout the regulations, the supervisory organs are required to accept the strictest restraint and supervision. Chapter VII stipulates ‘supervision over supervisory organs and supervisors’, requiring supervisory organs and supervisors to consciously uphold the leadership of the Party, work under the management and supervision of party organizations, accept the supervision of the people’s congresses at the corresponding levels and their standing committees according to law, accept democratic supervision, judicial supervision, social supervision and supervision by public opinion, and strengthen the construction of internal supervision and restriction mechanisms to ensure that their powers are strictly restrained and supervised.” 条例通篇贯彻监察机关要接受最严格约束和监督的要求,第七章专章规定“对监察机关和监察人员的监督”,要求监察机关和监察人员必须自觉坚持党的领导,在党组织的管理、监督下开展工作,依法接受本级人民代表大会及其常务委员会的监督,接受民主监督、司法监督、社会监督、舆论监督,加强内部监督制约机制建设,确保权力受到严格的约束和监督.
The English report on this also tells us that “the regulation further clarifies the six types of state functionaries subject to the supervision law, listing them with a detailed description. It lists 101 duty-related crimes which supervisory commissions have the jurisdiction to investigate and 15 legal means supervisory commissions can use, with clear codes on how to use them. Rules on collection and examination of evidence are also introduced.”
Finally, worth noting that the regulation warns supervisors of life-long accountability (终身责任) when it comes to abuse of power.
IV. New Infrastructure Plan & Intellectual Property Rights
The State Council’s weekly meeting adopted the 14th Five-Year Plan for New Infrastructure Development. This English report offers details. The report says that during this period “a well-calibrated layout will be made for the development of new infrastructure, underpinned by information networks and technological innovation.” Li Keqiang said: “Advancing new infrastructure development will help mobilize effective investment, sustain growth, readjust the structure and enhance people's wellbeing.” The PD report talks about five aspects of the infrastructure plan:
Accelerating information infrastructure: This covers fiber optic networks, mobile communication networks, space-based information infrastructure, and developing IoT infrastructure.
Developing integrated infrastructure: This refers to building a “multi-tiered industrial internet platform”; smart infrastructure in transportation, logistics, energy, and urban utilities; digitizing agriculture, telemedicine, etc.
Facilitating deeper integration among universities, research institutes and high-tech enterprises
Encouraging investment from diversified channels, i.e., private sector and overseas investors. It also says “China will take an active part in the formulation of relevant international rules and standards.”
Improving security supervision systems
In addition to this, the PD report talks about the need to maintain “continuity and stability in macro policies.” It also talks about the need to fine-tune and ensure implement cross-cyclical adjustment, maintain stable and reasonable expectations and strengthen the linkage of fiscal, financial and employment policies.
It adds:
“We will continue to implement macro policies around the main players in the market to protect employment and people’s livelihood, and continue to deepen reform and opening up and optimize the business environment. We will make more use of market-oriented measures to stabilize commodity prices and ensure the supply of electricity and natural gas in winter. We will study and introduce measures to further boost consumption, make better use of non-government investment to increase effective investment, maintain steady growth in foreign trade and foreign investment, and ensure that the economy operates within a reasonable range.” 继续围绕保就业保民生保市场主体实施宏观政策,持续深化改革开放、优化营商环境。更多运用市场化办法稳定大宗商品价格,保障冬季电力、天然气等供给。研究出台进一步促进消费的措施,更好发挥社会投资作用扩大有效投资,保持外贸外资稳定增长,确保经济运行在合理区间.
Next, this week, state media published the full Guidelines for Building a Powerful Country with Intellectual Property Rights (2021-2035). The document talks about four working principles:
Law-based governance, with the aim to safeguard social fairness and justice and the legitimate rights and interests of rights holders.
The process must be reform-driven and led by quality. So, this talks about the need for improving market-oriented allocation of factors, ensuring that IPR guarantees stimulate innovation. This is useful to note. It’s not the principle of IPR protection that is important. In other words, there is nothing inherently good about protecting IPR. Rather it is value-generation in terms of high-quality development that is important.
Focus on overall plans. This says: “Adhere to strategic guidance and overall planning, highlight key areas and major needs, and promote the deep integration and development of intellectual property rights with economy, science and technology, culture and society.”
Plan and promote the reform and development of intellectual property rights with an international perspective.
The document outlines two periodic goals.
First, by 2025, significant achievements shall have been made in the building of a powerful intellectual property nation, the protection of intellectual property shall be more strict, there will be high level of social satisfaction, the market value of intellectual property will have been further highlighted, brand competitiveness will have been significantly improved, the added value of patent-intensive industries shall have accounted for 13% of GDP, the added value of copyright industries shall have accounted for 7.5% of GDP, the total annual import and export of intellectual property use fees will have reached 350 billion yuan, and the number of high-value invention patents per 10,000 people will reach 12.
Then by 2035, IPR competitiveness will be world leading and the IPR system will be complete, and “a world-class intellectual property power with Chinese characteristics” would basically have been established.
You can check out my detailed breakdown of the document here in my People’s Daily Tracker.
V. Evergrande, HNA & the ‘Red Deal’
Apart from the Meng Wanzhou case, the biggest international story emerging from China this week was about the teetering of property giant Evergrande. On Saturday, WSJ reported that Global investors who own China Evergrande Group’s U.S. dollar bonds hadn’t received an interest payment from the property giant by Thursday’s deadline, said people familiar with the matter. Evergrande was on the hook to make $83.5 million in coupon payments by Sept. 23 on dollar bonds with a face value of $2.03 billion. The company could make the payments belatedly and it has a 30-day grace period before bondholders can call a default.
Earlier in the week on Wednesday, Evergrande’s flagship property business in mainland China said it had privately negotiated with onshore bondholders to settle a separate coupon payment on a yuan-denominated bond. The developer didn’t say if that payment, equivalent to about $35.9 million, would be made in cash or other assets. Evergrande’s beaten-down shares fell 11.6% in Friday trading in Hong Kong, and are down more than 84% this year.
Another report from the Journal earlier in the week said that Chinese authorities are asking local governments to prepare for the potential downfall of Evergrande. The report says that the officials characterized the actions being ordered as “getting ready for the possible storm,” saying that local-level government agencies and state-owned enterprises have been instructed to step in to handle the aftermath only at the last minute should Evergrande fail to manage its affairs in an orderly fashion. They said that local governments have been tasked with preventing unrest and mitigating the ripple effect on home buyers and the broader economy, for example by limiting job losses—scenarios that have grown in likelihood as Evergrande’s situation has worsened. The report adds:
“Local governments have been ordered to assemble groups of accountants and legal experts to examine the finances around Evergrande’s operations in their respective regions, talk to local state-owned and private property developers to prepare to take over local real-estate projects and set up law-enforcement teams to monitor public anger and so-called ‘mass incidents’, a euphemism for protests, according to the people.”
Caixin reported that several local governments in China have set up special custodian accounts for property projects of Evergrande to protect funds earmarked for housing projects from being diverted. Also, useful to note that as per the report, these have been set up since late August in at least 8 provinces where Evergrande has the most unfinished projects.
SCMP has an interesting report with views from some global money managers:
Lombard Odier’s Homin Lee: “Evergrande’s situation is a ‘controlled demolition’…The systemic implications are limited. Prices should stabilise once Beijing’s decisions on the troubled property developer become clear.”
Schroders: “This default has been widely predicted and we believe will have been at least partly anticipated by the Chinese authorities. We therefore believe that government intervention to prevent a disorderly collapse is very likely. We expect the government to divide Evergrande’s projects and ask state-owned enterprises or quasi-SOEs to take over. This is already happening, for example, in Shenzhen. Banks may have to take impairments against their loans but, in the long run, losses should be limited as loans should mostly be collateralised. Finally, provincial authorities will also likely support Evergrande’s contractors and suppliers.”
Neuberger Berman: “We think authorities will be quicker to act to protect homebuyers, SME suppliers and employment so as to ensure social stability…We do not expect a reversal of policy that will allow developers to re-lever, but we expect measures to stabilise property sales and to ease working capital funding…”
Union Bancaire Privee: It is not yet clear if the government would bail out the company in case things deteriorate further. Direct financial support would contravene [Beijing’s] policy objectives, resulting in more moral hazard…a more cautious and highly selective approach is warranted.”
For a deeper understanding of the situation, I do recommend Michael Pettis’ piece: What Does Evergrande Meltdown Mean for China?. In Business Today, I argued that the Evergrande crisis is unlikely to be a Lehman Brothers moment for China.
Next, NYT reports that Chinese authorities have “taken into custody the top two executives of HNA Group, a transportation and logistics conglomerate that bought up businesses around the world before quickly collapsing under heavy debts. The company said late on Friday that the police on Hainan Province, where it is based, had seized its chairman, Chen Feng, and chief executive, Tan Xiangdong. Both men were detained “in accordance with the law for suspected crimes,” the company said in a statement, without specifying those offenses. HNA did not immediately respond to requests for comment. Mr. Tan appears to be a U.S. citizen, according to personal information about him that the company provided in a filing to Hong Kong regulators in 2019. A U.S. passport number was included. The announcement came on the same day that the state-run Xinhua news agency said Yuan Renguo, the former chairman of Kweichow Moutai Group, which produces a high-end Chinese liquor often consumed by the business class, was sentenced to life in prison for accepting more than $17 million in bribes.” The report also discusses the Evergrande situation.
Also note this FT piece taking off from the collapse of the Blackstone-Soho China deal. Here’s an excerpt:
Schwarzman is “among the most influential of US dealmakers in China, and even he couldn’t secure the approval for a seemingly benign real estate acquisition”, said Brock Silvers, chief investment officer of Hong Kong private equity group Kaiyuan Capital. Blackstone is not alone in coming up against roadblocks. Foreign listings of Chinese companies — a mainstay of Wall Street investing — have been derailed following the initial public offering of ride-hailing app Didi, while the dollar-bond market looks set to follow suit in light of unfolding events at Evergrande. “Now, foreign private equity funds will likely look at China with a greater sense of caution,” said Silvers. The collapse of the deal has had a “chilling effect” for rival companies planning big cross-border deals for assets considered “strategic” to the Chinese economy, said a senior M&A lawyer in Hong Kong who has worked on some of China’s biggest deals
The piece also quotes a “senior dealmaker at a large global private equity company” suggesting that “Is China a scarier place to invest? Yes.” The data shared on private equity and M&A deals is interesting to note.
I’d also like to highlight two other pieces to try and get a grip of the broader dynamics of what the regulatory changes that we are seeing might be telling us.
First, this piece by George Magnus in the Financial Times. He argues:
“Some analysts have advanced case-by-case justifications in support of stronger regulation applied to data privacy and security, the use of algorithms, minimum standards for gig workers, private education and the proliferation of “frivolous” technologies such as gaming. Some of this might even make sense in many countries. Yet, taken together in the context in which all these things are happening in China, it is hard not to see that the government is waging an overtly political campaign. Investors should try to evaluate where the regulators might look next in their pursuit of greater control and lowering inequality. The real estate sector, medical services and healthcare companies as well as pension and social welfare arrangements would seem likely targets.”
He ends with this:
With rising headwinds from indebtedness, poor demographics, stalled productivity and the harshest external environment since the Mao era, Beijing urgently needs to make economic reforms that would help re-energise productivity, private sector expansion and innovation. But will Xi’s governance and regulatory regime help or hinder? It’s a rhetorical question. The immediate cause of the president’s political and ideological campaign, hastened by the faltering relationship with the US and the pandemic, may be to cement his own enduring authority ahead of the 2022 congress. In trying to consolidate power, he wants to pull China sharply leftward and address what he sees as the capitalist excesses in the country’s development model. He may also be trying to divert attention away from an economy with a multitude of underlying economic troubles, and from a political system with no provision now for an orderly transfer of power. For investors, it is caveat emptor.
The other piece is by WSJ’s Lingling Wei:
In Mr. Xi’s opinion, private capital now has been allowed to run amok, menacing the party’s legitimacy, officials familiar with his priorities say. The Wall Street Journal examination shows he is trying forcefully to get China back to the vision of Mao Zedong, who saw capitalism as a transitory phase on the road to socialism.
Mr. Xi isn’t planning to eradicate market forces, the Journal examination indicates. But he appears to want a state in which the party does more to steer flows of money, sets tighter parameters for entrepreneurs and investors and their ability to make profits, and exercises even more control over the economy than now. In essence, this suggests that he aims to rewrite the rules of business in what could someday be the world’s biggest economy.
My really short summary of other interesting bits in the piece:
Now while you read all of this and perhaps start to create a grand unifying theory of what’s really happening in China, this thread is a useful reminder of why such theories rarely tend to capture the complexity of drivers and actions.
Finally, do listen to this SupChina podcast episode: What’s the deal with the Red New Deal? — Lots of food for thought there.
Also Read:
In Depth: How a Liaoning Bank Got Sucked Into the Evergrande Vortex
China drafts new rules on overseas yuan lending to boost use
China Urges Evergrande to Avoid Default, Repay Retail Investors
VI. Afghanistan & 10th CPEC JCC
A couple of interesting developments to note with regard to China’s Afghanistan policy. First, Wang Yi spoke at the G20 meeting on Afghanistan (English report). He said:
Afghanistan’s foreign exchange reserves are national assets and should belong to and be used by the Afghan people, Wang said, adding that they cannot be used as a bargaining chip to exert political pressure on the country. He added: “unilateral sanctions or restrictions on Afghanistan should be lifted.”
He talked about the Chinese aid commitment and added that he hopes “that countries responsible for the current situation in Afghanistan will seriously reflect on what it has done, do more to alleviate the difficulties faced by the Afghan people as soon as possible, and fulfil its due responsibilities.”
International financial institutions should also provide financing support for poverty reduction in Afghanistan, sustainable development, people's livelihood and infrastructure projects.
While Afghan people should choose, “a broad and inclusive political structure should be formed finally.” Later, he added: “Afghanistan should increase the inclusiveness and predictability of its governance.”
On terrorism, “Afghanistan must earnestly fulfil its commitments, draw a clear line with various international terrorist forces, and resolutely crack down on them.”
He wants the United States and NATO countries to assume the primary responsibility for resolving the immigration problem in Afghanistan.
The UN should be the “main channel in maintaining peace and stability in Afghanistan and humanitarian assistance.”
Also, special envoys of China, Russia and Pakistan on the Afghan issue jointly visited Kabul. When asked, the Chinese foreign ministry said:
“They met with the acting Prime Minister Mohammad Hasan Akhund, acting Foreign Minister Amir Khan Muttaqi, acting Finance Minister Hidayatullah Badri and other senior officials. They held in-depth and constructive discussions on the recent developments in Afghanistan, especially on inclusiveness, human rights, economic and humanitarian issues, friendly relations between Afghanistan and other countries, especially neighboring countries, and the unity and territorial integrity of Afghanistan. They expressed support for the fight against terrorism and drug-related crimes.
The Taliban side stressed that it attaches great importance to Afghanistan’s relations with China, Russia and Pakistan, and the three countries are playing a constructive and responsible role in consolidating peace and stability in Afghanistan. The three countries called on the international community to continue to provide humanitarian assistance to Afghanistan, stressing that the US and its allies bear the primary responsibility for Afghanistan's economic and social reconstruction and should provide much-needed economic, livelihood and humanitarian assistance.
During the visit, the special envoys also met with former Afghan President Hamid Karzai and former Chairman of the High Council for National Reconciliation Abdullah Abdullah to discuss peace and stability in Afghanistan. During the visit, China said that it follows a policy of non-interference in Afghanistan's internal affairs and has always played a constructive role in the political settlement of the Afghan issue. Afghanistan should reach open and inclusive political arrangements, implement moderate and prudent domestic and foreign policies, make a clean break with all kinds of terrorist organizations and live on friendly terms with neighboring countries.
Russia’s Sergey Lavrov’s comments on the visit are also interesting. He said that envoys from Pakistan, China and Russia first traveled to Doha and to Kabul. Lavrov said the interim government announced by the Taliban does not reflect “the whole gamut of Afghan society — ethno-religious and political forces — so we are engaging in contacts. They are ongoing.” He also said: “What’s most important ... is to ensure that the promises that they have proclaimed publicly to be kept…And for us, that is the top priority.”
Meanwhile, at the United Nations Security Council, China had been pushing for extending the travel exemption for Taliban leaders. But the Economic Times reports that this did not find favour with any member, including Russia. The report said that the Chinese side had stalled discussions to push this issue but eventually relented after two days.
Finally, turning to Pakistan, the 10th Joint Cooperation Committee (JCC) meeting of CPEC was held this week. This was the first JCC meeting in two years. NDRC’s Ning Jizhe said that CPEC had brought Pakistan direct investment totaling $25.4 billion over the past eight years. He also called for called for “high-level” security guarantees for further high-quality development. Dawn quoted Pakistan’s Planning and Development Minister Asad Umar as saying that “the two sides had agreed to the need and importance of enhanced security not only for CPEC projects but also Chinese labourers working in Pakistan, following the Dasu incident. Both sides agreed to ‘arrest those guilty of heinous crime and get them sentenced by courts at the earliest’.”
The report also says that for the two sides, the over $6 billion Mainline Railway Track (ML-1) remains unfinalized, but they did arrive at a deal on the vexed issue of power tariffs. Pakistan has been seeking changes in tariff structure for independent power producers (IPPs) to reduce financial burden in line with tariff discounts secured from other IPPs. But Chinese investors were simply not in agreement. Power sector dues for Chinese investors had piled up going beyond $1.4bn. But now it seems that the Pakistani government has shelved its plans for a review.
Finally, the meeting, another Dawn report informed that an ambitious plan to rebuild Karachi’s coastline has been placed under CPEC, with $3.5 billion “direct Chinese investment” promised. The aim is to overhaul city’s seaboard with new berths for the port, a new fishery port and a “majestic harbour bridge” connecting it with Manora islands and Sandspit beach. Also, China and Pakistan have announced a Joint Working Group on Information Technology.
Also Read:
VII. Meng Wanzhou’s Return, Qin Gang’s Advice & AmCham Survey
Chinese state media celebrated the return of Huawei CFO Meng Wanzhou, who landed in Shenzhen on Saturday night. The state broadcaster not only cut live to focus on her arrival, but as you can see below, this was a long, long discussion topic with wall-to-wall coverage. The video below is incredibly long, featuring flight-tracking footage to see where Meng had reached. The plane lands at 3 hours 40 minutes into the video! Or if you’d like, you can check out this live blog from CGTN, which also had voxpops.
She landed and delivered a statement hailing the “motherland” and President Xi Jinping, while calling herself an “ordinary Chinese citizen who had suffered this plight and been stranded overseas for nearly three years.”
“President Xi Jinping cares about the safety of each and every Chinese citizen, including me. I am deeply moved by this…I also thank the relevant departments for their support and help. They have resolutely safeguarded the legitimate rights and interests of Chinese enterprises and citizens.”
And she added: “Where there is a Chinese flag, there is a beacon of faith. If faith has a color, it must be China red.” The Global Times attributed Meng’s return to China’s “national power.”
“It is China's national power that shaped this final result. A country will be surrounded with more troubles as it gets stronger, but only a strong country can enable us to deal with those troubles with dignity. Whenever we encounter a challenge, we neither have to risk it all in the fight, nor do we need to compromise our dignity.”
On the Chinese social media platform Weibo, Meng’s return to China became the top trending topic of the day. “Meng Wanzhou About to Return to the Motherland” became the no 1 hashtag (#孟晚舟即将回到祖国#), receiving 1.5 billion views by Saturday afternoon (CST). State media outlet People’s Daily was one of the main accounts pushing hashtags related to Meng.
Officially, the foreign ministry said:
The Chinese side’s position on the Meng Wanzhou incident has been consistent and clear-cut. It has long been a fully proven fact that this is an incident of political persecution against a Chinese citizen, an act designed to hobble Chinese high-tech companies. The so-called "fraud" charges against Ms. Meng Wanzhou are purely fabricated. Even HSBC, the so-called "victim" portrayed by the US side, has disclosed materials that are sufficient to prove Ms. Meng's innocence. What the United States and Canada have done is a typical case of arbitrary detention.
Of course, there’s no mention in Chinese state media of the release of Canadian citizens Michael Kovrig and Michael Spavor, who were detained for over 1000 days in China. They flew to Calgary while Meng left Canada. In August 2021, a Chinese court had sentenced Spavor to 11 years in prison for espionage, while there was no progress in Kovrig’s case. It’s strange that someone sentenced was simply let go without any explanation. For all the talk by Beijing that their detention was about national security violations, it’s clear that this was retaliatory action that precious little to do with the law.
Anyway, all of this was part of a Deferred Prosecution Agreement between Meng and the US Justice Department. The agreement is available here. It comprises a Statement of Facts, which Meng, as per the agreement, concurs with entirely. And that clearly talks about her misrepresenting the company’s dealings in Iran. The key bit in this revolves around an August 22, 2013 meeting.
Officially, Acting U.S. Attorney Nicole Boeckmann for the Eastern District of New York said:
“In entering into the deferred prosecution agreement, Meng has taken responsibility for her principal role in perpetrating a scheme to defraud a global financial institution. Her admissions in the statement of facts confirm that, while acting as the Chief Financial Officer for Huawei, Meng made multiple material misrepresentations to a senior executive of a financial institution regarding Huawei’s business operations in Iran in an effort to preserve Huawei’s banking relationship with the financial institution. The truth about Huawei’s business in Iran, which Meng concealed, would have been important to the financial institution’s decision to continue its banking relationship with Huawei. Meng’s admissions confirm the crux of the government’s allegations in the prosecution of this financial fraud — that Meng and her fellow Huawei employees engaged in a concerted effort to deceive global financial institutions, the U.S. government and the public about Huawei’s activities in Iran.”
But the more important bit in the agreement is this clause; to me, this suggests that the matter will be put to rest in due course.
Meng’s lawyer William Taylor, meanwhile, has said that “she has not pleaded guilty and we fully expect the indictment will be dismissed with prejudice after fourteen months.”
Some final thoughts on all this.
First, the reaction in China and how state media has covered the events of the past 48 hours tell us something about the nationalistic tiger that the Party is riding. Clearly, there is purchase for nationalism and the Party sees value in stoking these sentiments. Second, the sense that the US is systematically trying to contain China is something that evidently has wide acceptance among the general public and perhaps even the Party elite. I point this out to say that it would be erroneous to assume that China’s tougher foreign policy is simply a Xi Jinping phenomenon; there’s evidently wider appeal and likely significant elite concurrence. Third, Meng’s and the two Michaels’ release does show that the US and China are willing to and can cut deals when needed. And when one cuts deals on such an incredibly visible issue, all sides are likely to make a moral pitch for domestic constituencies. I wonder if this can lead to a stronger hand to cut more deals, quieter ones, on substantive issues?
Anyway, that’s my two kuai worth of input on all of this.
Next, I am turning to Qin Gang China’s ambassador to the US, who spoke at an event by The Carter Center and The George H.W. Bush Foundation for US-China Relations. He specifically pushed back against the idea of the democracy versus authoritarianism ideological confrontation. His argument is that China has a distinct governance process, which he calls democracy. This is his benchmark to judge the democratic nature of a system:
“whether a system is democratic depends on whether it can represent the overall interests of the people and whether the people are satisfied. Whether it is good or not should not be judged by what we say, but what we do.”
“My friends, isn’t it obvious that China is just pursuing peace, development, fairness, justice, democracy and freedom, which are common values of mankind? Isn't it obvious that both China’s people-centered philosophy and President Lincoln’s ‘of the people, by the people, for the people’ are for the sake of the people? Shall we understand China’s socialist whole-process democracy as this: from the people, to the people, with the people, for the people?
Qin also said that in the time, “some people are busy fanning up the battle between democracy and authoritarianism, and putting together an alliance of democracies…” China has prospered with poverty alleviation, development, market size and business expansion, better social security, etc.
His other big point was: “Our two countries should not and cannot change each other. Instead, we should break ideological barriers, discard zero-sum mentality, respect other countries, and accommodate each other without losing our own distinctions, so as to get along with each other in peace.”
Interesting Twitter take from the ambassador after this:
One of the tweets in this thread in particular caught my attention:
Third, Qin also spoke at the High-Level Meeting of Bloomberg New Economy Forum. He took this opportunity to also talk about the China-US relationship. The key points he made are:
China and the US need to show broad vision, shoulder great responsibilities and bring their relations back to the right track of stable development.
The Chinese people never believe in the ‘Thucydides trap’. We will act to open up a path of national renaissance and peaceful development. At the same time, we call upon the US to stay committed to peaceful development, abandon any wrong thinking, and work with China to find a way of getting along based on mutual respect and win-win cooperation.
We have to face the reality, look to the future, think out of the box, create new institutions and methods and open up new dimensions for China-US engagement...China and the US can advance coordination and cooperation on climate change, COVID-19 response and economic recovery. These areas are innovation intensive and very promising for cooperation. China will continue to expand opening-up, continue to do business with the world, and promote technology and trade cooperation with the US side. The US side also needs to create conditions, instead of barriers, for our cooperation.
The ambassador’s done a Tweet thread about his comments:
Finally, do check out the China Business Report by AmCham Shanghai. One key finding: “The vast majority (81.4%) of companies had no plans to redirect their China investment to other foreign locations. As in 2020, very few companies (15 out of 338 respondents) intend to send investment back to the US. Of the 63 companies that redirected investment to other foreign locations, 50.8% sent investment to Southeast Asia, 34.9% to Mexico and 30.2% to the Indian subcontinent (some companies may be sending investment to more than one location).”
Here are some others:
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