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China and the National People’s Congress of 2016

Giancarlo Elia Valori

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As often happens, China is at a significant political turning point: the National People’s Congress, the single House of the Chinese Parliament, made up of approximately 3,000 delegates, has opened.

It has the power to oversee Government’s activities, to legislate and directly appoint some of the most important State’s leaders.

Together with the National Committee of the Chinese People’s Political Consultative Conference of the People, the National People’s Congress is the highest legislative Chinese body.

The Congress is elected every five years and meets every spring for about 12-15 days in a row, usually in the Great Hall of the People in Tiananmen Square.

At the opening of the current Congress on Saturday, March 5, Prime Minister Li Kekiang, also in his capacity as Head of the State Council, reaffirmed that the GDP growth rate set by the government would be 6.5-7%, lower than previously set, but certainly much higher than the GDP growth rate of any Western economy.

According to the data analyzed by Li Kekiang, in the last financial year China’s GDP amounted to 67.7 trillion yuan, with a 6.9% increase as against the previous year.

Agricultural production has also increased for the twelfth time in a row, while consumer prices are growing much more slowly than GDP and agricultural and industrial production.

Last year 13.12 million new jobs were created in urban areas, a figure higher than the previous NPC forecasts.

The service sector accounts for 50.5% of the total GDP, just to dispel the usual, old and taken for granted analysis that sees China growing only in labour-intensive and low technology sectors.

Gone are the days when China was a replacement economy; the country is now a global leader of technological innovation.

Conversely, China will take advantage of the current period of reduced GDP growth – which, however, remains a mirage for us – to invest in high-tech and labour-saving, but high value added, sectors which will compete directly, or better, absorb our high technical and product innovation sectors.

Li Kekiang said that the Internet has now reached all Chinese enterprises, with the number of new businesses which in 2015 grew by 21.6%, equivalent to nearly 12,000 new start-ups a day.

Again according to the Chinese government, the per capita disposable income increased by 7.4% in real terms while, since the end of last year, bank deposits have grown by 8.5% – equivalent, in absolute terms, to four trillion yuan.

For the first time 64.34 million Chinese people living in rural areas have had access to pure and drinking water – a transformation which will lead – in China as in Europe in the past – to the most significant and stable increase of average life expectancy.

Chinese people living below the poverty line have decreased by 14.42 millions. It is a sign that the current transformation of the Chinese economy is not only heading for the expansion of the internal market, but also for fewer social inequalities.

It was the theme of the recent speeches “within” the Party made by Secretary Xi Jinping, that relates the fight against corruption to greater social equality – a theme that has focused again attention on the specific type of Chinese economic development.

It is no longer a simple phase of capitalist accumulation, as described by classic political economy theories (and by Marx), but a socialist system where growth adds to the fight against poverty and the increase in wages and consumption.

China has never been, not even in the early days of the “Four Modernizations”, a socialist economy that adapted itself to an export-led development.

This is the economic and ethical-moral importance of the fight against corruption, which has characterized Xi Jinping’s leadership and direction from the very beginning.

As announced by Xi Jinping in mid-January, the anti-corruption campaign will hit not only the higher ranks of the regime, but also the most modest and peripheral sectors and functions.

Clearly Xi Jinping wants to use the fight against corruption to eliminate its old enemies, those who blocked his rise to the CPC Secretariat for at least two years – but there is more in the new ethics of the Party and its ruling class.

For Xi, the issue lies in using two criteria: the abolition of the informality of procedures, but rather the strengthening of their strict formal legality, and also the restoration of all the ancient cultural and ethical values of tradition and ancient culture within the Chinese society.

It is socialism which favours Confucius, not the other way round.

Hence a new Cultural Revolution to avoid China’s mere adhesion to the mindset, consumption and business style of “Western dogs”, as Europeans were called during the “Boxer rebellion”.

Over a thousand “economic fugitives”, guilty of very severe crimes of corruption and illegal enrichment, coming from the United States, Canada, Australia and New Zealand, have already been brought to Chinese justice.

The “tigers”, namely the corrupt people – just to use the terminology of the Chinese press – have been exposed in the Central Military Commission, in the intelligence services, in the People’s Liberation Army and in many State and Party’s ruling bodies.

For Wang Qishan, the Head of the Central Commission for Discipline Inspection, the main anti-corruption body in the country, during 2016 three types of officials will be scrutinized: those who have continued their corrupt practices after the results of the 18th CPC Congress, in 2012, when Xi rose to power; those who have “serious problems” and have generated a “fierce people’s reaction”, and finally all those who occupy key posts and are waiting for promotion.

Reverting to Li Kekiang’s analysis at the National People’s Congress underway, the CPC and especially Xi Jinping’s “line” want: a) to maintain stable growth, perhaps less rapid than in previous years, thus avoiding risks in the global financial market while making the necessary structural adjustments, which are usually expensive and unpopular.

Furthermore, b) a new proactive fiscal policy has been implemented, which has allowed to reduce some taxes, domestic rates and use local budgets productively.

Another factor, c), are the 3.2 billion yuan in new governments’ and local authorities’ bonds, which have been used to pay off previous debts, with a decrease in debt servicing for peripheral governments equal to approximately 200 million yuan.

Funds have also been created for special operations, especially for water management, for the most deprived urban areas, and for rural residential areas, while d) private spending has been targeted to the sectors which are the most promising for the government and the CPC: travels, on-line shopping, information technology equipment.

In short, the Chinese government’s choice has been to put an end to the generic stimulus policies, which have radial effects on the whole economic system, so as to foster structural reforms.

311 types of products have been liberalized; 123 professions and activities no longer need permits authorizations or government concessions; 85% of the authorizations for new economic activities have been abolished, while only one business license with a unified tax code is now used in China.

Administered prices have fallen by 80% and those regulated by local governments by over 50%.

Hence liberalization has the function of balancing the system, not of generating the old Marxist (and Ricardian) “primitive accumulation”.

Restrictions on Chinese investment abroad have fallen by 50%, while over 90% of Chinese projects funded abroad can be implemented only on the basis of investors’ reports, without further constraints.

The aim is clear: to boost China’s export mix to avoid asymmetric shocks.

In 2015 China also used over 126.3 billion US dollars of foreign investment in its business, with a 5.6% increase, while the non-banking and financial Foreign Direct Investment (FDI) operating in China amounted to 118 billion US dollars, with a 14.7% increase.

Moreover the Asian Infrastructure Investment Bank was inaugurated, involving also Italy, and particularly the Silk Road Fund, while the renminbi has recently been included in the currencies of the International Monetary Fund’s “basket” for its “special drawing rights”, the currency issued by the IMF.

Finally, d) the “Made in China 2025 Initiative” has been launched to update the manufacturing productive systems and, above all, to finance and update the small and medium-sized enterprises’ technologies.

In the best Maoist tradition of the “balance between regions”, this corresponds to the development of the Beijing-Tianjin-Hebei integration and to the expansion of the Yangtze’s Economic Belt.

With a view to rebalancing the masses’ purchasing power and stabilizing society, 7.2 million housing units subsidized by the central government have been built, with a new initiative to build schools in rural areas and make compulsory education universal.

In the current NPC, reference has also been made to rural areas to spread a new political formula, namely the “Three Stricts, Three Honests” internal education campaign, initiated by Xi Jinping in December 2014, which is meant to strengthen public ethics and “political ecology”.

With this campaign, Xi wanted to hit political careerism and the overlap between political elites and economic and business elites.

It is worth recalling that the “Three Honests” are: “be honest in making decisions”, “be honest in forging a career” and “be honest in personal behaviour”.

The Three Stricts are: “be strict in moral conduct”, “be strict in exercising power”, “be strict in disciplining yourself”.

As we can infer from this brief description, Xi Jinping’s (and Li Kekiang’s) theory and slogans are perfectly suited to the current economic policy, not only with regard to corruption, but also to everything relating to the expansion and stabilization of economic development in a context of democratization of income and support for the old and new Chinese poor walks of society.

Hence, for Xi and Li Kekiang, the political and economic project is now clear: to preserve a high rate of economic development, despite the external conditions and asymmetric shocks coming from countries in crisis (and from the United States), and then to perfect the structural adjustments, which have a clear significance.

Their significance is the urbanization of China’s people, 50% of whom lives in cities; the reduction of private energy consumption, which fell by 18.2%, with a pollution rate which decreased by 12%; the growth of transport infrastructure, with 121,000 km of railway lines, 19,000 of which are high-speed; finally, the promotion of scientific and technological innovation.

This is the reason why the economy of the service sector, adequately backed by the Chinese government, will anyway support growth, while the structural undervaluation of renmbimbi, the axis of the financial protection of Chinese assets, will continue to play its role as a de facto subsidy to Chinese exports.

The Chinese economy learns from its mistakes very quickly, also thanks to its centralization, and the share of GDP generated by services will optimally support the Chinese expansion in an international market where the share of manufacturing and old technologies is shrinking.

Advisory Board Co-chair Honoris Causa Professor Giancarlo Elia Valori is an eminent Italian economist and businessman. He holds prestigious academic distinctions and national orders. Mr. Valori has lectured on international affairs and economics at the world’s leading universities such as Peking University, the Hebrew University of Jerusalem and the Yeshiva University in New York. He currently chairs “International World Group”, he is also the honorary president of Huawei Italy, economic adviser to the Chinese giant HNA Group. In 1992 he was appointed Officier de la Légion d’Honneur de la République Francaise, with this motivation: “A man who can see across borders to understand the world” and in 2002 he received the title “Honorable” of the Académie des Sciences de l’Institut de France. “

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East Asia

The nature of contemporary Sino-Pakistani relations

Syeda Dhanak Hashmi

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China has played a crucial role in maintaining regional peace and security by upholding its concept of an inclusive, cooperative and sustainable security. This has clarified the country’s stance on issues of regional concern, contributing to long-term stability and development in Asia, which includes the promotion of common development, building of partnerships, improvement of existing multilateral frameworks, rule-setting, military exchanges and proper settlement of differences.

To ensure long-term stability and prosperity of the Asia-Pacific, China has put forward a number of proposals that have been highly valued by the international community. To ensure common development is the fundamental guarantee of peace and stability, and the ‘master key’ to solving security problems. The China-proposed Belt and Road Initiative is not only a path of development but also a path of peace, as it will not only bring opportunities to the economic development of regional countries, but also provide ideas and solutions for them to solve security problems. The central theme behind the China-Pakistan Economic Corridor (CPEC) is to open new economic and trade avenues that would lead to the overall social and economic prosperity of the region. The fruit of this economic cooperation is a market far larger in scope than the one that exists because of economic conflict in the region. The envisaged economic route from Gwadar to Kashgar can serve as an alternative and economically shorter sea route instead of the far longer straits of Malacca. This has always been the most compelling reason for multilateral and regional cooperation.

Two of the most reputable theories that support the idea of regional stability, regional integration and strategic cooperation can be stated in terms of ‘economic opportunity cost hypotheses and ‘neo-functionalism’. The first theory assumes that trade and economic interdependence increases stakes amongst economically integrated nations and thereby reduces chances of conflicts erupting. Whereas the proponents of neo-functionalism are of the view that cooperation in one area produces cooperation in other areas. CPEC will pass through Gilgit-Baltistan in the north which will connect Kashgar in China’s western province of Xinjiang. Almost 80% of China’s oil is currently transported through the Strait of Malacca to Shanghai. The calculated distance is almost 16,000km and takes two to three months, with Gwadar becoming operational, the distance would be reduced to less than 5,000km. When fully operational Gwadar will promote not only the economic development of Pakistan but also serve as a gateway to the Central Asian countries.

Keeping in view the regional stability, Pakistan and India are both important neighbours for China which wants to promote trade with its neighbours. Pakistan is a victim of terrorism and that all countries were responsible for contributing towards the eradication of terrorism. But the brutalities of the Indian army in Indian-held Kashmir cannot be ignored here.

Pivot to Asia: Status quo or a challengerpower ?

Hence, regional integration is not possible as long as regional trade is sacrificed for so-called security. Pakistan needs to follow the Chinese model whose trade with India had crossed over $100 billion despite serious political issues between them. Some elements also fear that if there is peace in the region, it will challenge their predominance in the business of the state. Furthermore, the dimension of CPEC that is ignored is its potential to defeat terrorism in the region by raising and improving socio-economic conditions of the people. The Sri Lankan polity, at first divided over the role of China in the region, has come to recognize that the Belt Road Initiative approach fits well with Colombo’s goals of rebuilding a war-torn economy through enhanced connectivity. China also calls for improving regional security architecture to lay a solid foundation for enduring peace and stability in the region, and also calls on countries to properly handle differences and disputes to maintain the peaceful and stable environment in the region.

In the context of Pakistan, CPEC is often termed a game changer for the weak economy of Pakistan. The corridor project carries vital significance as it promises to elevate Islamabad’s economic growth. Unlike US aid, the Chinese aid to Pakistan has offered infrastructure and energy projects that would serve as a means to improve Pakistan’s economy. Despite the cheapness of land, Pakistan is lagging behind in connectivity which increases the trade cost. However, under the umbrella of CPEC the cost would be minimised and export incentives increased. Pakistan expects 4% of global trade. The kind of toll tax, rental fees that Pakistan will gain is roughly $6 billion to $8 billion by 2020.

A strategic and economic balance of power in the region would ensure peaceful resolution of conflicts but also enhance strategic stability leading to a win-win situation. Or by words of professor Anis H. Bajrektarevic: “Asia has to answer itself whether the newest concepts – such as the OBOR/CPEC vs. Indo-Pacific oceanic triangling – are complementary to its development or the heartland-rimland sort of dangerous confrontation. Asia needs a true multilateralism, not a hostage situation of getting caught in a cross-fire.”

The CPEC itself with its focus on Gwadar, has also given impetus to maritime cooperation between China and Pakistan, and beyond. Both states wish to enhance bilateral cooperation in the fields of maritime security, search and rescue, and the blue water economy. Thus, it would not be wrong to say that CPEC has the potential of accruing strategic cooperation. This approach serves as strategic enabler in a rapidly transforming world order. It is therefore the need of time to move from archaic geopolitical vendetta of 19th and 20th centuries to interstate strategic play in the 21st century.

The pursuit of a state’s national interest in the international arena constitutes its foreign policy. A successful foreign policy should employ a balance of economic, diplomatic, and military tools. It is the national interest that shapes the possibilities of state to behave collectively. Through a balanced foreign policy approach, the South Asian region can achieve its mega development projects and establish into a peaceful integrated region. Confidence-building measures between regional players is the first step in this direction to uplift the socioeconomic standards of the people of this region.

An early version of this text has been published by the China Daily

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Freedom, Sovereign Debt, Generational Accounting and other Myths

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“How to draw the line between the recent and still unsettled EU/EURO crisis and Asia’s success story? Well, it might be easier than it seems: Neither Europe nor Asia has any alternative. The difference is that Europe well knows there is no alternative – and therefore is multilateral. Asia thinks it has an alternative – and therefore is strikingly bilateral, while stubbornly residing enveloped in economic egoisms. No wonder that Europe is/will be able to manage its decline, while Asia is (still) unable to capitalize its successes. Asia clearly does not accept any more the lead of the post-industrial and post-Christian Europe, but is not ready for the post-West world.” – professor Anis H. Bajrektarevic diagnosed in his well-read ‘No Asian century’ policy paper. Sino-Indian rift is not new. It only takes new forms in Asia, which – in absence of a true multilateralism – is entrenched in confrontational competition and amplifying antagonisms.  The following lines are referencing one such a rift.

At the end of 2017, Brahma Chellaney, a professor with the New Delhi-based Center for Policy Research, wrote an article titled “China’s Creditor Imperialism” in which he accused China of creating a “debt trap” from Argentina, to Namibia and Laos, mentioning its acquisition of, or investment in the construction of several port hubs, including Hambantota in Sri Lanka, Piraeus in Greece, Djibouti, and Mombasa in Kenya in recent years.

These countries are forced to avoid default by painfully choosing to let China control their resources and thus have forfeited their sovereignty, he wrote. The article described China as a “new imperial giant” with a velvet glove hiding iron fists with which it was pressing small countries. The Belt and Road Initiative, he concluded, is essentially an ambitious plan to realize “Chinese imperialism”. The article was later widely quoted by newspapers, websites and think tanks around the world.

When then United States Secretary of State Rex Tillerson visited Africa in March, he also said that although Chinese investment may help improve Africa’s infrastructure, it would lead to increased debt on the continent, without creating many jobs.

It is no accident that this idea of China’s creditor imperialism theory originates from India. New Delhi has openly opposed China’s Belt and Road Initiative, especially the China-Pakistan Economic Corridor as it runs through Pakistan-administered Kashmir, which India regards as an integral part of its territory. India is also worried that the construction of China’s Maritime Silk Road will challenge its dominance in South Asia and the Indian Ocean. Based on such a judgment, the Indian government has worked out its own regional cooperation initiatives, and taken moves, such as the declaration of cooperation with Vietnam in oil exploration in the South China Sea and its investment in the renovation of Chabahar port in Iran, as countermeasures against the Chinese initiative.

Since January, India, the United States, Japan and Australia have actively built a “quasi-alliance system” for a “free and open Indo-Pacific order” as an alternative to the Belt and Road Initiative. In April, a senior Indian official attending the fifth China-India Strategic Economic Dialogue reiterated the Indian government’s refusal to participate in the initiative.

The “creditor imperialism” fallacy is in essence a deliberate attempt by India and Western countries to denigrate the Belt and Road Initiative, which exhibits their envy of the initial fruits the initiative has produced. Such an argument stems from their own experiences of colonialism and imperialism. It is exactly the US-led Western countries that attached their political and strategic interests to the debt relationship with debtor countries and forced them to sign unequal treaties. China’s Belt and Road Initiative is proposed and implemented in the context of national equality, globalization and deepening international interdependence, and based on voluntary participation from relevant countries, which is totally different from the mandatory debt relationship of the West’s colonialism.

It is an important “Chinese experience” to use foreign debts to solve its transportation and energy bottlenecks that restrict its economic and social development at the time of its accelerated industrialization and urbanization. By making use of borrowed foreign debts, China once built thousands of large and medium-sized projects, greatly easing the transportation and energy “bottlenecks” that long restrained its social and economic development. Such an experience is of reference significance for other developing countries in their initial stage of industrialization and urbanization along the Belt and Road routes.

In the early stage of China’s reform and opening-up, US dollar-denominated foreign debt accounted for nearly 50 percent of China’s total foreign debts, and Japanese yen close to 30 percent. Why didn’t Western countries think the US and Japan were pushing their “creditor imperialism” on China?

Some foreign media have repeatedly mentioned that Sri Lanka is trapped in a “debt trap” due to its excessive money borrowing from China. But the fact is that there are multiple reasons for Sri Lanka’s heavy foreign debt and its debt predicament should not be attributed to China. For most of the years since 1985, foreign debt has remained above 70 percent of its GDP due to its continuous fiscal deficits caused by low tax revenues and massive welfare spending. As of 2017, Sri Lanka owed China $2.87 billion, accounting for only 10 percent of its total foreign debt, compared with $3.44 billion it owed to Japan, 12 percent of its total foreign debt. Japan has been Sri Lanka’s largest creditor since 2006, but why does no foreign media disseminate the idea of “Japan’s creditor imperialism”?

In response to the accusation that China is pursuing creditor imperialism made by India and some Western countries, even former Sri Lankan president Mahinda Rajapaksa wrote an article in July using data to refute it.

Most of the time, the overseas large-scale infrastructure construction projects related to the Belt and Road Initiative are the ones operated by the Chinese government and Chinese enterprises under the request of the governments of involved countries along the Belt and Road routes or the ones undertaken by Chinese enterprises through bidding.

It is expected that with the construction of large-scale infrastructure projects and industrial parks under the Chinese initiative, which will cause the host country’s self-development and debt repayment ability to constantly increase, the China’s creditor imperialism nonsense will collapse.

An early version of this text appeared in China Daily

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Arrogance of force and hostages in US-China trade war

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Even before the ink on the comments made by those who (just like the author of these lines) saw the recent meeting between US President Donald Trump and his Chinese counterpart Xi Jinping in Buenos Aires as a sign of a temporary truce in the trade war between the two countries had time to dry, something like a hostage-taking and the opening of a second front happened. The recent arrest in Canada under US pressure of Meng Wanzhou, the chief financial officer of China’s telecommunications giant Huawei, is unfolding into a full-blown international scandal with far-reaching consequences.

Meng Wanzhou faces extradition to the United States where she is suspected of violating US sanctions against Iran, namely by making payments to Tehran via the UK branch of the US bank HSBC. The question is, however, how come someone is trying to indict a Chinese citizen according to the norms of American law, and not even on US territory to boot?

China’s reaction was extremely tough with Deputy Foreign Minister Le Yucheng summoning the Canadian and US ambassadors in Beijing and demanding the immediate release of the detainee, calling her detention “an extremely bad act.” First of all, because this is yet another arrogant attempt at extraterritorial use of American laws.

Other countries, above all Russia, have already experienced this arrogance more than once; suffice it to mention the cases of Viktor Bout and Konstantin Yaroshenko, or of the alleged “Russian hackers,” who, by hook or crook, were taken out to the United States to face US “justice”.

Enough is enough, as they say. Russia’s Foreign Minister Sergei Lavrov, who is usually careful in his choice of words, said that while Russia is not involved in the US-China trade war, it still regards Meng’s arrest as “another manifestation of the line that inspires a rejection among the overwhelming majority of normal countries, normal people, the line of extraterritorial application of their [US] national laws.”

“This is a very arrogant great-power policy that no one accepts, it already causes rejection even among the closest allies of the US,” Lavrov said. “It is necessary to put an end to it,” he added.

One couldn’t agree with this more. But first, I would like to know who really is behind this provocation, even though China’s reaction would have been much anticipated. The arrest of Meng Wanzhou sent US markets into a tailspin and scared investors, who now expect an escalation of the trade war between the United States and China.

The point here, of course, is Washington’s displeasure about Huawei’s activities, with The Wall Street Journal reporting that the US Justice Department has long been conducting a probe into the Chinese company’s alleged violation of US sanctions against Iran.

There is more to this whole story than just sanctions though. The US accuses Huawei (as it earlier did the Chinese ZTE) of the potential threats the company’s attempts to use tracking devices could pose to the security of America’s telecommunications networks. The United States has demanded that its closest allies (primarily Canada, the UK, Australia and New Zealand, with whom it has set up a system for jointly collecting and using Five Eyes intelligence) exclude 5G Huawei products from their state procurement tenders.

I still believe, however, that the true reason for this is not so much security concerns as it is a desire to beat a competitor. Huawei has become a world-renowned leader in the development and application of 5G communications technology, which looks to the future (“Internet of Things”, “Smart Cities”, unmanned vehicles and much more.)

Since technology and equipment are supplied along with standards for their use, there is a behind-the-scenes struggle going on to phase out the 5G standard developed by Huawei from global markets.

As for the need “to put an end to this,” the big question is how. Formally, detainees are extradited to the United States in line with national legislation, but at Washington’s request (which often comes with boorish and humiliating pressure from the US authorities and is usually never mentioned in public).

Add to this the US Congress’ longstanding practice of changing, unilaterally and at its own discretion, already signed international treaties and agreements as they are being ratified – another example of “arrogance of power” as mentioned before.

The question could well be raised at the UN Security Council, but its discussion is most likely to be blocked by the US representative. However, there is also a moral side to the assessment of any political practice the work on international legal norms usually starts with.

If China and Russia, as well as other countries equally fed up with the “arrogance of power” submit a draft resolution “On the inadmissibility of attempts at extraterritorial use of national legislation by UN member states” to the UN General Assembly, it would most likely enjoy the overwhelming support by most of the countries of the UNGA, maybe save for just a dozen or so of the most diehard advocates of Washington’s policy…

First published in our partner International Affairs

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