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.
Twists and Turns in US -China Trade War
US Secretary of State Mike Pompeo’s stopover at Beijing on 08 October may not have been a pleasant experience, more so in the backdrop of accusation of US Vice President Pence about China attempting to interfere in U.S. elections. The agenda of North Korean denuclearisation, where US and China were broadly agreeing earlier, seems to have taken a back seat, and improvement of relations doesn’t seem to be realistic in near future. The ongoing trade war continues as both sides dig their heels despite being the biggest trading partners of each other, because it is also linked with global dominance, strategic and military posturing, diplomatic and information offensive.
China Braving Threat to its Vulnerabilities
China is putting a brave front despite being badly hit at some of its most vulnerable spots in the tit-for-tat trade war with both sides spiralling the slapping of tariffs on a wide range of each others’ trade items. Taiwan, which is another sensitivity of Beijing is witnessing visit of US officials after Taiwan Travel Act was signed by President Trump, with a promise to arm it further with latest weaponry. US continued military posturing in South China Sea, along with the appearance of UK warship ignoring Chinese repeated warning is another concern. A recent injection of over $110 billion by China into its banks and hardly any financial benefits coming out of BRI partners incapable to repay anything is tightening its financial freedom for global dominance. Some of its BRI partners want to get out of the ‘Debt Trap’ by refusing/reducing Chinese investments is adversely affecting Chinese dream project (BRI), after five years of its announcement like Philippines.
Not a Smooth Sail for US
US on the other hand cannot be celebrating either, with China digging it heals and refusing to give up either in trade war or South China Sea. On North Korean front, the policy of good optics continues with Kim managing to get a lot of goodies from South Korea (presumably at their cost), during the last summit of North and South Korea. Kim in fact has been an outright winner, managing to get another Summit with President Trump, which helps him in convincing his countrymen of his sound leadership, as well as boosting his status internationally. US sanctions on paper continue, but after the chest thumping at Singapore Summit, his friends like China automatically relaxed the sanctions on North Korea, without any worthwhile denuclearisation/reduction in his nuclear/missile arsenal. US realises that knocking out China financially is the key to its global dominance; hence is unlikely to soften up to China. US also faces another challenge of keeping its allies like Japan and South Korea satisfied while negotiating with North Korea and asking ASEAN to make choices of partners, besides continuing with CAATSA hurting some of its strategic partners who could be helpful in balancing China.
It will take some time to see that whoever has greater resilience to withstand the economic stand-off and appetite to take setbacks will have an upper edge, which seems to be US at this point of time. As per IMF assessment, China’s GDP size will be 1.6 per cent lower in 2019 than it otherwise would be, if the US slaps tariffs on all Chinese imports.
How is India affected?
The Indian economy has survived some global slowdowns earlier and should be able to sail through the present one. The bigger problem is the sanction under CAATSA in dealing with Russia for urgently needed military hardware like S-400 and Iran for cheaper crude oil being paid in rupee terms, for which India has adequate refineries. The US option of buying shale oil does not suit India as it does not have adequate refineries and will have to purchase finished product in dollar terms. The port of Chabahar is also crucial for India for connectivity to Afghanistan and CAR. The silver lining is that US being our strategic partner will like to have well equipped Indian Forces to balance China and Indian connectivity to Afghanistan, in case Pakistan does not serve their strategic interest. On both counts I am hopeful that US will find a way out not to hurt its strategic partner.
The talks held in September 2018 between Kim Jong-Un and Moon Jae-In
In less than one year three meetings have been held between the North Korean Leader and the South Korean President, Moon Jae-In.
In the initial meeting the two leaders had decided to put an end to the state of war between their two countries. They had also reaffirmed the goal of denuclearization of the entire peninsula, with the consequent destruction of the nuclear potential of South Korea and of the United States, in particular. They also decided to create an inter-Korean Liason Office between the two sides of the Demilitarized Zone and to bring together the families dispersed between the two Koreas. Finally, the idea was to create new communication infrastructure – railway lines, in particular – a project by which Russia has always set great store.
Indeed, Russia is betting many of its cards on a reunification between the two Koreas, capable of enabling it to keep its excellent relations with South Korea – which are essential for the economy – and to also support North Korea, which is Russia’s unavoidable strategic goal.
Now the two Koreas are dealing on their own, without the US brokerage and intermediation with respect to South Korea, although President Donald J. Trump has recently stated that President Moon Jae-In is his official “delegate” for the denuclearization of the Korean peninsula.
The United States is scarcely interested in the internationalization of the North Korean economy. It only wants denuclearization, while Kim Jong-Un wants denuclearization to develop his country’s economy and maintain its geopolitical and national autonomy.
A serious problem – both in talks and in the final or working documents – is also to define an effective mechanism to check denuclearization.
Indeed, between September 17 and 19, 2018, the signing of the Joint Declaration of Pyongyang has not fully clarified the mechanism of checks on the denuclearization of the Korean peninsula. Kim Jong-Un’s idea is to organise these checks with a series of “experts” appointed by the friendly powers, while the South Korean idea is to accept the maximum possible denuclearization to start the long process of reunification.
The two respective Defence Ministers, however -namely Song Young Moo for South Korea and Rho Kwang Chul for North Korea – have just signed a separate document from the rest of agreements.
In that text confidence-building measures between the parties are put first, with North Korea’s acceptance of dismantling a launch pad and a site for checking jet engines, with the presence of yet unspecified, but friendly international experts. From IAEA? We have some doubts, in this case.
Subsequently North Korea could also dismantle the Nongbyon site, if the United States does the same in South Korea.
It should also be recalled that most North Korean missiles are built to be launched by mobile vehicles, not from fixed bases.
In short, North Korea wants the United States to remove the nuclear umbrella protecting South Korea and Japan while, in the recent talks with North Korea, the United States thinks of a bilateral treaty regarding only the Korean peninsula and, at most, some classes of North Korean missiles.
In the US mind, the planned reduction of North Korean long-range missiles could be even equivalent to a nuclear and conventional decrease of its troops stationed in Guam.
On the basis of a new future agreement, both Koreas (and God only knows how and to what extent the North Korean conventional military potential would be useful for a South Korea unified with North Korea) would also define maritime and land buffer zones, as well as a no-fly zone over the old border, with a view to avoiding clashes or accidental air battles.
This is already partially clear, but much work shall be done to define all the details.
There would also be plans to cover or reduce artillery batteries along the coast.
Obviously, should these talks run aground, the only concrete political result would be the progressive divergence between South Korea and the United States, precisely on the problem of the peninsula’s denuclearization.
Furthermore, over and above the aforementioned sites, North Korea will dismantle the site of Dongchang-ri, in addition to the site of Yongbyon, while Kim Jong-Un is also very interested in the building of fast railway links between South and North Korea.
The two Koreas will get the industrial site of Kaesong back in shape and the old tourist project concerning Mount Kumgang back in track, besides planning new joint economic and tourist areas.
The inter-Korean agreement regards also collaboration for medical and environmental issues, as well as for the protection from epidemics.
In other words, both Koreas think of an economy of compensation between them, which could also develop at a later stage and become a need for the development of both countries.
An economic-political symbiosis that could get the United States out of play and later reinstate Russia, which is increasingly interested in the South Korean economy, as well as finally favour China, which has no intention of leaving the Korean peninsula to the hegemony of North Korea alone.
At the end of the Treaty, there is also the project of a joint participation in the Tokyo 2020 Olympic Games and a joint candidature for the 2032 Olympics.
A few days ago, North Korea also expressed its intention to join the International Monetary Fund and the World Bank – a sign that the internationalization of the North Korean economy is now a certainty.
Hence it is a de facto peace treaty between the two Koreas.
If North Korea continues along this line, it is very likely that South Korea will gain a tactical advantage over the sea while, if the relations between South Korea and the United States remain as they currently are, there should be no significant changes in bilateral relations between the USA and South Korea.
However, what is the current state of relations between the United States and North Korea?
In fact, while the inter-Korean relations are all in the framework of effective confidence-building measures, the clear purpose of the fourth round of talks between the two Korean leaders is to preserve a strong US engagement in the whole negotiation process.
Kim Jong-Un wants to engage the United States for his global economic projection and he certainly does not want to remain tied to a regional economy, albeit open and “reformed” according to China’s rules.
For North Korea, the procedure is simple: at first, bilateral talks with the US support for South Korea; later peace between the two Koreas and finally what is only interesting for the USA, namely denuclearization.
It is not even unlikely that the United States does not accept this timing, but it is also unlikely that it realizes the strategic and economic aspects of this timing.
North Korea wants a fundamental agreement with South Korea because: a) it is an unavoidable asset for the modernization of its economy; b) it is the fundamental strategic factor to have the support of both Russia and China, who want to avoid North Korea’s hegemony over the peninsula, but also want to keep it as a rampart for US forces in South Korea; c) it is only through South Korea that North Korea will eventually be in a position to be connected to the Chinese maritime economic and strategic system and reach up to the Mediterranean.
In fact, if the relations between the United States and North Korea improve further, the site of Yongbyon could be dismantled definitively.
Hence currently Kim Jong-Un wants to thoroughly test the US goodwill, rather than South Korea’s goodwill, in developing a long or very long-term peace policy.
In Kim Jong-Un’s mind, there is in fact a key factor: the US behaviour in the phase in which Muammar Gaddafi accepted its proposal to dismantle his nuclear project.
Kim Jong-Un thinks that not even the story of Saddam Hussein is a guarantee for the US long-term reliability and for the stability of its leaders’ word of honour.
This is the real important factor in the strategy of the North Korean Leader.
Moreover, the US immediate reactions to the last meeting between the two Korean leaders have been fast and positive, both by President Trump and by Secretary of State Mike Pompeo.
And North Korea’s autonomous foreign policy has been seen also recently, with the 70th Anniversary military parade.
North Korea’s military parade and its important national celebration, was attended by Li Zhansu, ranking third in the internal power hierarchy of the Communist Party of China (CPC); by Valentina Matviyenko, President of the Russian Federal Council, the third elected office in the Russian Federation; by a very significant figure, Mohamed Ould Abdel Aziz, President of Mauritania, and finally by Hilal al Hilal, deputy-General Secretary of the Syrian Baath Party.
With peace, North Korea will significantly develop its already multiple economic and political relations with Africa, which will be essential for its new economic development.
At the military parade staged on September 9, there were also authorities from Iran, South Africa and Singapore – which is the never forgotten model of the Chinese “Four Modernizations” -as well as other 60 delegations from “friendly” countries.
At economic level, in August, shortly before the big military parade of the 70th Anniversary, there was the International Fair of Razon, which hosted as many as 114 companies of which 52 North Korean ones.
The North Korean product lines mainly included pharmaceuticals, foodstuffs, textiles, electronics and cosmetics.
However, there were many Chinese large companies selling their products in North Korea despite the UN sanctions.
As from September 17, there was also the Autumn Fair which brought together 320 commercial companies from Russia, New Zealand, Australia and China.
This is in fact the new paradigm of North Korea’s foreign policy.
The dollar has also grown in the exchanges with the North Korean currency, both on the official and on the “parallel” markets.
If all goes well at geopolitical level, the North Korean project will be to further improve its light industry, in addition to the diversification and quantity of products, with a view to trying its own autonomous way on the market world, as was the way of the nuclear system.
It should be recalled that this was also Kim Il-Sung’s project.
China’s Imprint underneath the Pyongyang Joint Declaration
On September 18, the leaders of two Koreas met each other in Pyongyang, the capital of the DPRK. The world media focused on the meeting during which the two sides issued the “Pyongyang Joint Declaration”. If we see the Panmunjom Declaration serving as the cornerstone of the dialogue between two Korea, it is necessary to say that this joint declaration took a substantial step to the denuclearization of the Korean peninsula that is vital to the regional peace and beyond.
Literally speaking, the Pyongyang joint declaration highlighted the key issues as follows. First, both sides are determined to achieve the denuclearization of the Korean peninsula. Second, they will work together to improve their relations with a view to the existing state of war, as the defense chiefs from the DPRK and ROK earlier signed a comprehensive agreement aiming to reduce tensions on the peninsula. Third, they will promote the peace talk process of the Korean peninsula. Given that Kim pledged to work toward the “complete denuclearization of the Korean Peninsula”, it would be seen as a political declaration that would mark a starting point for peace negotiations. If all goes well, a peace treaty would be sealed and then comes normalization of DPRK-US relations after it achieves complete denuclearization.
As a close neighbor to the Korean Peninsula, China always supports the DPRK and ROK as well in improving their relations through dialogue and consultation and promoting reconciliation and cooperation. This is the consistent and persistent position of Beijing, which has been playing a responsible role in politically resolving the Korean Peninsula issue and achieving the long-standing peace of the region.
In effect, prior to the leaders of two Korea met each other this week in Pyongyang, they have closely contacted their respective allies or strategic partners. Among them is China, dealing with both sides – Pyongyang and Seoul – in a unique way. It is true that China is the largest trading partner of the ROK while it is equally the only legal ally of the DPRK as well as its largest ideological partner now. If we review the bilateral relations between China and North Korea since last March, Kim Jr. has paid three significant, though unofficial, visits to President Xi of China. For example, during his March 25-28 visit, both sides vowed to continue their traditional solidarity in terms of their shared ideologies and common strategic interests. Xi especially proposed to strengthen the close ties between the two ruling parties. As he said to Kim, “party-to-party and state-to-state relations are the common treasure to both sides. And safeguarding, consolidating and developing China – DPRK relations are unswerving guidelines for China’s foreign policy and security strategy.
During his second meeting with Xi in Dalian summer resort, Kim vowed to terminate all the nuclear tests and to follow denuclearization if the United States took corresponding measures with good wishes. Then following his meeting with Trump in Singapore on June 12, Kim came to Beijing again on 19 to meet his Chinese counterpart. Xi confirmed China’s “3-no change” policy towards the DPRK, that is, political solidarity between the two parties remains unchanged, the friendship between the two peoples remains unchanged, and China’s support of a socialist Korea remains unchanged. Essentially, they serve as the foundation of the strategic consensus between Beijing and Pyongyang. In return, Kim reiterated his permanent shutdown of all nuclear tests and facilities if the US would respond sincerely and responsibly.
Given all the analysis above, it is understandable to conclude that China’s long-standing adherence to the goal of denuclearization of the Peninsula through dialogue and consultation is fully reflected in the Pyongyang Declaration. Meanwhile, China’s stance remains evident since it claims that the Korean issue must be resolved eventually by the Korean people rather than any external power. Therefore, peace not force is the only acceptable way. Also, as China and Russia have repeated that no coercive change of the regime by outside power is tolerated, North Korea can be confident and comfortable to proceed the permanent shutdown of the missile engine test site with international experts observing; and then a complete denuclearization is not too far in the future.
Here is necessary to argue that China has never claimed to play an exclusive role in the Korean Peninsula. Instead of that, China has always encouraged the DPRK to talk to the United States and other relevant parties. Since Kim has agreed to make a trip to Seoul for further talks and to meet the US high-ranking officials in Pyongyang soon, the summit between Kim and Moon marks a leap forward toward peace.
Yet, as the lessons in history show, it is better to approach realistically the Korean issue simply because it has involved too complicated concerns and memories and the overlapped interests. Therefore, we should be ready to accept trial and challenges lying ahead. China has insisted on diplomacy which means that all parties concerned should be brought to the negotiating table under the mandate of the UN Security Council.
Now, Beijing has navigated the course of denuclearization proactively to protect two sides’ common core security stakes when Kim reportedly promised to give up his nuclear program if the United States and South Korea respond to his proposal with good will. Due to this reason, China will do what it can to help ensure “no change of regime by force and denuclearization at the same time in the Korean Peninsula”. This is China’s influence or Beijing’s imprint on the Korean denuclearization issue and the regional peace.
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