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Post 19th Congress of CPC: Where does Xi Jinping leads China to?

Gen. Shashi Asthana

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Xi Jinping “The Dream Seller”

Xi started 2018 by dream-selling that all rural Chinese living below the poverty line would no more be poor by 2020. Internationally he projected himself as the crusader for world peace and climate change, insurer of international order (Despite ignoring the ruling of PCA and violating UNCLOS), with a resolve to push through Belt and Road Initiative (BRI) to fulfill Chinese dream. It indirectly amounts to declaring himself as tallest leader on the planet, in the manner he got himself re-elected for second term and did everything possible to make himself great under the banner of ‘Making China Great’. He seems to start 2018, assuming that the world accept him as tallest autocratic leader, as China has accepted him without worthwhile checks and balances.

Post 19th Congress of CPC1, Xi Jumping’s election, enshrinement of his thoughts and ideas like BRI in the Chinese constitution, resulted into his self achievement of a parallel status to Mao Zedong in China. He has been on a title grabbing spree holding over 12 top class appointments in China. It includes becoming the Commander in Chief of Joint Battle Command of PLA, and now reorganizing CMC as its Chairman, with his loyalists holding top hierarchy, to rein PLA for him. He was able to sell the dream of prosperous life and freedom from poverty. He also demonstrated that mainland China is the safest place in the world with no terrorist attack so far1, in an era when no country feels safe from terror attacks of varying variety (Even if amounted to overlooking some Pakistan based militant groups support to ETIM, active in Xinjiang, isolation in support to Masood Azhar).

His anti-corruption drive was most popular amongst masses seeing powerful people in jail, notwithstanding the accusation of systematically eliminating the entire dissenting elements and all his possible competitors through every possible means including this drive. Many critiques in China and abroad feel that his real achievements do not match his elevation to the status of Mao, which would have definitely created some disgruntled elements in his system, and powerful lobbies who may be quiet now, because disagreeing with Xi ‘The Core’ is anti national and may lead to jail.

Internal risks ahead for Xi Jinping: creation of a boiling pot?

2018 sees ‘Financial Battle’ as the greatest challenge for Xi Jinping. Despite global slowdown his record of financial growth has not been good. He took over in 2012 with 7.9 percent GDP growth and his economist does not see him going beyond 6.5 in 2018. It is quite clear to the dream seller Xi Jinping, that so long he delivers economically, the people will tolerate his autocracy, and his opponents will be quite. So long CPC ensures economic progress and the people of China get a decent life, they will tolerate the forced praises of Xi Jinping. When his regime stops delivering economically, the democratic winds will start flowing from Hongkong and Taiwan, and the educated youth may not tolerate the autocratic system of Xi Jinping, having no worthwhile grievance redresser mechanism. After all China is third most popular educational hub, with largest number of PhD’s in the world, where population understands the entire power play. Xi’s loyalists assuming every key appointment in China including chiefs of State Owned Enterprises (SOE’s), which are surviving on bank loans. They cannot be assumed to be quiet forever. Hongkong continues to protest for more autonomy (the last one in the beginning of 2018, in City Square). Xi realizes the need for economic delivery and he continues to repeatedly emphasise on success of BRI. He did deliberate on economy in a mega economic conference, but his catchy slogans like “Xi Jinping’s Economic Thoughts on Socialism with Chinese charecteristics in New Era” have to deliver.

Riding the Tiger: PLA

Suppressing/sidelining PLA is like riding a tiger, because historically PLA had a major role in creation of PRC and has been having a stronghold in the CPC. In successive reorganizations of PLA, anyone who thought differently than Xi Jinping has been sidelined, with his puppets propped up including manning CMC. This has created a powerful lobby which has suffered in such reorganisation, with hidden potential to explode. Xi is also planning another watchdog body ‘National Supervisory Commission’ likely to be above law indicates that dissent has no place in “Socialism with Chinese Characteristics for a New Era” and adequate ‘Revolutionary Tampering’ will be resorted to quell dissent. It will also make PLA commanders extra cautious in exercising command, causing further disgruntlement. In fact Xi is pushing his country to a state where there is only one leader and everyone else is a worker. It is also fair to assume that whenever anyone gets more than his dues, everyone else becomes jealous of him and disgruntled, hesitant of cooperating willingly with him thus creating a boiling pot.

China can boast of speeding up its ammunition manufacture by utilizing robots, but with over centralization of power, the PLA hierarchy also has no choice but to behave like robots and no scope for dissent which is not a very happy state of affairs for any military force. It is learnt that PLA sidelined more Generals in anti corruption campaign than poor performers in any war, with suspicion of falling out of Xi’s thinking, besides genuine corrupt cases.

Amongst many firsts post !9th Congress, China places its internal security force PAPF being placed under CMC, which is being managed by loyalists of President Xi Jinping. Message which comes out is that the internal security will also have much better grip of CMC and the role of NPC under which it has been traditionally, will have a limited role. The speculation can also be that with total autocratic style of hierarchy, China may be expecting much greater dissent than earlier.

No dissent with “The Core” XI Jinping, or be declared anti-national: A new normal

The biggest threat to China comes from within. The viability of “Implosion theory” is worth analysation with a totalitarian regime. Besides taking control of powerful PLA, with dissenters sidelined, some powerful civil members who held important positions in CPC, and booked under anti-corruption drive also add on to this lobby of disgruntled elements. The resolution of 19th Congress includes that adequate ‘Revolutionary Tampering’ will be resorted to quell dissent even in the society. The legal system stands hostage to party leadership justifies the boiling pot theory. The people’s belief that Xi will make China great and his popularity amongst the masses is his greatest strength, a dent on which is a great risk. Some of his actions like forcing Christians to replace Jesus Christ photos by Xi Jinping’s photo to avail government benefits, laying restrictions on religious practices on Uyghurs’ in Xinjiang, use of force in trying to prevent democratic thoughts and autonomy in Hongkong may be too risky, as it may break the internal cohesion of China. Xi’s efforts like forcing students to read Xi’s thoughts (Equivalent of Mao Redbook) can be seen as an effort to change societal fabric may not go very well in China of New era having educated population. The strict censorship of media and internet, and electronic isolation of thoughts indicates attempt to bring societal changes in a manner that chances of student unrests/disagreements are minimized.

With Xi Jinping holding all key appointments with no room for dissent, the over-centralisation of power with him will lead to decision paralysis, with everyone in governance looking up to him for every decision, which might affect effective execution and growth of the country.

External Risks for Xi Jinping: Has he pushed others together?

The second major risk comes from reactions of the external environment to the autocratic, over ambitious Xi Jinping challenging the entire global system. Xi  has left no ambiguity in conveying that he wants to ‘Restore’ China’s position as the ‘Global Superpower’ replacing US, and have a world class military by 2050.He has forced other countries not in tune with him, and some neutral countries to come closer to US against his aggressive designs. His direct threats to Taiwan and indirect ones to potential adversaries in his speech in 19th Congress, and the Resolution thereafter, indicate unprecedented arrogance. The threat to Taiwan, is being demonstrated with increased number military drills and air exercises around Taiwan, notwithstanding the Tsai call for mainland trying to destablise the region.

China’s aggressive posture is visible in incremental encroachment of features and converting them into islands in South China Sea, stretching its sovereignty claim as per its perception based on impractical historical logic, over-riding UNCLOS and ruling of Permanent Court of Arbitration in favor of Philippines. Having done that his claim to be “Insurer of world order and peace” in his New Year message of 2018 does not make sense to the world outside China. China also continued to convert features to islands to military base (Announcing completion of infrastructure development in Ferry Cross Reef), without any physical opposition by taking advantage of window of opportunity due to US engagement with North Korea, Afghanistan, and controversies regarding Iran and Israel, besides certain internal controversies. China may have projected North Korea as a concern and supported UN sanctions, but the alleged leakage of oil despite, more so with impounding of Hongkong ships by South Korea, keeps China under scanner for not being serious about UN sanctions.

His direct messaging for PLA to be ready to realise China’s reunification at any cost (Implying use of force), take expeditionary roles to ensure world peace, leaves no doubts about his hegemonic design and uncontrolled autocratic stance. He challenges the law based global system but wants to impose it inside China. This has pushed all other powers which are immediately affected by it, to get closer. The Quadrilateral Security Dialogue (QUAD) may be at official level talks on sidelines of Association of Southeast Asian Nations and East Asia Summits, to discuss regional and global cooperation in Manila may be an old idea with limited scope today, but it signals thinking and talking about balancing China’s growing assertiveness. The signal seems to have reached China as its foreign office shows concern that it should neither be politicised nor exclusionary. It is seen that China is trying to deal with each country bilaterally, thereafter.   Malabar exercise in Bay of Bengal and global use of word ‘Indo-Pacific’ instead of ‘Asia-Pacific’ (cutting out China from it), Asia- Africa Growth Corridor are some examples of it. Quad may not be a relevant balancer today, but it may become formal, relevant and powerful in future, in case Chinese stance continues to be aggressive.

Notwithstanding larger than life image of Xi Jinping inside China, Post 19th Congress most reactions from other countries do not indicate any global swing in Xi’s favor. Pakistan, the closest ally of China refused to accept Yuan as global currency in Gwadar SEZ in favor of Dollar initially, till US announced cuts in financial aid. It pulled out from Diamer-Bhasha dam deal over China’s ‘too strict’ conditions. CPEC is being criticized in Pakistan to be against their interest, raising questions on viability of CPEC. In fact China itself has apprehensions on CPEC, concerning security and corruption of officials, and has recently stopped its fund flow to Pakistan to revisit terms and conditions, leaving some other energy projects in jeopardy. Nepal has already scrapped the deal of $ 2.5 Billion Budhi Gandaki hydropower project. Its BRI programs seem to be slowing down after symbolic progress initially, starving for funds.

While Xi may claim to have reached in US neighborhood for investments in South America, as a counter to US influence in South and East China Sea, but his idea of replacing US as global peace provider is still not acknowledged by anyone and does not indicate the practicality of its dream of being leading superpower. If China’s Defense budget for 2017 was $ 215.7 Billion and US had allocated $ 611.2 Billion for defense (SIPRI Factsheet), there is no way that it can replace it as global security provider. The largest military need not be the best in the world, despite such aspirations. In my opinion his ambitions, aggressiveness and arrogance is moving faster than its capacity building. Xi’s idea of proving to the world that the authoritarian, socialist model of governance with Chinese characteristics in new era is better than liberal democratic model of West has no takers. China’s  next door neighbours like Nepal going for complete democracy and Vietnam moving towards more liberalism post 19th Congress justify the point.

The global strategists have reason to expect a more confident, assertive, foreign policy from China in light of Xi Jinping’s announcement that China would continue to seek a greater role in world affairs in a new era, as it strides towards the global centre-stage. He is following it up with military build-up in expeditionary design in places like the South China Sea, and soft power play through economic schemes like the BRI.

History is full of examples where a totalitarian regime whenever started making threatening postures with no internal checks and balances, it led the country to disaster, like the way Hitler led Germany to a disaster when his ambition grew beyond his capability. It also need to be noted that in future the idea of having one or two superpowers is getting outdated, because all countries work as per their national interest and do not follow the dictate of any one country. North Korea standing up to US, Vietnam standing up to US and China, India and Bhutan standing up to China in Doklam stand-off, are some examples to prove that a well determined country cannot be forced to adopt a particular course by any power.

Strategic Encroachment in India’s Neighborhood, post 19th Congress

Post 19th Congress of CPC, China continues to encroach in Indian neighbourhood without talking about the core issues and points of divergences as earlier. To that extent I do not think 19th Congress of CPC has made any major difference to India China relations. While China has talked of better relations with India in 2018, but the visits of its Foreign Minister alongwith Russian Foreign Minister did not yield anything worthwhile, with each side quite firm on its stance on issues of divergences like BRI.  On the controversial border issue there is a crying need of delimitation, definition and demarcation of LAC, and the demarcation be known to the troops manning it, if both sides want to avoid stand-offs. The Chinese however seem to be singing the old tune of better border management and confidence building measures to prevent it, which to my mind is a quick fix solution; with China again postponing the core issue even after 20th round of talks.

The only difference which affects India indirectly is that some of our common neighbors may give in to more aggressive ‘Chequebook diplomacy’ and ‘Infrastructure diplomacy’ of China or may get coerced/influenced by it. China’s decision for extension of CPEC into Afghanistan may affect Indian influence in that country. It indicates the clear strategic intent of getting Afghanistan into its strategic orbit, attempt to play as a mediator between Pakistan and Afghanistan by ‘Infrastructure diplomacy’, take Afghanistan away from US strategic space and Indian influence, mitigate Indian Chahbahar connectivity, besides  using Afghanistan mineral resources. China has achieved rail connectivity with Iran, which does generate fresh concerns for Washington.  Maldives signing FTA with China, land grabbing efforts of China in Sri Lanka, Bangladesh, Myanmar, Nepal and Pakistan are few such examples affecting Indian security adversely for which India needs to find an answer.

China is also trying to play the role of mediator in Rakhine state of Myanmar, emphatically increasing its influence over Myanmar, advertising its capability for humanitarian development, checkmating Indian stance towards Rohingyas to show India in poor light. China is not concerned about the terror potential of Arakan Rohingya Salvation Army duly supported by ISI/Pakistan. China with little investment of money power expects to get a pat from UN, as a responsible state .

On diplomatic side India needs to not only ‘Act east’ but ‘Act west’ also. India is better located to be the hub of global sea lanes with lesser choke points either side, and is working towards this capability to provide an alternate model of global connectivity like Asia- Africa Growth Corridor connecting further West.2 Domination of Indian Ocean is going to be another strategic competition, which will become unavoidable in due course. China can keep increasing bases in Indian Ocean, but whether they will be its strength or vulnerability will be a question mark due to distance involved, choke points and growing strength and operability of Indian Navy with other global Navies.

What Next?

The National Security Strategy of United States calls China and Russia as competitors3. Although rubbished by China as ‘Cold War Mentality’, still brings the inclusion of China into a new arena of cold war with many more regional players getting in, looking for check and balance to aggressive China, even if they do not say so openly. A beginning of new cold war which may lead to a trade war is evident and reality. While China may be confident to ensure that the ‘Implosion theory’ will not work by its super strict checks, but will this narrative sell outside, I have my doubts. It remains to be seen that a country having an autocratic system, with only one decision maker and rest executers, with educated population will continue in this form for decades. Any slowdown in economy might result in democratic winds flowing inside to an extent that it may be difficult to control. The exact evaluation of Yuan is a suspect hence China may claim to stand tall on economic front, but is there a bubble inside only time will tell.

The views expressed are of Major General S B Asthana (veteran) and do not represent views of any organization. The General  is reachable on Facebook, Linkedin, Twitter and Google+ as Shashi Asthana, also on website http://www.asthanawrites.org 

References

  1. Resolution of the 19th National Congress of the Communist Party of China on the Report of the 18th Central Committee, October 24, 2017, Xinhuanet.
  2. Asthana S B, Opinion: What does Xi’s autocratic position mean for India?WION News, December 07, 2018. URL http://www.wionews.com/world/opinion-what-does-xis-autocratic-position-means-for-india-26100
  3.  National Security Strategy of United States of America, December18,2017.  https://www.whitehouse.gov/wp-content/uploads/…/NSS-Final-12-18-2017-0905.pdf

The author is a veteran Infantry General with 40 years experience in international fields and UN. A globally acknowledged strategic & military writer/analyst; he is currently the Chief Instructor of USI of India, the oldest Indian Think-tank in India.

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An uncertain step in moving China-Japan relations

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Authors: Meshach Ampwera  & Luo Xinghuan

On October 26, Chinese President Xi Jinping met Japanese PM Shinzo Abe and praised that both China and Japan have pledged to strengthen bilateral ties amid continuous efforts made by the two nations. Xi said, “Bilateral relations have returned to the right track and gained positive momentum, which is something the two sides should cherish.” As the two largest economies in Asia, China and Japan are also the vital players in Asian security and the global development.

In addition, since this is the first official visit to China by a Japanese PM in a seven-year “Cold Peace” period, it is widely assumed that Abe’s visit symbolizes the resumption of high-level visits and will be followed by an increasing rapprochement between China and Japan. True, the leaders of the two economic giants witnessed a wide range of agreements, including a 30 billion US dollar worth of currency swap pact, the establishment of a maritime and air liaison mechanism, and enhancing people-to-people exchanges.

Yet, three factors have to be considered seriously in looking into Japanese foreign policy given the current changing geopolitical landscape regionally and globally. First, Japan has still regarded itself as a “defeated” state during the WWII. Since then, Japan’s postwar posture has frequently described as a new pacifism; yet in fact it is considerably more complex. As Henry Kissinger put it: “Japan had acquiesced in the U.S. predominance and followed the strategic landscape and the imperatives of Japan’s survival and long-term success.” This means that the governing elites in Tokyo used to hold the constitution drafted by U.S. occupying authorities with its stringent prohibition on military action, and adapted to their long-term strategic purposes. As a result, Japan was transformed from the pacific aspects of the postwar order (that prohibited military action) into a nation that has focused on other key elements of national strategy, particularly using economic leverage regionally and globally, though not uncontroversial.

Second, in a recently-released paper written by the former US Secretary of Defense Ash Carter, he maintained that “Japan is a close ally of the U.S. and a rising military power, too, because of legal and constitutional changes of great significance championed by Prime Minister Abe.” In practice, the Japanese administration has engineered an expansion to enable its military to operate regionally and even globally in response to the rise of China, violent extremist activity in Asia, and the alleged North Korean belligerence.

Actually in 2013, Japanese Government White Paper revealed a desire to become a “normal country” with an active alliance policy. In a searching for a new role in the Asia-pacific region, Japan aims to act as an “anchor” of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) concluded in 2018 after the withdrawal of the United States. Now it involves 11 countries and representing 13.4% of global GDP ($ 13.5tri.). As the largest economy of the CPTPP, Japan has been active in moving it forward. Early this year when the British government stated it is exploring becoming a member of the CPTPP to stimulate exports after Brexit in 2019, Abe stated that the United Kingdom would be welcomed to join the partnership. It is said that even the U.S. reconsiders possibly rejoining the CPTPP if it were a “substantially new deal” for the United States.

Japan’s ardent involvement into the US-led strategy in Asia has also been endorsed to expand steadily as a normal power regionally and globally. For example, the Asia-Africa Growth Corridor (AAGC) is the result of the joint declaration issued by the India and Japan in 2016. Although it is premised on four pillars of development and cooperation, it is self-evident that the AAGC reflects a growing special “strategic and global partnership between India and Japan” in which both sides have viewed China’s growing, pragmatic and successful presence in Africa as a menace. There is no question that AAGC is a well-crafted vision and agenda of both India and Japan, linking with their own development priorities. But with increasing pressure from Washington and Brussels, Japan and India are in effect driven by the option for the AAGC to rebalance China’s Belt and Road Initiative (BRI).

From the inception of the BRI, they have more than ever before been concerned with being isolated in Africa by Beijing’s initiative. But, as Ampwera Meshach, a researcher at Jilin University put it, “Africa is on the growth trend and offers potential markets and raw materials. For this reason, Africa largely needs pragmatic and scientific, technological and development- oriented initiatives and these are clearly reflected in China’s BRI.” In light of this, the AAGC does neither reflect a novel nor pragmatic approach on how it fits within the African agenda. Instead, AAGC’s foundational pillars seem more inclined to the Western cooperation approaches that have for decades not been translated into development.

Controversially, two days before Abe’s visit to Beijing, Japan had decided to scrap official development assistance (ODA) to China, which is a program where Japan provides aids to developing countries starting back in 1954. Even though some people argue that Japan’s ODA is reasonably cancelled because China’s GDP is even 2.5 times larger than that of Japan, yet, it is necessary for Chinese to be aware of the reality that Japan is a longstanding ally of the United States. As Japan has long been an economic power, its impressive military capabilities would not be confined to a strict policy of territorial defense—no projection of Japanese power or the U.S.-Japan alliance to the region as a whole.

It is during the Abe’s administration which has recognized an environment of growing Chinese assertiveness, violent extremist activity in Asia, and North Korean hostility, and therefore, Japan has eagerly participated in Asian security, including training and exercising with other nations, beyond a purely passive, home-island defense role. This makes it an increasingly important player serving the US strategy in Asia but challenging the rise of China globally.

It is true that Abe tweeted about the trip — while recognizing the challenges in moving bilateral relations forward, he said that he would still work to “push Sino-Japan relations to the next level”. Given the two countries’ economic links, it is only understandable that there is a need for the two sides to come closer. Moreover, Japanese businesses has been an extremely active force behind the government’s shift of attitude on the Belt and Road Initiative (BRI).

Yet, all in all, we should never ignore that Japan’s ambitious foreign policy has gone beyond the economic goal.

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Red Flags: Why Xi’s China is in Jeopardy – Book Review

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George Magnus writes about the dangers of the Middle-Income Trap in the Middle Kingdom, among other issues, in Red Flags: Why Xi’s China is in Jeopardy. President Xi’s face adorns the book cover, with his name looming above.  Fitting, seeing as China has removed presidential term limits; China’s fate is thus likely to be tied to the decision making of Xi for the next couple decades.

Magnus writes about the dangers of Xi’s likely ascendance to President-for-Life.  Ever since the excesses of Mao’s one-man rule, China’s Communist Party has largely ruled by consensus, while provincial governments have served as a counterweight to federal authority via control of their land and many of their local State Owned Enterprises (SOEs).  Xi is challenging this staus quo.  So-called Xi Jinping Thought is now official party canon, being taught in schools and in the media.  The 2012 crackdown on corruption by Xi in his inaugural year was widely seen as a pretense for taking out political opponents and sending a message to his potential opponents.  Ever since, Xi has been working to centralize power to himself.  Magnus notes that being leader for life largely shields Xi from short-term popular discontent, but also means that every long-term decision, good or bad, will become part of Xi’s legacy.  Hence, the book informally reads as a personal policy checklist for Xi.

Red Flags lists four, well, red flags of likely impediments to Chinese economic development.  Firstly is debt.  China has been an unprecedented money-making machine for the past three decades or so.  However, signs are starting to appear of a possible economic slowdown.  Most significant is the debt-GDP ratio, which has skyrocketed over the past few years.  Magnus writes extensively about how China’s growth, up to this point, has largely been fuelled by credit (debt).  China’s much-maligned (by Trump, most notably) trade balance surplus has shrunk to no more than a few percent, statistically insignificant.  China could theoretically make up for shrinking foreign demand for goods and services with domestic consumers.  Magnus is unfortunately the bearer of bad news in this regard: “Household savings rose from about 5% of disposable income in the late 1970s to about 38% in 2016, or just over 25% of GDP. Savings by companies are also elevated, amounting to about 17% of GDP in 2016.”

Hence, the Xi regime has been trying to maintain economic growth via ever-greater sums of state investment funding.  Magnus explicitly warns against this: “The reason the investment rate has to fall is because the more China relies on it, the more inefficient that investment will become.”  Such a statement might seem self-evident, but Magnus backs it up with facts.  For instance, he points out, “Between 1978 and 2006, for example, China spent between 2 to 4 yuan of investment to get 1 additional yuan of GDP. Since then, the amount has risen steadily to reach about 9 yuan in 2015, corresponding to a marked fall in investment efficiency.”

Magnus writes a lot about the inefficiency of China’s thousands and thousands of SOEs.  “Officially, and according to some China-watchers, SOEs now account for just a fifth of output and a tenth of employment. The presumption though that the rest of the economy is in private hands, as we understand it in the West, is incorrect. Many private firms have large or majority state owners, who exercise significant control over senior appointments and corporate strategy, and state ownership is often disguised by multiple layers of investment companies ultimately owned by a state entity. Allowing for these opaque adjustments, the purely private part of the enterprise sector may actually be little higher than 20–30 per cent.”  SOEs have built much of modern China, but their efforts are increasingly being wasted on skyscrapers and airports that remain almost empty, Chinese Roads-to-Nowhere.  A blank check invites planners to ignore long-terms concerns of viability, blinded by short-term gains that go directly into the pockets of Party-affiliated contractors.  China’s financial services sector isn’t much better off.  Magnus writes about all the bailouts, takeovers and general heavy-handedness by the government of various Chinese banks and other related companies.  Due to a slowdown in trade and many other issues discussed in the book, state investment will figure to play an ever-larger role in China’s economy, inefficiency be damned.

The book’s second diagnosed problem for China’s future growth is its currency, the renminbi.  Xi mirrors the isolationist mindset of China’s ancient emperors with regards to cash inflows and outflows.  It’s very hard for Chinese investors to send renminbi out of the country.  Likewise, China restricts the ability of foreigners to own reserves of renminbi, or Chinese financial assets in general.  The renminbi is subject not only to this lack of liquidity, but also the confines of a planned economy.  China is infamous for its strict control of its currency valuation, as well as its monetary policy via diktats, investment and bailouts.  Its ownership of USD and other foreign currency reserves must always be flawlessly balanced to safely back up the value of the renminbi.  This resulted, for instance, in the selling off of a trillion of its USD reserves between 2014-2016.  The combination of currency illiquidity and over-management limits the ability of the renminbi to fuel Chinese economic growth.

Thirdly, the book mentions the so-called Middle Income Trap.  Once a country reaches a certain benchmark of development, it’s hard to maintain further momentum.  China’s already experiencing slowed growth due to factors such as increased global manufacturing competition.  As Magnus points out, China has already had its coming-out party to the world economy.  It can’t join the WTO again or eliminate mass hunger again.  Likewise, China has stalled in terms of rural development and education.  Rural China is increasingly falling behind the major cities and the hukou system of restricted movement and rights for migrant workers isn’t helping.  Students in China still attend far fewer years of school than students in developed countries like the US, especially in advanced fields like IT.  These issues of inequality and 21st-century education must be addressed if China is to fully develop.

Lastly, Magnus writes about the demographics crisis.  China has one of the highest ratios of elderly people in the world.  Combine this with China’s 1.45 birth rate and the gender disparity caused by the 1-Child Policy and you have a ticking time bomb.  The workforce is increasingly running out of youngsters who can take the place of retirees, causing a slowdown in economic output.  The higher the elderly population becomes, the more each working-age person will have to contribute to pensions and healthcare.  The economic burden that only-children will have to shoulder taking care of their aging parents will inevitably lower marriage rates and thus further lower the unsustainably low birth rate.

This is the most dire problem because there’s very little that society can do about it.  Xenophobia has prevented any meaningful amount of migration to China, but even if China were to let in tens of millions of foreign workers, that would be a drop in the bucket for a nation of 1.4B people.  Even after China ended its One-Child Policy, couples are still averaging well below 2 children, despite increasing prosperity.  The only real hope for China’s demography problem would be a literal ex machina: automation.  Robots may be able to generate untold wealth that could buoy a small nation like Singapore, but even an army of robots is unlikely to completely offset the gradual loss of hundreds of millions of working-age people to aging.  Even if AI is a magic bullet for all productivity woes, it take probably at least a century to meaningfully scale up, by which time China’s population will have substantially shrank.  It doesn’t help that China is, in many respects, barely keeping pace in the AI race with the US, Japan and the EU.  In the race for artificial intelligence, even being a year behind the competition can cost trillions of dollars; China’s tech sector will likely take a few decades to completely match Silicon Valley.  Lastly, it should be noted that not even innovation can overcome the limit resources of our planet.  We’re already running out of industrial resources like oil and lithium.  It would be foolish to place all of one’s eggs in the basket of a sci-fi utopia.

Red Flags is a very detailed and interesting book about the future of China.  Magnus isn’t anti-China by any means; he gives credit to China’s marvelous successes and doesn’t moralize.  If anything, the book was too generous by barely mentioning the unrest in Xinjiang and not mentioning the occupation of Tibet at all.  In an objective fashion, he succinctly explains China’s problems and offers possible solutions.  China has shown an unprecedented ability to adapt to change.  This flexibility may wind up being undone not external adversaries or limitations, but by increasing autocracy.  Dictatorship has rarely resulted in long-term, across-the-board growth.  One can look at a fellow Communist country for an example: the Soviet Union.  Though the USSR made impressive leaps in technology, manufacturing and agricultural output and human longevity, it was ultimately undone by its ideological rigidity.  A lack of accountability for its leaders meant that the USSR was forever a captive to bad policy.  Likewise, a lack of freedom stunted innovation.  If Xi is to avoid the pitfalls of the USSR, he must avoid letting his power get to his head and embrace a flow of ideas from both fellow Party members and private citizens.  Xi’s consolidation of control and crackdown on dissent would point otherwise, unfortunately.  Only time will tell if China will continues to beat the odds…

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The dynamic of Chinese Premier’s visit to EU headquarters

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In the wake of Chinese Premier Li’s attendance at the meeting of the Council of Heads of Government of the Shanghai Cooperation Organization in Dushanbe, he and his entourage started the third stop of their Eurasian trip in which Premier Li also attended the opening ceremony of the 12th Asia-Europe Meeting summit in Brussels, the Capital of the European Union. In view of the strained relations between China and the United States over the past months, it is clear that China aims to intensify the partnership with the EU.

This year’s summit on the theme of “Europe and Asia: global partners for global challenges”, was attended by the leaders from over 50 Asian and European countries and representatives from international organizations. As Nicolas Chapuis, EU’s envoy to Beijing, remarked that it was a meeting of minds, all looking for ways to better safeguard a rules-based international order, at a time when globalization is under attack. Given that the general context where globalization is in question, China has equally faced new challenges globally. For sure, it is necessary to further work between China and the EU to bring stability, and to bring prosperity to both sides and beyond.

As the EU has aimed to play a civilian power rather than a conventional great power, China and the EU have vowed to address climate change and international developments which are two areas where China and the EU have a great deal of potential to work together and actually have cooperated substantially in addressing climate change, poverty alleviation, access to water, small and medium businesses and surely education for young women. Both the Netherlands and Belgium are the advanced member states of the EU and the original founding states of the European Common Market. In addition, they have argued for high importance on developing their relations with in all areas of agriculture, energy, infrastructure and connectivity which must be carried on under the United Nations framework. It meant that China and the EU have concluded the consensus on upholding multilateralism and common development. It is held that the treaty signed on October 18will help China and the EU further open to one each other and eventually contribute to forging free trade and fair cooperation on investment between the two sides.

EU, as the largest economy of the world, believes that the future of peace, security, stability, and prosperity lies in the multilateral framework. Due to this, it is imperative for the EU and China to continue their persistent efforts in upholding the spirit of the 2015 UN’s Climate Change Conference, and finding creative solutions to the challenges facing the world right now. As what the summit meeting between Li and European Commission President Jean-Claude Juncker demonstrated that our global village is the place only where we can live, the time of closed borders is the past. The future is open borders.

Besides climate change and international development, what China would like to achieve from its Premier’s visit to the EU is self-evident: China, as a rising power and also the defender of the current trade rules and the global system, has reiterated its sincerity of peaceful rise. By approaching to the EU, China aims to demonstrate its willingness to protect intellectual property rights for products from the EU alongside other countries. Equally, the two sides have reached the EU-China Comprehensive Agreement on Investment, which would further open market access for companies as well as set rules to protect investors from both sides.

For sure, trade is still a pivot in China-EU relations and has to be held through negotiations and cooperation. As the birthplace of modern diplomacy which highlights the core concepts of negotiation, persuasion and mutual compromise if necessary, EU and China would be comfortable to work together through more dialogue and joint actions in addressing challenges and pressing issues facing the world today, such as trade frictions and reform of the World Trade Organization.

Moreover, spurred by the protectionist voices in Washington, the July EU-China summit in Beijing was significant in that both sides were able to agree a lengthy statement, something that they could not achieve in the two previous EU-China summits. To that end, when both sides sought to emphasize areas of cooperation rather than divergence, they also expressed support for the rules-based multilateral trading system and agreed to set up a working group on reform of the WTO. Both sides also agreed an exchange of market access offers that should give an impetus to the ongoing negotiations for a bilateral investment agreement. Moving these talks towards a conclusion would be of critical importance in preserving free trade. China confirmed its commitment to acceding to the WTO Government Procurement Agreement (GPA). In brief, both sides have discussed connectivity — taking stock of progress in the EU-China connectivity platform — and exchanged views on the digital economy, including how to avoid introducing market access barriers through their respective cybersecurity regulations.

In addition to business and investment, China, as both a rising power and a developing country as well, has been early keen in the advanced technology and innovative learning as well. For example, Premier Li frankly said that China is willing to further enhance cooperation with Belgium in innovation and high-technology under the principle of paying full respect to law and commitment from both sides. Therefore, the cooperation in technology and innovation as well as safe use of nuclear energy were among the topics of the meetings of Chinese Premier with his host countries. Remembering that advanced technologies from the EU will have great market potential in China, and China will give strict protections to intellectual property according to the essential rules and a rules-based international order and free trade.

The EU has now come out with its own connectivity strategy for linking Europe and Asia with an emphasis on sustainability and transparency. Some have viewed it as a response to China’s Belt and Road Initiative. But given the demand for new infrastructure development, there is a clear need to help countries between Europe and Asia improve their economies.

Even though we have different perceptions of some of the world issues, Chinese are optimistic about their relationship with the EU. Not long ago, however, there are complaints that the EU has reneged on a promise to grant China market economy status and its growing protectionism. China considers the proposed screening of Chinese investments in the EU as an unfriendly act. Although the EU and China have signed impressive documents outlining their mutual desire to deepen their strategic partnership, relations have rather stagnated over the above trade disputes. Yet, majority of Chinese young people and intellectual elites have looked to the EU for the originality, innovation and creativity.

Geographically far off from each other, the EU and China can understand each other from their experiences in history. Particularly, China holds fast that since it is a key part of the family of civilized states, Chinese thought or culture, the principles at the basis of Chinese history and life, must be understood through regular communications and dialogues at all the levels. This is the nature of Chinese Premier Li’s visit to the headquarters of the European Union.

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