The power of a newly established Chinese public organization, namely the Financial Stability and Development Committee, is growing. Said organization was created precisely on November 8, 2017.
It is an important organization under the State Council’s direct control. Indeed, it is an office of the Council itself which will deal mainly with China’s financial stability and with all matters concerning economic development and monetary and capital stability.
More specifically, the Committee will be tasked with deliberating major national programs for regulating the financial system, for organizing monetary policy with the Central Bank and for defining tax policies and the related fiscal and industrial actions.
This Committee will also be responsible for analysing international and domestic financial situations, identifying the greatest global financial systemic risks, as well as studying the related conditions and finally defining the ways for reaching financial stability.
The important choice made in relation to this Committee is that it will be chaired by the Chinese Vice Premier, Ma Kai.
The idea of creating this organization had been suggested directly by President Xi Jinping during the National Financial Work Conference held on July 14-15, 2017.
The Committee will also strengthen the macro-systemic policies of China’s Central Bank. In fact, it is a matter of regulating and stabilizing the Chinese financial market, which is worth 40trillion US dollars and is one of the largest in the world.
The Chairman of the Committee and Vice Premier, Ma Kai,was born in Jinshan, a district of Shanghai, in 1946.
In the mid-1990s he was elected Vice-President of the National Planning Commission.
He was Deputy-Head of the State Council from 1998 to 2003 and also Minister for National Development from 2003 to 2008. He was appointed President of the National School of Administration and later Head of the Office for the development of small and medium-sized enterprises.
In fact, the Committee will also be tasked with coordinating tax and financial policies and tuning them with the long time schedules of the industrial system, while the collaboration between the Committee and the People’s Bank of China will allow the regulation of the 15 trillions currently invested in financial products throughout China.
With the creation of this Committee, high-risk investment or massive bank loans to buy securities will no longer be allowed, while it will be mandatory to set 10% of managers’ profits aside.
China is currently turning its old role as “world factory” into that of a modern consumer-driven economy.
Hence the need to regulate corporate and retail finance.
There are three issues underlying the new Chinese financial regulation: a) booming loans, the majority of which are requested by businesses and local governments; b) complexity, considering that risky creditors have moved away from banks, due to the complexity of rules, towards less structured products, while Chinese banks currently offer mainly financial products for the long-term management of household and business savings.
The third issue is c) guarantees. With a view to preserving their reputation, Chinese banks often offer even compensation to their clients who have lost money as a result of certain investment, which leads them to miscalculate their risk share.
Hence an extremely fragmented banking system which is hard to control.
The Chinese systemic risk must be kept well under control: financial assets have grown four foldover the last decade, from 310% up to 510% of the GDP, which, however, has grown by 2.5 times over the same period.
The expansion of credit has been led by the public sector and by its very poor regulation, with the expansion of shadow banks, non-orthodox credit and particularly risky – but attractive – financial products for private investors.
Credit growth has already declined, while corporate access to capital has also decreased considerably.
For the Party, however, the fragility of the financial system arises from the excess of leverage and debt investment and from the excessive debt in many sectors of the real economy, while credit has expanded too rapidly in the financial sector.
In late 2016 the average national leverage amounted to 247%, while companies’ leverage was 165% in the same period.
Definitely too much debt for companies and individuals, far beyond the international standard.
As President Xi Jinping has pointed out, the control of aggregate money supply has been severely lacking.
President Xi Jinping has also noted that the financial institutions’ general control has been missing and the State has focused only on the individual links of the chain of financial audits.
President Xi Jinping has also maintained that the State has been unable to control major financial companies.
Moreover, the Chinese government’s interest in financial matters has never been negligible.
The National Financial Work Conference had been created as early as 1997.
Later, based on the analysis of that select group, the first Chinese sovereign fund, namely China Investment Corporation, was created in 2007.
A structure that can currently boast to have capital to the tune of 813.5 billion US dollars.
The fifth National Financial Work Conference was held in July 2017, simultaneously with the creation of the Committee.
As the CPC noted, all this was designed to reach “national financial security”, mainly with a view to backing the aims of the 13th Five-Year Plan.
President Xi Jinping also thinks that the new Committee shall a) deal with the real economy and b) combine and harmonize social development with economic development.
According to President Xi Jinping, finance is never disconnected from the social context in which it operates; c) financial regulation is always aimed at eliminating the systemic risk and d) reaching national financial stability.
Stability first and then development – this is President Xi Jinping’s belief.
Furthermore, local governments shall follow the central government’s rules. Any failure to report the financial risk will be regarded as an administrative irregularity.
This will be very useful, considering the ongoing trade war between the United States and China.
In fact, China has resorted to the WTO dispute settlement mechanism against the duties levied by President Trump.
It is worth recalling that the United States has levied duties equal to 25% on imported Chinese goods, for a total value of 50 billion US dollars.
So far these duties have been levied only in the aluminium and steel sectors.
China has responded immediately by levying equal duties on US products such as soy, pork and vegetables.
The immediate US countermove has been the doubling of duties on aluminium and steel up to 100 billion dollars.
One of the reasons for the current clash is certainly the forthcoming mid-term elections for which President Trump wants to keep on winning the support of the Rust Belt protectionist voters who enabled him to rise to the White House.
Moreover, according to the universal supply chain system, many of the Chinese products taxed by the United States come from South Korea, Taiwan and even from the European Union.
Hence the Chinese pressure could harm US farmers and the whole US middle class, as well as some of US best allies.
Therefore, while China’s recourse to the WTO has not slowed down the aggressive posture of the Chinese economy towards the United States and the European Union, the aim of the current duties is to force China to revalue its currency, so as to rebalance the deficit between China and the United States, with the latter already recording a trade deficit with China to the tune of over 375 billion dollars.
Reading between the lines, President Trump wants a decrease of Chinese duties on US cars, so that there is an increase in China’s purchase of US semiconductors and, in any case, a greater share of the huge Chinese market for US companies.
Furthermore, China undermines intellectual property in the advanced sectors of computer science and Artificial Intelligence.
Finally, for the United States, the issue lies in hitting Chinese innovation and the “Made in China 2025” project, which is supposed to ensure China’s global strategic superiority in cutting-edge products, robotics and advanced infrastructure.
If everything goes well, at the end of this trade war, China will impose on the United States a network of joint ventures and selective openings for US products on the Chinese market.
That is what the new Chinese financial authority is for: to raise capital for the State’s primary projects and to protect China’s finance from the turmoil that could be caused by the monetary and economic imbalances resulting from the entry of foreign liquidity into the Chinese market.
Importance of peace in Afghanistan is vital for China
There are multiple passages from Afghanistan to China, like Wakhan Corridor that is 92 km long, stretching to Xinjiang in China. It was formed in 1893 as a result of an agreement between the British Empire and Afghanistan. Another is Chalachigu valley that shares the border with Tajikistan to the north, Pakistan to the south, and Afghanistan to the west. It is referred to as the Chinese part of the Wakhan Corridor. However, the Chinese side of the valley is closed to the public and only local shepherds are allowed. Then there is Wakhjir Pass on the eastern side of the Wakhan corridor but is not accessible to the general public. The terrain is rough on the Afghan side. There are no roads along the Wakhjir Pass, most of the terrain is a dirt track. Like other passages, it can only be accessed via either animals or SUVs, and also due to extreme weather it is open for only seven months throughout the year. North Wakhjir Pass, also called Tegermansu Pass, is mountainous on the border of China and Afghanistan. It stretches from Tegermansu valley on the east and Chalachigu Valley in Xinjiang. All of these passages are extremely uncertain and rough which makes them too risky to be used for trade purposes. For example, the Chalagigu valley and Wakhjir Pass are an engineering nightmare to develop, let alone make them viable.
Similarly, the Pamir mountain range is also unstable and prone to landslides. Both of these routes also experience extreme weather conditions. Alternatives: Since most of the passages are risky for travel, alternatively, trade activities can be routed via Pakistan. For example, there is an access road at the North Wakhjir that connects to Karakoram Highway.
By expanding the road network from Taxkorgan in Xinjiang to Gilgit, using the Karakoram Highway is a probable option. Land routes in Pakistan are already being developed for better connectivity between Islamabad and Beijing as part of CPEC. These routes stretch from Gwadar up to the North.
The Motorway M-1, which runs from Islamabad to Peshawar can be used to link Afghanistan via Landi Kotal. Although the Karakoram highway also suffers from extreme weather and landslides, it is easier for engineers to handle as compared to those in Afghanistan.
China is the first door neighbor of Afghanistan having a common border. If anything happens in Afghanistan will have a direct impact on China. China has a declared policy of peaceful developments and has abandoned all disputes and adversaries for the time being and focused only on economic developments. For economic developments, social stability and security is a pre-requisite. So China emphasizes peace and stability in Afghanistan. It is China’s requirement that its border with Afghanistan should be secured, and restrict movements of any unwanted individuals or groups. China is compelled by any government in Afghanistan to ensure the safety of its borders in the region.
Taliban has ensured china that, its territory will not use against China and will never support any insurgency in China. Based on this confidence, China is cooperating with the Taliban in all possible manners. On the other hand, China is a responsible nation and obliged to extend humanitarian assistance to starving Afghans. While, the US is coercing and exerting pressures on the Taliban Government to collapse, by freezing their assets, and cutting all economic assistance, and lobbying with its Western allies, for exerting economic pressures on the Taliban, irrespective of human catastrophe in Afghanistan. China is generously assisting in saving human lives in Afghanistan. Whereas, the US is preferring politics over human lives in Afghanistan.
The US has destroyed Afghanistan during the last two decades, infrastructure was damaged completely, Agriculture was destroyed, Industry was destroyed, and the economy was a total disaster. While, China is assisting Afghanistan to rebuild its infrastructure, revive agriculture, industrialization is on its way. Chinese mega initiative, Belt and Road (BRI) is hope for Afghanistan.
A peaceful Afghanistan is a guarantee for peace and stability in China, especially in the bordering areas. The importance of Afghan peace is well conceived by China and practically, China is supporting peace and stability in Afghanistan. In fact, all the neighboring countries, and regional countries, are agreed upon by consensus that peace and stability in Afghanistan is a must and prerequisite for whole regions’ development and prosperity.
Shared Territorial Concern, Opposition to US Intervention Prompt Russia’s Support to China on Taiwan Question
The situation around the island of Taiwan is raising concerns not only in Chinese mainland, Taiwan island or in the US, but also in the whole world. Nobody would like to see a large-scale military clash between China and the US in the East Pacific. Potential repercussions of such a clash, even if it does not escalate to the nuclear level, might be catastrophic for the global economy and strategic stability, not to mention huge losses in blood and treasure for both sides in this conflict.
Earlier this week, Russian Foreign Minister Sergey Lavrov stated that Moscow continued to firmly support Beijing’s position on Taiwan as an integral part of China. Moreover, he also underlined that Moscow would support Beijing in its legitimate efforts to reunite the breakaway province with the rest of the country. A number of foreign media outlets paid particular attention not to what Lavrov actually said, but omitted his other remarks: the Russian official did not add that Moscow expects reunification to be peaceful and gradual in a way that is similar to China’s repossession of Hong Kong. Many observers of the new Taiwan Straits crisis unfolding concluded that Lavrov’s statement was a clear signal to all parties of the crisis: Russia would likely back even Beijing’s military takeover of the island.
Of course, diplomacy is an art of ambiguity. Lavrov clearly did not call for a military solution to the Taiwan problem. Still, his remarks were more blunt and more supportive of Beijing than the standard Russia’s rhetoric on the issue. Why? One possible explanation is that the Russian official simply wanted to sound nice to China as Russia’s major strategic partner. As they say, “a friend in need is a friend indeed.” Another explanation is that Lavrov recalled the Russian experience with Chechnya some time ago, when Moscow had to fight two bloody wars to suppress secessionism in the North Caucasus. Territorial integrity means a lot for the Russian leadership. This is something that is worth spilling blood for.
However, one can also imagine that in Russia they simply do not believe that if things go really bad for Taiwan island, the US would dare to come to its rescue and that in the end of the day Taipei would have to yield to Beijing without a single shot fired. Therefore, the risks of a large-scale military conflict in the East Pacific are perceived as relatively low, no matter what apocalyptic scenarios various military experts might come up with.
Indeed, over last 10 or 15 years the US has developed a pretty nasty habit of inciting its friends and partners to take risky and even reckless decisions and of letting these friends and partners down, when the latter had to foot the bill for these decisions. In 2008, the Bush administration explicitly or implicitly encouraged Georgian leader Mikheil Saakashvili to launch a military operation against South Ossetia including killing some Russian peacekeepers stationed there. But when Russia interfered to stop and to roll back the Georgian offensive, unfortunate Saakashvili was de-facto abandoned by Washington.
During the Ukrainian conflicts of 2013-14, the Obama administration enthusiastically supported the overthrow of the legitimate president in Kiev. However, it later preferred to delegate the management of the crisis to Berlin and to Paris, abstaining from taking part in the Normandy process and from signing the Minsk Agreements. In 2019, President Donald Trump promised his full support to Juan Guaidó, Head of the National Assembly in Venezuela, in his crusade against President Nicolas when the government of Maduro demonstrated its spectacular resilience. Juan Guaido very soon almost completely disappeared from Washington’s political radar screens.
Earlier this year the Biden administration stated its firm commitment to shouldering President Ashraf Ghani in Afghanistan in his resistance to Taliban advancements. But when push came to shove, the US easily abandoned its local allies, evacuated its military personal in a rush and left President Ghani to seek political asylum in the United Arab Emirates.
Again and again, Washington gives reasons to conclude that its partners, clients and even allies can no longer consider it as a credible security provider. Would the US make an exception for the Taiwan island? Of course, one can argue that the Taiwan island is more important for the US than Afghanistan, Venezuela, Ukraine and Georgia taken together. But the price for supporting the Taiwan island could also be much higher for the US than the price it would have paid in many other crisis situations. The chances of the US losing to China over Taiwan island, even if Washington mobilizes all of its available military power against Beijing, are also very high. Still, we do not see such a mobilization taking place now. It appears that the Biden administration is not ready for a real showdown with Beijing over the Taiwan question.
If the US does not put its whole weight behind the Taiwan island, the latter will have to seek some kind of accommodation with the mainland on terms abandoning its pipe-dreams of self-determination and independence. This is clear to politicians not only in East Asia, but all over the place, including Moscow. Therefore, Sergey Lavrov has reasons to firmly align himself with the Chinese position. The assumption in the Kremlin is that Uncle Sam will not dare to challenge militarily the Middle Kingdom. Not this time.
From our partner RIAC
Russia-Japan Relations: Were Abe’s Efforts In Vain?
Expanding the modest elements of trust in the Japan-Russia relationship, talking through reciprocal concerns before they lead to conflict, avoiding bilateral incidents, and engaging in mutually beneficial economic cooperation is the way forward.
One year after the end of Shinzo Abe’s long period of leadership, Japan has a new prime minister once again. The greatest foreign policy challenge the new Japanese government led by Fumio Kishida is facing is the intensifying confrontation between its large neighbor China and its main ally America. In addition to moves to energize the Quad group to which Japan belongs alongside Australia, India, and the United States, U.S. President Joe Biden’s administration has concluded a deal with Canberra and London to provide Australia with nuclear-powered submarines which in future could patrol the Western Pacific close to Chinese shores. The geopolitical fault lines in the Indo-Pacific region are fast turning into frontlines.
In this context, does anything remain of the eight-year-long effort by former prime minister Abe to improve relations with Russia on the basis of greater economic engagement tailored to Moscow’s needs? Russia’s relations with China continue to develop, including in the military domain; Russia’s constitutional amendments passed last year prohibit the handover of Russian territory, which doesn’t bode well for the long-running territorial dispute with Japan over the South Kuril Islands; and Russian officials and state-run media have been remembering and condemning the Japanese military’s conduct during World War II, something they chose to play down in the past. True, Moscow has invited Tokyo to participate in economic projects on the South Kuril Islands, but on Russian terms and without an exclusive status.
To many, the answer to the above question is clear, and it is negative. Yet that attitude amounts to de facto resignation, a questionable approach. Despite the oft-cited but erroneous Cold War analogy, the present Sino-American confrontation has created two poles in the global system, but not—at least, not yet—two blocs. Again, despite the popular and equally incorrect interpretation, Moscow is not Beijing’s follower or vassal. As a power that is particularly sensitive about its own sovereignty, Russia seeks to maintain an equilibrium—which is not the same as equidistance—between its prime partner and its main adversary. Tokyo would do well to understand that and take it into account as it structures its foreign relations.
The territorial dispute with Russia is considered to be very important for the Japanese people, but it is more symbolic than substantive. In practical terms, the biggest achievement of the Abe era in Japan-Russia relations was the founding of a format for high-level security and foreign policy consultations between the two countries. With security issues topping the agenda in the Indo-Pacific, maintaining the channel for private direct exchanges with a neighboring great power that the “2+2” formula offers is of high value. Such a format is a trademark of Abe’s foreign policy which, while being loyal to Japan’s American ally, prided itself on pursuing Japanese national interests rather than solely relying on others to take them into account.
Kishida, who for five years served as Abe’s foreign minister, will now have a chance to put his own stamp on the country’s foreign policy. Yet it makes sense for him to build on the accomplishments of his predecessor, such as using the unique consultation mechanism mentioned above to address geopolitical and security issues in the Indo-Pacific region, from North Korea to Afghanistan. Even under Abe, Japan’s economic engagement with Russia was by no means charity. The Russian leadership’s recent initiatives to shift more resources to eastern Siberia offer new opportunities to Japanese companies, just like Russia’s early plans for energy transition in response to climate change, and the ongoing development projects in the Arctic. In September 2021, the annual Eastern Economic Forum in Vladivostok did not feature top-level Japanese participation, but that should be an exception, not the rule.
Japan will remain a trusted ally of the United States for the foreseeable future. It is also safe to predict that at least in the medium term, and possibly longer, the Russo-Chinese partnership will continue to grow. That is no reason for Moscow and Tokyo to regard each other as adversaries, however. Moreover, since an armed conflict between America and China would spell a global calamity and have a high chance of turning nuclear, other major powers, including Russia and Japan, have a vital interest in preventing such a collision. Expanding the still very modest elements of trust in the Japan-Russia relationship, talking through reciprocal concerns before they lead to conflict, avoiding bilateral incidents, and engaging in mutually beneficial economic cooperation is the way forward. The absence of a peace treaty between the two countries more than seventy-five years after the end of the war is abnormal, yet that same unfinished business should serve as a stimulus to persevere. Giving up is an option, but not a good one.
From our partner RIAC
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