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China 70 years from now

Giancarlo Elia Valori

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In my opinion, after the 19thCPC National Congress, two changes characterize the new form of Communist China: the amendment to the Party’s Constitution, with the phrase “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era” introduced directly by current President Xi Jinping. The other change is the new autonomous dimension of the Party’s ideology and hence of its practice.

 This is the “miracle” promised to China by President Xi Jinping in his speech on the 40th anniversary of China’s Reforms started by Deng Xiaoping. A miracle that has in fact made China ready for a “new start”, while “the Party has strengthened China’s new pride” – after the mistakes of the “Cultural Revolution”, in particular – while the economic and social reforms could anyway lead to “sudden storms”.

 Therefore China will not allow separatisms – “not even an inch of our Motherland can and will be separated from China”. Hence a hegemonic China, but “without seeking hegemony”.

 The instrument to put an end to contemporary hegemonism, in a context in which President Xi Jinping uses again Mao Zedong’s “Three Worlds Theory”. The capitalistic and developed World, which includes the “two empires” -the two superpowers – and the two client States, and finally the Third World that will be led by China.

 Hence China as owner of an economic development that “poses no threats to others”. On the contrary, and precisely for this reason – as President Xi Jinping maintains – “no one is currently in a position to dictate to China what should or should not be done in the world”. In its essence, this is exactly the “Socialism with Chinese Characteristics” that President Xi Jinping wants to reaffirm both nationally and internationally.

 Again according to the current CPC’s tradition, the origin is to be found in Marx’, Engels’ and Lenin’s ideology, but above all within the project redeveloped by Mao Zedong, Jiang Zemin and Hu Jintao.

 As can be seen, after Lenin the traditional sequence of Chinese points of reference for Marxism-Leninism was over. It continued with Mao and was later resumed – after the Four Modernizations – temporarily a few years ago.

 Nothing has been decided yet. A Great Helmsman is still needed to guide, orient and direct the Socialist modernization of China.

 Hence, there is no actual link between the Russian tradition of Communist revolution and the Chinese one.

 This is also understandable: Russia wanted to follow the capitalist West so as to later destroy it – albeit it failed in this regard – while China was mainly concerned with the Third World, to which Communist Russia certainly did not belong. Later Russia accepted the Cold War, the useless “paper tiger”, in which China has never believed. Finally it imitated capitalism, without ever having a real potential to do so,  while China was building its rational (and national) Socialism in rural areas, without imitating – at least after the Great Leap Forward from 1958 to 1961 – the European capitalist accumulation, nor the huge massacre of the Russian Bolsheviks’ crazy “rural reforms” between Crimea and Ukraine.

 Hence, currently President Xi Jinping think that the result of implementing his Thought is the definitive “sinicization” of Socialism and the Party.

 The effects of this new operational and political tradition by President Xi Jinping are seen – first and foremost – in the greater efficacy of the Chinese government.

 President Xi Jinping’ Socialist government adapts to Chinese society – in view of transforming it – fitting like a glove on a hand.

 The doctrinal and abstract tradition of Chinese Marxism-Leninism ended precisely with President Xi Jinping’s action. Currently the Chinese Nation and its historical project, namely Socialism, are the same thing.

 Progress towards Socialism -now inherent in the fabric of the Party, of the State and of society – is the same as the peaceful and multilateral reaffirmation of the Chinese Nation as such.

 Pragmatism, above all adherence to the reality of Chinese society, but together with a profound modernization of the system, of society and of the CPC itself.

Hence, President Xi thinks that there are currently four goals at reach. Firstly, Socialism with Chinese Characteristics that now, thanks to President Xi Jinping, is fully embedded in China. Secondly, the Party’s ideology, which is always falling within the State’s competence and is hence responsible for the Nation’s and People’s national evolution, but now merges national interest with Socialism. Thirdly, the reaffirmation of the Party’s role on the State, which may still be lagging behind President Xi Jinping’s project. Fourthly, the Party’s culture, which is the one and only guidance for the Party itself.

 In other words, this means strengthening the Party’s culture to improve its role as an example, as policy line and as future direction.

 According to President Xi Jinping, the Party’s primary goal for the whole Chinese Nation, and not only for its proletariat, is the improvement and, above all, the current consolidation of the People’s living conditions.

 Wellbeing is one of the goalsof “President Xi Jinping’s policy line” that dominates the Party, in addition to the gradual construction of a Great Country for everybody (no limitation to China’s military and strategic prestige) and a Strong Country (no limitation to Socialist China’s geopolitical projection). Also a Civil Country (no limitation to the people’s cultural and ideological evolution) shall be constructed and a Democratic Country (the maximum representation, within the Party, for all the voices of Chinese society), as well as a Harmonious Country, i.e. without the typical imbalance of society with respect to the evolution of its political direction. “Productive Forces” and “Relations of Production”, just to put it in Marxist terms.

   Hence the Party dictates the policy line and the Chinese harmonious society adapts it to every condition and situation.

 It is in this sense that today, under President Xi’s leadership, we can speak about a particular “China’s Renaissance”.

 A mass Renaissance – just to recall Antonio Gramsci’s theories -that hence avoids the problem of being – like the Italian national Risorgimento- a “reform led by the elites alone” and limited in its scope and purposes.

 Hence national and cultural mass renaissance, spread among all classes of the People, the Party and the Nation.

 We should not believe that this historical phase is based on a limited, artificial or ad hoc memory.

 As early as July 1921, when the Communist Party of China was established in Shanghai, the founding members included Li Dazhiao, the founder of the Research Association on Marxism.

 From the beginning, there was an independent study on the dialectic of classes and on historical materialism, based on Chinese material conditions.

 Hence the study was focused on the specificities of the possible Chinese Communist revolution, as well as on the autonomy of the national and social thought. Maximum attention was paid to the classics of Marxism, while the Russian Bolsheviks were still unable to define their own way, between global revolution in capitalist countries and what could already be perceived, namely “Socialism in one country”.

 As early as August 1921, a few days after the Party’s foundation, Zhang Guotao established the Secretariat of Chinese Workers.

 From the beginning – and this is a sign that persists and, indeed, is strengthening even today – the workers’ representation and the Party were almost the same organization that overlapped. It never happened in the history of any Communist Party.

 Hence no Stalinist “transmission belt”: the trade union and the Party were both inside the Chinese society and transformed it every day, without the old-fashioned separation between “reforms” and / or “revolution” – the sign of a rough thought and, to many extents, not typical of Chinese wisdom, in which every change and every revolution are either large or small. It depends but, however, it is not a subjective evaluation.

 Also the relationship between the newly founded Communism and the Chinese national movement strengthened from the beginning. There was not the long discussion between the national and progressive movement and the proletarian movement that was the basis for the evolution of the European, Western and Russian Communist debate.

 Sun Yat-Sen’s Kuomintang immediately opened its doors to Chinese Communist trade unionists, who characterized the trade union movement far beyond the limits of their Party.

Another anomalous tradition of Chinese Marxism compared to the West, as well another root of the bond between the Party and the Masses, that President Xi Jinping still passionately emphasizes.

 In 1922 Mao Zedong, Liu Shaoqi and Li Lisan organized trade unions and mass strikes, not only of the Communist workers – as in the West – but in the Hunan Province. Again in July 1922, the Chinese Communists decided to collaborate with the then progressive nationalism of Sun Yat Sen and the Kuomintang, even in opposition to Mao, who did not fully agree.

 That choice was at the origin of both the CPC’s nationalist roots – without delays and rhetoric – and of certain ideological infiltrations that Mao Zedong tried to later use or eliminate.

 A problem that President Xi Jinping has definitely solved.

 A very severe problem, i.e. adapting without imitating and, hence, without absorbing the contradictions of Western capitalism, which is still in Xi Jinping’s mind.

 Only in 1923 did the CPC and the CPSU sign a mutual collaboration agreement.

 When, while referring to Russians, Deng Xiaoping spoke about the “enemies of the North”, he was still the spearhead of an old tradition of Chinese Communism.

 In 1923, however, the CPC officially adopted the “Russian policy line”.

  At the time, Mao Zedong joined the Central Committee and actively collaborated with the Kuomintang.

 Nevertheless, the price paid by the Kuomintang was very high: in January 1924 the CPC became part of the Kuomintang itself, albeit with three clauses: the alliance with the USSR; the stable unity of action with the Communist Party; the equally stable mass action with peasants and workers.

 Three factors that led to the end of Sun Yat Sen’s nationalist movement – except for new and powerful allies.

 In that case there was no obvious “entryism”, as we say in the jargon of European Communism: in China, Mao’s CPC was a Party entrenched within the masses it stably represented and connected with what the Marxists – probably somehow naively – still defined “national bourgeoisie”.

 As early as 1924, in Shanghai the CPC decided to step up “mass work”, while preserving its organization independent of the Kuomintang.

 The national bourgeoisie and the so-called “compradora” bourgeoisie merged in China-and hence in the Kuomintang. Therefore the CPC needed to become autonomous and work with every part of the revolutionary bourgeoisie.

 Unlike what happened in Europe during the same period,  when the national Communist Party either stood as the enemy of everyone – and above all of the progressive bourgeoisie – or rendered itself useless by remaining in a sort of splendid and useful isolation.

 Or it accepted unity with everyone, thus starting to lose itself and its political autonomy.

 The Canton Merchants’ Corps Uprising of August 1924 – in which the merchants were supported by Great Britain -was initially a rebellion against a new tax imposed by the government, which everyone also considered an expression of the USSR.

 The uprising was repressed, but the CPC’s struggle to avoid being identified as a simple offshoot of Russia was successful.

 On that occasion, the Kuomintang’s Central Bank was created.

  It happened in Canton, while, shortly afterwards, China found itself in four areas dominated by weak military coalitions.

 That was the real and empirical connection of Socialism with national unity in China.

 Without unity of the Chinese people – apart from the identities imposed by colonialism (and by some “friendly” country, currently as in the past) – there could be no unity of the nation and, hence, of Socialism itself which, if not led by the People’s Party of China, would inevitably repeat the “century of humiliation”.

 Finally, in early May 1925, Mao Zedong was elected President of the rural federation, always under the then national and progressive aegis of the Kuomintang.

Hence without an analysis of the peasant conditions – which is not mere productive “backwardness”, according to the old Russian Bolsheviks – there is no Chinese Communism not referring directly to a specific and material analysis of the peasant conditions.

 Hence we cannot reduce the peasant issue to a trivial theme – not by chance used both by the Russian Bolshevik Communists in their heinous “reforms” and by capitalists of the 1960s, the years of “take-off” and “underdevelopment”.

 Rural areas were not tantamount to underdevelopment. They were tantamount to exploitation, if anything.

 Without underdevelopment, what could we eat?

 Hence, as already seen, the CPC was born within the union and realistic context of the protection of needs of a wide majority of people, mainly rural, while maintaining a sound political and ideological class identity – as is still the case today.

 In 1928, Chiang Kai-Shek’s troops, the Kuomintang, occupied Peking.

 In that year, again referring to the rural masses, the CPC ordered the “Autumn Harvest Uprising”, thus triggering and resolving the problem of the true origin of class struggle in China, i.e. the clash between poor peasants and landowners.

 In 1929, the law confiscating the lands of Xing’guo and the new Civil Code were enacted. Hence the confiscation of State lands and of those belonging to landowners started.

 The war against Japan, which had invaded Manchuria, began.

 In February 1936, the Red Army marched towards Shiensi and recruited thousands of peasants, also with the support of the local warlord.

 The CPC asked not to requisition the lands of those who had fought against Japan.

 Nation and People, but also Socialist transformation of the economy. All three things together – as is currently the case.

 After many acts of war, also the tragic Nanjing massacre took place.

 A cruel slaughter of local inhabitants by Japan.  350,000 civilians were annihilated.

  China’s main cities were conquered by Japan, which meanwhile had established the capital in Peking.

 In 1943 the war was not over yet: the CPC adopted the so-called policy line of the “Resolution of the Many Traditional  Problems”, under Mao’s direct supervision.

  In 1945 Mao’s positions at the CPC Congress gained the upper hand in Ya’an – hence the policy line of the coalition government.

 Therefore the CPC’s essential political issue was solved, i.d. the national bourgeoisie that had become part of the Party. Also the social issue was solved, with the autonomous leadership of the CPC, which dealt with the great agrarian reform. There was also the military and strategic issue that, at the time, was already outside the CPSU scope. Finally uniqueness of power after the evident defeat of the Kuomintang.

 Almost the same as today.

 In 1948, the Chinese People’s Bank was established as issuing bank.

 In particular, it guaranteed the funds necessary for the companies to reach the goals of the five-year plan.

 Autonomy from the global financial cycle, when needed – as is currently the case.

 In 1949 the Red Army returned to the liberated city of Shanghai.

 What about the Belt and Road Initiative? Today’s Long March? What role does it currently play?

 It is largely a legacy of Hu Jintao and of the solution of the Chinese border issue by Jiang Zemin.

 At predictive level, it is a matter of 65 countries with a maximum trade totalling 2.5 trillion US dollars over ten years, with a project like this one that is expected to amount to 26% of the current Chinese foreign trade.

 An opportunity to find a way out, to remove dangerous land borders and to finally put an end to China’s estrangement from contemporary world.

 Not a “Cold War”, but a gradual multilateral and bilateral integration.

 Hence making the energy supply safe for China with the Belt and Road Initiative, as well as getting out of the spiral between monetary QE and commercial expansion, only thanks to the huge dimension of the Belt and Road Initiative, and finally finding an outlet for foreign direct investment that China desperately needs.

 A current sum of factors responding to the three policy lines with which the Party was founded: national interest at first, unity of the Nation and economic development.

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

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East Asia

China & Nepal working towards a genuine good-neighbour tie

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Authors: Himal Neupane & Jamal Ait Laadam

Although China and Nepal are very different in terms of each territorial size, population, economic capacity, technological prowess and above all military power, the bilateral relations between them have been undergone consistently and significantly. Since 1955 when China and Nepal formally recognized each with, their bilateral relationship has been characterized by equality, harmonious coexistence, everlasting friendship and overall cooperation. Particularly during the past over 40 years, China and Nepal have undergone substantial developments in view of mutual understandings. For example, in 1996 the two sides for the first time agreed to build up a good-neighbour partnership of the 21st century.

In line with this spirit of mutual respect and equality, Chinese President Xi Jinping paid a state visit to Nepal on October 12-13, during which the heads of the two states formally announced that they elevated the China-Nepal Comprehensive Partnership of Cooperation to Strategic Partnership of Cooperation in light of their many common values to enhance cooperation It is reported that President Xi frankly said Nepal wouldn’t be a landlocked country in the future as the trans-Himalayan connectivity network ultimately will support sustainable development and stability of the entire South Asia region. This is not only a promise from a large neighbor, but also a sort of responsibility from a rising major power of the world, which aims along with other parties, either large or small,  to create an international community of shared future.

Accordingly, on October 12, Nepal and China signed 18 memorandums of understanding and two letters of exchange. The priority was laid down with a focus on the implementation of signed agreements and acknowledged policies. Besides, they also reaffirmed the commitment to broaden the level of cooperation under the spirit of the Belt and Road Initiative (BRI). Moreover, China and Nepal have agreed to enhance connectivity through ports, railways, roads, aviation and communications within the broad framework of the BRI and the Trans-Himalayan Multi-Dimensional Connectivity Network which are of strategic significance. As Chinese President Xi put it, “our two peoples have shared weal and woe, and set an example of friendly exchanges between neighboring countries, and we would act to carry forward the traditional friendship and take the bilateral relationship to a new and higher level via his state visit to Nepal.

For sure, nothing is free in the realm of international politics as the realists argue what China and Nepal need from each other are their common geopolitical and geo-economical interests? This kind of inquiry is sensible and also cynical. In fact, historically China and Nepal had been at good terms for a few centuries, and during the British colonial era, Nepal actually acted as a natural buffer state between imperial China and colonial India. Since 1949 when the People’s Republic of China was founded soon after the independence of India, Nepal ended its isolation and forged amicable ties with India and other countries. Initially, Nepal had close ties to India in terms of culture, ethnics and even military affair, but it never accepts external domination. In 1955 Nepal formally recognized Beijing as the legitimate government of China and since then, it has consistently supported China in foreign affairs. Meanwhile, China has offered economic aid to Nepali reconstruction in a gradual way.

However, since the 1980s, China has steadily transformed itself into the second largest economy of the world with its alarming manufacturing capability and progressive technologies. Due to this, China has provided more assistances to Nepal and other neighbours to share Chinese public goods, especially in terms of the infrastructure projects and alleviation of poverty. For example, President Xi announced in 2018, “In the coming three years, China will provide assistance worth RMB 60 billion to developing countries and international organizations participating in the Belt and Road Initiative, and contributing an additional RMB 100 billion to the Silk Road Fund.” As a developing country nestled in the heart of the Himalaya, Nepal surely needs to expand its infrastructure through involving itself into the BRI with the view to exploring and finally harnessing its huge potential sources —hydropower—for export.

Strategically speaking, China needs to maintain its border areas peaceful and stable in light of its “NEWS strategy” that means while China tries to consolidate its entente partnership with Russia on the North and pacifying its East coast, it necessarily aims to sustain the BRI projects to the West and the maritime silk route to the South. This is the core of the NEWS strategy initiated by the Chinese elite since President Xi took power. Consider Nepal’s strategic location and political stability, China is sure to promote the bilateral ties as the two previous MOUs were signed in Beijing including to rebuild Chinese—Nepali transit road network agreements. It will help northern Himalayan areas get an alternative transit route and also facilitate the local economics, as much important part of the BRI as the economic corridor between China and Pakistan. Moreover, since 2016, a freight rail line was even completed linking Lanzhou, a heavy industrial city in the West of China through Xigaze in Tibet, down to the capital of Nepal. This is a truly strategic pivot of the grand BRI project.

To that end, President Xi revealed to his Nepali counterpart Bidhya Devi Bhandari that the two sides should work closely to carry out the construction of a trans-Himalayan connectivity network, and expand exchanges and cooperation in various fields. For her part, Nepali President Bhandari graciously welcomed Xi’s state visit to Nepal and stressed that the rise of China backed up by its modernization drive will help bring benefits to Nepal and promote regional peace and prosperity. In light of this cordiality, the two governments issued a joint statement on Oct. 13, agreeing on more practical cooperation in the new phase of bilateral relations. For a few key points serve to inllustrate that first, the two sides agreed to take the BRI as an opportunity to deepen mutual benefits in arious fields including the Kathmandu-Pokhara-Lumbini Railway Project. Furthermore, cooperation will cover the Zhangmu/Khasa port, the Lizi/Nechung port, and the three North-South corridors in Nepal. Second, the two sides will hold comprehensive discussions to strengthen trade relations, including to take positive measures to increase Nepal’s exports to China and to facilitate Chinese banks to open their branches and other financial services in Nepal. Last, China promises to help Nepal shake off the status of being a least developed country and achieve the sustainable development goals in the next two decades.

Since states are committed to each other by the nature of the world in which they exist, any close cooperation between China and Nepal is never bilateral only, that means there is always local, regional and international concerns, suspicions and even hostilities towards either China or Nepal or both. Geopolitically, India is the first power, understandably, to feel uncomfortable if not angry. This is the reason why President Xi made his first trip to India prior to his state visit to Nepal, and held comprehensive talks with Indian Prime Minister Modi. Second, China and Nepal also need to coordinate each other deftly to convince other neighbours such as Sri Lanka and Bangladesh that any sort of their cooperation would never be exclusive but inclusive and open all others in the South Asia. Geo-economically, China has reiterated that it would not seek to use its economic or financial leverages to “dictate” the local affairs of the recipient countries. Meanwhile, Chinese companies also need to move in prudently and read the local laws and political norms before jumping into the businesses.

Xi has frequently said, China is the largest developing country and also a learning country all the time. In order to promote China’s strategy to link the countries involved, mutual respect and equality are the prior condition to the long-term cooperation. In light of this, it is expected that Xi’s state visit to Nepal, the first one by a president of China over the past 26 years, will unlock new strategic opportunities for bilateral relations, as well as positively promote their ties with India by understanding the prospects for trilateral cooperation. It is clear that Chinese-Nepali economic integration through BRI is unstoppable, so it is sensible for India and the others in the region to take the opportunity to extend the proposed high-speed railway between those two all the way south to the nearby West Bengal port of Kolkata to more closely tie the three together in a system of complex economic interdependence. This is a balanced approach to prevent an open rivalry between the key member states of the BRICS and the SCO over their common neighbors. Given this, Xi’s visit to both India and Nepal might be the very time to enhance the trilateral understanding among Nepal with its giant neighbor. To that end, Nepal, though a much smaller state compared to China and India, could play positively a role as the bridge for building a more trust-based relationship across this region.

China has showed its willingness to share with Nepal its development experiences, practices and inclusive economic governance approaches. In doing so, geopolitical factors should never be the obstacles for China-Nepal cooperation. Rather, Nepal could serve as a dynamic bridge between China and India, and China and South Asia.

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East Asia

Semiconductor War between Japan and South Korea

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Authors: Gleb Toropchin and Anastasia Tolstukhina

In the summer of 2019, a trade conflict broke out between Tokyo and Seoul and the matter is about more than the history between the two countries. The two developed economies have long been locked in a competition on the global cutting-edge technologies market. At the same time, they are links in the same technological chain.

At first glance, the exchange of trade restrictions that is taking place against the background of mutual accusations is nobody’s business but Tokyo and Seoul’s. Nonetheless, the consequences of the confrontation between the two countries have a global nature. The present article analyses the causes of the disagreements and looks at how the situation may develop

Introducing Restrictions and Removal from the “White List”

Despite the events of the colonial past [1], as well as the current territorial disputes that are so typical of Asia’s international politics [2], South Korea is one of Japan’s three largest trade partners. Japan exports into South Korea up to $54 billion in goodsThe key commodities include semiconductors and materials for their manufacture

The dependence of South Korean companies on imports of fluorinated polyimides and photoresists exceeds 90 percent, and their dependence on imports of hydrogen fluoride is around 44 percent (although this figure has fallen gradually from 72 percent in 2010)

However, on July 1, 2019, the Government of Japan announced restrictions on the export of commodities to South Korea that are of critical importance for microelectronics, and on July 4, the changes to the procedure came into force

Given the long-established delivery mechanism, such a political step was a surprise for many. The restrictions mainly affected three key materials for the microelectronics industry: fluorinated polyimides, hydrogen fluoride, and photoresists (these materials are used in the manufacturing of semiconductors and display panels). This measure does not mean that deliveries of these materials to South Korea have been completely stopped; however, from now on, it may take up to 90 days to approve transactions. Additionally, Japan said it would be taking South Korea off its “white list” of trade partners. The list includes states that are believed to be safe from the point of view of exporting strategic commodities and that are granted trade preferences

Let us try to understand why the Government of Japan took such steps

Pressure from Taiwanese and South Korean competitors

In 1986, an agreement was signed between Tokyo and Washington that prohibited Japan from undercutting global semiconductor prices. This step was initially intended to make the United States more competitive. However, even in those circumstances, Japan managed to take a significant chunk of the global semiconductor market from the United States in the late 20th century and retain its high positions until the 2010s. However, as early as 2012, experts noted that pressure from Taiwanese and South Korean competitors resulted in semiconductor sales of Japan’s four chip-makers, Toshiba, Renesas, Sony and Fujitsu taking a marked dip

Samsung Electronics succeeded in mastering the subtleties of developing technologies just at the right time, while Japan began to lag behind in R&D due to problems with formal education, and its revenues from global sales of microelectronics were falling against the backdrop of falling prices and the high exchange rate of the Japanese yen. Among other causes of this phenomenon, Japanese experts cite the desire to create hi-tech goods without account for high costs, and lack of innovative ideas

Today, South Korea is the leading manufacturer of memory microchips. Samsung Electronics and SK Hynix hold two-thirds of the global market. Additionally, both the United States’ Apple and China’s Huawei depend on the products produced by South Korean companies. Integrated circuit units account for 17 percent of South Korea’s exports (the entire microelectronics sector accounts for nearly a quarter of its exports), compared to less than 4 percent for Japan

An analysis of the global microelectronics market demonstrates that, currently, the market particularly values dynamic random-access memory semiconductors (DRAMS) that hold tremendous significance for such cutting-edge technologies as artificial intelligence, the Internet of Things and robotics. South Korea holds impressive positions in this area as well: Samsung and SK Hynix control 72.8 percent of the DRAMS market and 46.8 percent of the global flash memory market

Reasons for Introducing Restrictive Measures

The East Asia Forum reports that Japan’s strategy of opposing Seoul was developed jointly by the country’s Ministry of Economy, Trade and Industry, Ministry of Foreign Affairs and Ministry of Agriculture, Forestry and Fisheries. The Cabinet of Ministers subsequently supported these measures, thereby making the key decision to transfer the issue into the political realm

It appears that Japan’s decision to impose restrictive measures was prompted by the fact that the country has clearly fallen behind technologically on the global microelectronic market, which negatively affects both the country’s economic indicators and its national security

According to the expert June Park, the Government of Japan decided to institute the restrictive measures out of concern for national security, since, in exporting rare materials to South Korea, Tokyo cannot be certain they will be used properly

The Japan Times notes that Tokyo justifies the introduction of increasingly strict export requirements by claiming that confidence in South Korea has been undermined. In particular, some media outlets report that between 2015 and March 2019, no fewer than 156 materials, including hydrogen fluoride, were smuggled out of South Korea. There were also reports of hydrogen fluoride being exported to countries that are under international sanctions (Iran, Syria and even North Korea). Another reason for the restrictions is Tokyo’s concerns that South Korea violates intellectual property rights

South Korea denies all accusations. Its arguments are logical: Iran and Syria are friends of North Korea, therefore, Seoul has no reasons to help their regimes. President of South Korea Moon Jae-in called for the differences to be resolved by diplomatic means. However, the talks held on July 12, 2019, in Tokyo did not yield any results. Consequently, Moon Jae-in instructed the relevant agencies to develop reciprocal measures. At about the same time, there were reports of South Korea possibly filing a grievance with the World Trade Organization. As a result, hearings on the issue were launched in Geneva on July 24, 2019

In late July 2019, news broke that Tokyo was considering further restrictions since Japan believes the re-selling of strategic materials by Seoul to be a violation of the non-proliferation regimes regarding both weapons of mass destruction and conventional weapons. In this case, the restrictions would extend to other types of commodities and materials. On August 2, the Cabinet of Japan approved the decision to take South Korea off its “white list” (where the Republic of Korea was the only Asian state), thereby depriving it of trade preferences in regard to the materials mentioned above. The full list exceeds 1100 items

Despite these events, several deliveries of these materials from Japan to South Korea were made in August. However, they did not result in a thaw in bilateral relations. Seoul reciprocated by putting Japan on a restrictive trade list and terminating the military intelligence-sharing pact with Tokyo

“Wu Wei” American Style

China holds leading positions in deposits of rare-earth metals. Moreover, approximately 90 percent of the world’s rare-earth magnets are manufactured in China. Japanese companies use China’s raw materials to manufacture fluorinated polyimides, hydrogen fluoride and photoresists that are subsequently supplied to South Korea, Taiwan and other countries to be used in manufacturing chips, displays, etc. The circle is complete when these commodities go back to China to be used in the manufacture of finished products (such as smartphones and tablets), creating a sort of a closed-loop. Thus, the manufacture of competitive hi-tech products today is impossible within a single economy, and Chinese companies depend on parts coming from other Asian countries

Tracing the entire technological chain, we can assume that the Japan–South Korea conflict is closely linked to the trade war between China and the United States. South Korea’s Samsung Electronics is hindered by the restrictions on deliveries of Huawei memory chips since the latter is under U.S. sanctions. In turn, interrupting the chain of semiconductors delivery from South Korea will slow down the development of artificial intelligence in China. And who benefits from this? This is a rhetorical question

It would seem that the United States should be interested in cordial relations between their allies in the region, allies that form a sort of counterbalance to China and are ideological antagonists to North Korea. The White House, however, intentionally or unintentionally, demonstrates adherence to the Taoist principle of inaction, or “wu wei” (无为 in simplified Chinese), which entails a conscious refusal to act and the assumption of a contemplative stance. From the outset of the confrontation in July 2019, the United States announced it would not interfere in the conflict. Despite individual experts calling upon the United States to act as an intermediary between the two Asian states, Washington did not change its position

We should also note here that the Japanese company Toshiba announced the construction of a facility for the production of NAND-type (from the English NOT-AND, that is, a binary logical element) flash memory devices in Iwate Prefecture in cooperation with U.S. chip manufacturer Western Digital. We can cautiously assume that the United States and Japan are progressing toward a “technological union” in order to defeat China in the race for domination of the semiconductor industry

Public Opinion

Speaking of the impact that the conflict has on public opinion in both countries, we can quote a survey conducted by Japan’s Asahi Shimbun in mid-September 2019. Overall, slightly less than one third (29 per cent) of respondents admitted that they had a negative opinion of South Korea. This was far more pronounced among older people, which can be linked to their conservative views and the “proximity aberration” phenomenon (put simply, the older generations remember the events of the 20th century well)

As for South Korea, an anti-Japanese “grassroots” campaign has been launched in addition to the “top-down” process. In the second half of the summer of 2019, slogans『 가지않습니다 사지않습니다 』 (Korean for “Do not visit, do not buy”) calling for boycotting trips to Japan and Japanese goods spread on Korean social networks. And it looks like they were successful to a degree. For instance, the Yonhap News Agency reports that the number of South Koreans travelling to Japan in August fell by 60 per cent compared to the same period last year

In the run-up to the 2020 Summer Olympics in Tokyo, the trade conflict has become a reason for manipulating public opinion in South Korea. Additionally, we cannot rule out the possibility that populists use the disagreements between Japan and South Korea to advance their domestic agenda on the eve of the elections to South Korea’s unicameral parliament scheduled for April 15, 2020

Forecast: Cloudy in the East

Losses from the Japan–South Korea trade war may exceed $80 billion. There has already been a drop in sales of South Korean semiconductors manufactured by Samsung Electronics and SK Hynix. Moreover, the conflict threatens to disrupt the entire global technological production chain in microelectronics. The expert Robert Farley described this conflict (and the U.S.–China trade war) as “weaponizing interdependence.” One of the analysts with The Economist Intelligence Unit called this situation “mutually assured destruction.”

The Yonhap News reports that the consequences of the trade conflict have had greater negative effect on the Japanese economy than on the South Korean economy. For instance, in July–August, South Korean exports to Japan have fallen by 3.5 per cent, while Japanese exports to South Korea have dropped 8.1 per cent

The South Korean economy has also suffered against the backdrop of these events. Here, Seoul has only two ways out of this predicament:

-Transitioning to domestic analogues, which LG Display and Samsung Electronics already did in September of this year. Additionally, the country earmarked 2.1 trillion South Korean won in the 2020 budget to overcome the dependence on the export of rare materials from Japan

-Searching for alternative sources of hydrogen fluoride and other rare materials for microelectronics. Media outlets have reported that Russia might be a potential supplier of high-purity hydrogen fluoride. The head of the Korea International Trade Association said that Moscow had offered to supply hydrogen fluoride to Seoul. However, it is not easy for South Korean companies to transition to Russian imports of this and other materials for microelectronics. The physical and chemical properties of the products must be tested for a rather lengthy period of time (upwards of six months)

Apparently, the status quo on the microelectronic market will continue in the short-term, and both parties will seek ways to minimize losses. And we can already see evidence of this. In September and October, the Government of Japan approved deliveries of hydrogen fluoride to Samsung Electronics and SK Hynix

At the same time, if Tokyo and Seoul fail to find common ground in the medium and long term, then the current global technological chain in microelectronics may be dismantled, which will, of course, negatively affect the growth rate of the global economy. However, so as not to end our study on a pessimistic note, let us note that, under the current circumstances, many hi-tech companies around the world, including those in Russia, now have the chance to become new links in the value chain and occupy its niche in microelectronics

From our partner RIAC

[1] In 1910, the Empire of Japan annexed the entire Korean peninsula. Korea essentially became a Japanese colony. The Japanese language and culture were forced onto the Korean people. Up to 200,000 ethnic Koreans served in the Imperial Japanese Army during World War II (including future president of South Korea and “father of the economic miracle” Park Chung-hee). Today, Japanese war crimes are a subject of talks between South Korea and Japan. In 2015, Minister of Foreign Affairs of Japan Fumio Kishida promised 1 billion yen to the victims of violence in compensation, and Prime Minister Shinzo Abe offered a public apology for Japan’s actions during the war.

[2] The dispute concerns the Liancourt Rocks, a group of small islets that the Koreans call Dokdo (“Solitary Islands”) and the Japanese call Takeshima (“Bamboo Islands”). Back in the early 20th century, Japan claimed sovereignty over these islands; however, following its defeat in World War II, it was forced to abandon its colonial acquisitions. On the other hand, the 1951 Treaty of San Francisco does not mention this territory, which gives Japan formal grounds to dispute the sovereignty of the islands where South Korea maintains military and civil infrastructure.

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East Asia

Future Trends of China’s Diplomacy

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This year 2019 marked the 70th anniversary of the founding of the People’s Republic of China (PRC), and China’s diplomacy has also gone through a journey of 70 years. The 70-year history of the PRC can be divided into the first 30 years after its founding and the second 40 years since opening and reform were initiated in 1978. The characteristic of china diplomacy is a responsible nation, rational behavior and the confidence of great power.

China had a clear break with the old diplomacy of humiliation; established a new kind of diplomatic relations with other countries on the basis of equality and mutual benefit; secured an equal position and dignity on the global stage; gained diplomatic independence by safeguarding and strengthening national independence, and protecting national security and territorial integrity; settled the border disputes left  over from history with most neighbors by peaceful means, creating a stable neighborhood in general; established strong friendships with the vast majority of developing countries through mutual support; and set up a new diplomatic contingent for seeking the diplomacy of independence. The following are the future expectations of China diplomacy:

Firstly, Deng Xiaoping’s directive, “Don’t seek for leadership,” stays powerful in China’s new diplomacy, so China’s future diplomacy will keep on emphasizing on the management of the crisis, economic diplomacy, multilateral diplomacy, cultural diplomacy, cooperation, and accommodation while protecting the main national interest. Solving problems and managing crises will stay an important characteristic of China’s diplomacy, particularly in its ties with other major powers. Meanwhile, in cooperation with other major powers, China will appear to be more active in managing fundamental global issues at the strategic level.

Secondly, The Chinese government has repeatedly said that China does not have a plan of challenging the international system and has focused on the importance of being a “responsible member” of the universal society. As of late, China has developed new concepts for its foreign policy orientation, just as (1) “new security” emphasizing shared and cooperative security, (2) “peaceful development” focusing on non-violence commitment, (3) “win-win” cooperation denying a zero-sum comprehension of international affairs, and (4) building a “harmonious world” that promoting harmony with diversity, solving conflict through dialogue, and democratization of world governmental issues.

As these concepts demonstrate, China has no desire of being revolutionary in the international system, rather, it intends to be a responsible member of world affairs. Economic diplomacy will remain to be emphasized by china. While trade will keep on being a fundamental diplomatic focus, energy security and energy diplomacy will be given additional accentuation. Energy supply, energy shipment, and energy-saving cooperation will be fields where the diplomacy of china will move forward.

Lastly, Multilateral diplomacy will take on an even greater role in the future diplomacy of China. China will become more involved at the global level and in regional affairs at the United Nations. As the identity of China is more globally and regionally established, the current concept of multilateralism in the overall diplomatic strategy of china can be re-defined to realize national interests, address thorny issues, and provide governance in a complex world. More attempts will be created to improve regional integration between the SCO and East Asian. Finally, various needed diplomatic attempts may need to be further reinforced. China will keep on being cooperative, however, it will likewise be more active. All things considered; cultural diplomacy will be a new attribute of China’s diplomacy. Confucianism, an extremely cosmopolitan doctrine that promotes harmony and peace through human relations, will be an important component of cultural diplomacy, both to strengthen China’s soft power and to reduce the negative result of the China threat theory.

China has accumulated a wealth of experience over the past 70 years, understanding that China cannot develop without the world and that without China the world cannot prosper. China’s future and fate have been closely linked to the rest of the world. What is certain is that China will adhere to the path of peaceful development and that the people of China will join the people from all other countries in working to realize the lofty dream of a harmonious world.

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