MERICS Blog - European Voices on China https://www.merics.org/en/blog/rss?field_topics_target_id=11 en China as a dividing force in Europe https://www.merics.org/en/blog/china-dividing-force-europe <span>China as a dividing force in Europe</span> <span><span lang="" about="/en/user/646" typeof="schema:Person" property="schema:name" datatype="">jheller</span></span> <span>Mon, 08/05/2019 - 09:12</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2019-08-05T12:00:00Z">2019-08-05</time> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p>Insa Ewert (via <a href="http://www.youngchinawatchers.com/china-as-a-dividing-force-in-europe/">Young China Watchers</a>)</p> <p><strong>In March this year, Italy became the first G7 nation to sign an official MoU with China in the context of the Belt and Road Initiative (BRI). The move by the Italian government has been interpreted as a sign of increasing divisions within Europe over China. But to what extent might the Italian example be an indication of a shift or rift in EU-China relations?</strong></p></div> <div class="field field--name-field-main-image field--type-image field--label-hidden field--item"> <img srcset="/sites/default/files/styles/max_325x325/public/2019-08/G20_Osaka.jpg?itok=CV-TrWo3 325w, /sites/default/files/styles/max_650x650/public/2019-08/G20_Osaka.jpg?itok=AjNHyeLW 650w, /sites/default/files/styles/max_1300x1300/public/2019-08/G20_Osaka.jpg?itok=kjFmEgko 1300w, /sites/default/files/styles/max_2600x2600/public/2019-08/G20_Osaka.jpg?itok=z8OYNrgm 2600w" sizes="(min-width: 1290px) 1290px, 100vw" src="/sites/default/files/styles/max_325x325/public/2019-08/G20_Osaka.jpg?itok=CV-TrWo3" alt="Donald Tusk and Xi Jinping at G20 in Osaka on June 28, 2019. Source: European Union." title="Donald Tusk, President of the European Council, and Xi Jinping, President of China, at the G20 meeting in Osaka on June 28, 2019. Source: European Union." typeof="foaf:Image" class="img-responsive" /> </div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><p><strong>Shifting perceptions of China</strong></p> <p>The situation is complex, pitting national interests against community interests within a shifting geopolitical environment. Even when there is a demonstration of unity in the EU, individual countries still diverge from common positions. For instance, in summer 2018, 27 EU ambassadors signed a <a href="https://www.handelsblatt.com/today/politics/china-first-eu-ambassadors-band-together-against-silk-road/23581860.html?ticket=ST-2179184-QLyfyKoFO7cJRtGePJeV-ap6">statement</a> criticizing BRI as mainly beneficial for China, lacking transparency and unsustainable in its debt policies, with Hungary being the only country to break ranks at the time.</p> <p>News on EU-China relations is dominated by conflicts on specific issues such as trade disputes or human rights, which flare up from time to time. However, even though these have not substantially dampened the overall relationship, and EU-China trade and investment remains robust, the ways of engaging are changing and governments and businesses alike are struggling with the ambiguity of China. This is becoming particularly evident in Germany, China’s largest trade partner within Europe.</p> <p>Since Donald Trump’s arrival to the Oval Office, the wider global context is shifting as well. With the ongoing trade dispute between the United States and China, China has been markedly stepping up its charm offensive towards Europe. China’s investment volumes are now nine-times higher in Europe than in North America due to fewer regulatory hurdles, a predictable policy environment, and high-tech assets, with the largest share going to the United Kingdom, Germany and France.</p> <p>Public perceptions are also shifting. Historically, the United States has been the EU’s closest partner. Today, more and more Europeans feel they cannot rely on the United States anymore. A recent <a href="https://m.dw.com/en/germans-trust-china-more-than-us-survey-findes/a-47435595">survey</a> found that over 40 percent of Germans now place more trust in China than in the United States.</p> <p><strong>Caution around investments and advanced technologies</strong></p> <p>At the same time the conversation in government and business circles has markedly shifted towards increasing wariness towards China. Foreign companies operating in China are less willing to tolerate the continuing lack of reciprocity and discrimination and are tired of repeated promises of economic reforms and a level playing field in the Chinese market, without substantial changes being put into practice. At the same time, they are torn between taking a more critical stance and their reliance on the Chinese market. For instance, a recent <a href="https://english.bdi.eu/article/news/china-a-partner-and-competitor/">paper</a> by the Federation of German Industries (BDI) acknowledges China as one of the most important markets for German companies but emphasizes the challenge of reconciling partnership with systemic competition.</p> <p>A similar picture is emerging on Chinese inbound investments in Europe. Voices are growing louder criticizing technology transfers and China’s growing clout in certain industries, such as electric vehicles, robotics and 5G technology, but the main question remains how to deal with the potential national security implications of Chinese participation in critical European infrastructure.</p> <p>This spurred the EU and national governments into action, translating these concerns into legislation hindering, if not outright blocking, Chinese investments in certain sectors. On the initiative of Germany, France and Italy, the EU developed a <a href="https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32019R0452&amp;from=EN">regulation</a> on how to approach investments into critical infrastructure. Still, the European investment screening framework is much less invasive and comprehensive than existing legislation in many countries (such as the more muscular Committee on Foreign Investment in the United States (CFIUS) mechanism) and does not have any legally binding nature.</p> <p>The focus of the EU’s investment screening is clear: sharing information among Member States on specific foreign investments that have potential national security impacts. In addition, the European Commission may issue opinions when several Member States may be affected, or it may be in the interest of the EU as a whole. In such a case, Member States are required to justify any divergence from the Commission’s opinion.</p> <p>While the EU approach addresses the cross-border nature of investments its remit remains limited to creating incentives for Member States to put in place robust foreign direct investment (FDI) monitoring mechanisms. Nevertheless, the first effects of a changing investment environment can already be felt: several Member States are modernizing and enhancing their FDI screening regimes in anticipation of Chinese takeovers.</p> <p>After a record high for Chinese investments in Europe in 2016, Chinese-initiated mergers and acquisitions in Europe slowly declined in 2017, <a href="https://www.dw.com/en/chinese-investments-in-europe-take-a-dive/a-47370706">dropping by 21 percent in 2018</a>; the number of investments in Germany even fell by 60 percent. Despite this dip, the debate around Chinese influence, technology, and potential national security implications continues unabated.</p> <p><strong>In focus: Europe’s 5G networks</strong></p> <p>Risks are perceived as particularly high when it comes to telecommunications, with 5G set to be the new standard of connectivity and the ‘internet of things’. Huawei, one of the leading providers of 5G technology faces suspicion that its equipment may contain backdoors that enable state-backed spying.</p> <p>The example of Huawei is exemplary of how governments struggle to balance risks and (economic) benefits. While Huawei technology has been recently banned in several countries, the United States is putting pressure on Europe to follow suit. But countries such as Germany are looking for a third option that would keep the market open to Chinese companies while at the same time pre-empting concerns about spying. While the principle of engaging with China rather than plainly banning its companies is laudable, there are little indications that a “<a href="https://www.wiwo.de/politik/deutschland/sicherheitskreise-merkel-will-anti-spionageabkommen-mit-china/24046378.html">no spy agreement</a>” such as floated by the German government could effectively address the risks.</p> <p>These are also not significantly mitigated through the Commission’s approach towards security in Europe’s 5G network, which again focuses more on coordination and information sharing, leaving the onus on national legislation. While both the Commission initiative on investment screening as well as on communication infrastructure are examples of more European approaches, they also demonstrate the limits of the EU’s legislative remit.</p> <p><strong>Efforts to unify a European stance</strong></p> <p>Recently, several EU Member States have also increasingly exhibited efforts to take a common stance towards China. In March 2019, <a href="https://www.scmp.com/news/china/diplomacy/article/3002935/frances-macron-asks-merkel-and-juncker-join-meeting-xi-jinping">for the first time</a>, a country (France) has invited an EU representative as well as another Member State (Germany) to join a meeting with Chinese President Xi Jinping. While sending the message that China needs to take the EU more seriously as an actor, even though it prefers a bilateral approach, it needs to be taken with a grain of salt as an European approach is not favored by all Member States to the same extent.</p> <p>The meeting between the French president, German chancellor and Commission president took place against the backdrop of Italy’s official endorsement of the BRI. As such, these limited initiatives might also exacerbate pre-existing divisions between Member States. These divisions have become apparent between larger and smaller Member States, between the wealthier Member States in the north and the struggling countries in the south, and between those with a more or less balanced trade balance with China.</p> <p>While Member States such as Germany are increasingly pushing the European China agenda and the EU bloc is getting a more prominent seat at the table, it is still premature to read these developments as a newfound European unity towards China. If the President-elect of the European Commission, Ursula von der Leyen, who is said to hold more critical views of China and to be diplomatic but assertive, will be able to bring the EU Member States closer together remains to be seen. The oscillation between national interests and clearly demonstrating the potential strengths of a regional approach, finding credible and effective ways of engagement with China that balances business and government interests at home and in the Chinese market, as well as addressing (economic) concerns of individual Member States, will remain challenges for a European China policy in the near future.</p> <p>The EU’s approach towards China is evidently shifting and the EU and its Member States are willing to take more measures to protect their own interests, despite potential retaliation from China. But as a recent <a href="https://ec.europa.eu/commission/publications/eu-china-strategic-outlook-commission-contribution-european-council-21-22-march-2019_en">Joint Communication</a> states, Europe’s approach towards China needs to be more realistic, assertive, and multi-faceted to adapt to shifting economic and geopolitical realities.</p> <p><strong>This article was first published by <a href="http://www.youngchinawatchers.com/china-as-a-dividing-force-in-europe/">Young China Watchers on July 29, 2019</a>.</strong></p></div> </div> </div> Mon, 05 Aug 2019 07:12:27 +0000 jheller 9686 at https://www.merics.org Europe must take a stand to ensure a healthy relationship with China https://www.merics.org/en/blog/europe-must-take-stand-ensure-healthy-relationship-china <span>Europe must take a stand to ensure a healthy relationship with China</span> <span><span lang="" about="/en/user/286" typeof="schema:Person" property="schema:name" datatype="">h.seidl</span></span> <span>Mon, 07/29/2019 - 10:29</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2019-07-29T12:00:00Z">2019-07-29</time> </div> <div class="field field--name-field-authors field--type-entity-reference field--label-hidden field--items"> <a href="/en/team/max-j-zenglein" hreflang="en">Max J. Zenglein</a> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p><strong>Europe should not shy away from taking a more assertive position if it wants the relationship with China to be a healthy one. <span><span><span><span>Realism is needed in dealing with the increasingly powerful and authoritarian newcomer. </span></span></span></span></strong></p></div> <div class="field field--name-field-main-image field--type-image field--label-hidden field--item"> <img srcset="/sites/default/files/styles/max_325x325/public/2019-07/190607_EU_China_Summit_2017_Car_President_of_European_Council_via_Flickr.jpg?itok=HlHeBSOO 325w, /sites/default/files/styles/max_650x650/public/2019-07/190607_EU_China_Summit_2017_Car_President_of_European_Council_via_Flickr.jpg?itok=Muk4Ix9b 650w, /sites/default/files/styles/max_1300x1300/public/2019-07/190607_EU_China_Summit_2017_Car_President_of_European_Council_via_Flickr.jpg?itok=jgXY6by9 1300w, /sites/default/files/styles/max_2600x2600/public/2019-07/190607_EU_China_Summit_2017_Car_President_of_European_Council_via_Flickr.jpg?itok=S8vSsuIb 2048w" sizes="(min-width: 1290px) 1290px, 100vw" src="/sites/default/files/styles/max_325x325/public/2019-07/190607_EU_China_Summit_2017_Car_President_of_European_Council_via_Flickr.jpg?itok=HlHeBSOO" alt="Europe must take a stand to ensure a healthy relationship with China" title="Rifts between Europe and Xi Jinping’s determination to maintain the one-party state in a stronger, more confident China are becoming more pronounced. Image by President of the European Council via flickr." typeof="foaf:Image" class="img-responsive" /> </div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><p><span><span><span><span>European powers are hesitating over whether they should adopt a more assertive China policy. Often, they are fearful of losing business opportunities in an increasingly important market. But now is the time to recalibrate how Europe engages with China. </span></span></span></span></p> <p><span><span><span><span>Policy adjustments by the EU and some member states such as France and Germany suggest that a more assertive approach to China is taking shape. However, though concerns are being aired more forcefully, the new tone does not yet amount to a significant shift in Sino-European relations. </span></span></span></span></p> <p><span><span><span><span>Looking at recent developments, it would be easy to think that a broad shift in European policy has already taken place. The flurry of initiatives includes EU-wide, stricter investment screening mechanisms and a joint statement from the EU Commission identifying China as a strategic rival. The Federation of German Industries (BDI) has voiced strong concerns about unfair competition from China’s state-led and subsidized economic model. </span></span></span></span></p> <p><strong><span><span><span><span>Europe should not shy away from taking a more assertive position</span></span></span></span></strong></p> <p><span><span><span><span>At the same time, however, co-operation agreements by member states and major corporate investments are still pursued with vigor. It seems European governments and businesses continue to balance their short-term economic interests and longer-term strategic concerns by kicking the can down the road.</span></span></span></span></p> <p><span><span><span><span>Europe should not shy away from taking a more assertive position if it wants the relationship to be a healthy one. It fails to do justice to the complexity of the issue to simply dismiss opposition from industrialized countries as some sort of “western conspiracy” to obstruct China’s rise; or, as many liberal voices do, to dismiss the alarms issued by western security services over China’s potential for dominance in 5G telecoms and AI as mere outgrowths of Trump’s trade war. This is to risk being dazzled by a coincidence of timing into ignoring years of Chinese strategic investment. Doing so ignores China’s open challenge to the very rules-based, liberal economic system that greatly benefited it during the period of rapidly expanding globalization. </span></span></span></span></p> <p><span><span><span><span>It was easy for the European powers to pursue trade and investment divorced from national security concerns as long as China’s economy lagged far behind theirs. But the rifts and lack of shared values between Europe and President Xi Jinping’s determination to maintain the one-party state in a stronger, more confident China are becoming more pronounced. They are visible in the build-up of a surveillance state, in the lack of rule of law, and in the state-led capitalist model. </span></span></span></span></p> <p><span><span><span><span>It is in Europe’s best interest to formulate a unified China strategy and to follow through with concrete actions to deal with problems that have been left unaddressed for too long. </span></span></span></span></p> <p><span><span><span><strong><span>It is worth looking to Asia for inspiration</span></strong></span></span></span></p> <p>It is becoming increasingly difficult for China to sell the story of mutually beneficial co-operation with liberal market economies, as the economic and political systems become increasingly incompatible and strategic rivalries emerge. </p> <p><span><span><span><span>The current mass protests in Hong Kong against China’s encroachments on the legal system and in Taiwan against Chinese efforts to influence the media underline a strong resistance to the “warm” embrace of the People’s Republic of China. They should reinforce the message that a stronger European position is needed to defend its core values. </span></span></span></span></p> <p><span><span><span><span>It is worth looking to Asia for inspiration. Firms from Japan and Taiwan were often the first into the Chinese market. As regional neighbors, their economic dependence on China, naturally, is substantially larger than that of Europe. </span></span></span></span></p> <p><span><span><span><span>This has not stopped them from introducing strict regulations and guidelines on how to engage with China. These include restrictions on co-operation in high-tech research and efforts to limit dependence on the Chinese market, which subjects companies to political pressure. </span></span></span></span></p> <p><span><span><span><span>Security issues and the lack of shared values between Europe and China should set clear limits on co-operation in the economic and technological spheres, without risking developments that could trigger a breakdown in the relationship. Europe should take policy adaptations in East Asia as a source of inspiration, or risk looking naive in the face of China’s swift emergence as a more assertive, high-tech power.</span></span></span></span></p> <p><span><span><span><em><span><strong>This article was first published <a href="https://www.ft.com/content/2e08168e-9be4-11e9-b8ce-8b459ed04726">on the Financial Times’ Beyond Brics blog on July 2, 2019.</a></strong> </span></em></span></span></span></p></div> </div> </div> Mon, 29 Jul 2019 08:29:50 +0000 h.seidl 9666 at https://www.merics.org Get yourself a job: Beijing’s measures to tackle rising youth unemployment https://www.merics.org/en/blog/get-yourself-job-beijings-measures-tackle-rising-youth-unemployment <span>Get yourself a job: Beijing’s measures to tackle rising youth unemployment</span> <span><span lang="" about="/en/user/286" typeof="schema:Person" property="schema:name" datatype="">h.seidl</span></span> <span>Mon, 07/22/2019 - 09:52</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2019-07-22T12:00:00Z">2019-07-22</time> </div> <div class="field field--name-field-authors field--type-entity-reference field--label-hidden field--items"> <a href="/en/team/kristin-shi-kupfer" hreflang="en">Kristin Shi-Kupfer</a>, <a href="/en/team/max-j-zenglein" hreflang="en">Max J. Zenglein</a> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p><strong><span><span><span>In 2019, an estimated record number of graduates will enter China's labor market – and there are indications that many will struggle to find a position. How does the country create jobs for the 8.34 million students who will graduate from its universities this year? To deal with the challenge, different regions have been experimenting with different solutions.</span></span></span></strong></p></div> <div class="field field--name-field-main-image field--type-image field--label-hidden field--item"> <img srcset="/sites/default/files/styles/max_325x325/public/2019-07/190722_University_Graduates_bjl11097409.jpg?itok=P_aESFDs 325w, /sites/default/files/styles/max_650x650/public/2019-07/190722_University_Graduates_bjl11097409.jpg?itok=gbXjAJm9 650w, /sites/default/files/styles/max_1300x1300/public/2019-07/190722_University_Graduates_bjl11097409.jpg?itok=ICQzniTy 1300w, /sites/default/files/styles/max_2600x2600/public/2019-07/190722_University_Graduates_bjl11097409.jpg?itok=zZKCe0NW 2600w" sizes="(min-width: 1290px) 1290px, 100vw" src="/sites/default/files/styles/max_325x325/public/2019-07/190722_University_Graduates_bjl11097409.jpg?itok=P_aESFDs" alt="University graduates" title="In 2019, a record number of 8.34 million students will graduate from China&#039;s universities. Image by ImagineChina " typeof="foaf:Image" class="img-responsive" /> </div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><p>Looking at China’s official labor market statistics, all seems well: The latest surveyed unemployment rate in urban areas fell to five percent from a peak of 5.3 percent in February. Likewise, the ratio of labor demand to supply remains close to historic high levels of 1.28. For the first five months of the year the government claims to have created 5.97 million urban jobs, up 20 percent from the same period last year. As in previous years the government seems well on track to reaching its annual target of eleven million new urban jobs.</p> <p>Given this rosy picture, why then did Beijing create a new leading small group (LSG) for exactly this topic? LSGs are normally only established for major tasks that are particularly challenging. Yet in May, a State Council Employment Work Leading Group was set up, headed by Vice-Premier Hu Chunhua. Its 25 members are the vice leaders of nearly every ministry and institution. Its task: “researching as well as solving the major problem of employment.”</p> <p><strong>There is a sense of urgency among China’s leadership</strong></p> <p>Despite the seemingly strong labor market data there is clearly a sense of urgency among China’s leadership. Employment policies have been elevated to the status of macroeconomic policy by the government for the first time. In part this has to do with a more long-term structural transformation in the labor market, including technological change, but it also has to do with the current economic slowdown.  </p> <p>Indeed, data from non-government sources suggests a more challenging picture. According to China’s Institute of Economic Research (CIER), overall job offerings fell by 7.6 percent, while job seekers grew by 31.1 percent in the first quarter of 2019, lowering the overall ratio between supply and demand from 1.91 last year to 1.68. The Purchasing Managers’ Index sub-index on employment has fallen to the lowest level since 2009 for manufacturing and is nearing the historic low for the service sector.</p> <p>At the Summer Davos meeting in China’s northern city of Dalian on July 2, Han Jian, an associate professor with the China Europe International Business School, spelled out the potential impact on employment of the ongoing tensions with Washington, with estimated job losses ranging from 500,000 in the best-case scenario to 27 million in the worst case, according to different institutes’ calculations. However, demand for labor had already started falling before the trade war began, caused as much by the slower growth in GDP, a slowdown in the previously booming internet service sector, and by efforts to reign in risks in the financial sector. According to China Market Research Group more than 80 per cent of companies hiring graduates were not advertising for new staff. And more than half had reduced their openings, with banking worst hit.</p> <p><a href="https://www.merics.org/sites/default/files/inline-images/Economic%20Indicators_Q2_2019_FocusTopic_%201_0.jpg"><img alt="China's educated youth is putting pressure on the labor market" data-entity-type="file" data-entity-uuid="52d8aa48-3451-464d-88c4-6e1486bf1f99" height="772" src="/sites/default/files/inline-images/Economic%20Indicators_Q2_2019_FocusTopic_%201_0.jpg" width="1158" /></a></p> <p>Still, new businesses in the internet and mobile internet sector have created some 30 million jobs, which, according to Han, indicates that China should be fine. Yet what Han highlights here is both a core feature of China’s employment policy for graduates and a structural problem of the labor market. How does the country create jobs for the 8.34 million students who will graduate from its universities this year? Different regions have been experimenting with different solutions. The province of Jiangsu, for example, is offering students the opportunity to apply for a two-year social service-related job. In Beijing, meanwhile, one key solution for the country is to allow the record number of graduates in 2019 to become self-employed and, ideally, drivers of mass innovation. Described as “big masses create employment (=businesses), ten thousand masses create innovation (大众创业,万众创新)”, the policy was initiated by Premier Li Keqiang in May 2014. </p> <p><strong>Graduates end up in jobs with salaries that are a far cry from their expectations</strong></p> <p>The city of Tianjin, by contrast, has decided to focus on offering special support for young graduates between 16 and 35 who have been unemployed for over a year. Among the offerings are guided tours through start-up parks, meetings with potential investors and access to specific seed funding.</p> <p>The results of these employment initiatives are not easy to assess given the fierce competition in the start-up sector and the frequent race-to-the-bottom in terms of pricing, particularly in industries such as food delivery and transportation. Making a decent living in the medium term might remain a distant dream for many of those who have founded start-ups or are employed in these service industries.</p> <p>This also reflects changing expectations among the young urban middle class. Many graduates end up in jobs with salaries that are a far cry from their original expectations. According to the online job platform Zhaopin, while a third of graduates are looking for monthly salaries of between 6,000 CNY (US$868) and 7,999 CNY (US$1,158), only 18 percent actually achieve this, adding to the social pressure young graduates face in finding adequate jobs. The problem, it claims, lies in a stark mismatch between what companies are looking for and what the labor market offers. For instance, even though demand for employees in the intermediate services sector increased by 25 per cent, applications from graduates declined 21 per cent.</p> <p><strong>Growing dissatisfaction has led to the creation of a small youth movement </strong></p> <p>It is not only that there is a mismatch in terms of sectors, but also in terms of expertise requirements and choice of lifestyle. Take the example of software engineers: Companies like Jingdong or Tencent offer up to 700 CNY per hour, yet still they struggle to find suitably qualified candidates. Meanwhile, the recent public outcry by young IT engineers, following Jack Ma’s call to enjoy working hard from 9am to 9pm six days a week, is a clear indicator that there is also a mismatch in terms of lifestyle expectations.</p> <p>Growing dissatisfaction and disappointment among graduates have led to the creation of a small, but nevertheless active group of young “leftist” students in Southern China who are committed to improving labor rights and workers’ rights. Beijing is worried that this youth movement could form potential alliances and bring graduate employment perspectives to the top of the agenda. If unemployment levels among middle class graduates grow, the structural problems in the employment market could turn into a larger socio-political crisis that Beijing would struggle to control.</p> <p><strong><em>This article is part of the<a href="/merics-trackers/economic-indicators-q2-2019"> latest issue of the MERICS Economic Indicators, </a>a project monitoring China's economic development.</em></strong></p></div> </div> </div> Mon, 22 Jul 2019 07:52:53 +0000 h.seidl 9606 at https://www.merics.org Recalibrating the price of "Made in China" https://www.merics.org/en/blog/recalibrating-price-made-china <span>Recalibrating the price of &quot;Made in China&quot;</span> <span><span lang="" about="/en/user/286" typeof="schema:Person" property="schema:name" datatype="">h.seidl</span></span> <span>Tue, 07/16/2019 - 14:20</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2019-07-17T12:00:00Z">2019-07-17</time> </div> <div class="field field--name-field-authors field--type-entity-reference field--label-hidden field--items"> <a href="/en/team/michelle-tsai" hreflang="en">Michelle Tsai</a> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p><strong>Traditionally among the biggest investors in China, Taiwanese companies are shifting their focus to neighboring countries. Michelle Tsai says the US-China trade conflict is only one reason.  </strong></p></div> <div class="field field--name-field-main-image field--type-image field--label-hidden field--item"> <img srcset="/sites/default/files/styles/max_325x325/public/2019-07/190717_Foxconn_adrianhancu_via_123rf.jpg?itok=XkIPx_o- 325w, /sites/default/files/styles/max_650x650/public/2019-07/190717_Foxconn_adrianhancu_via_123rf.jpg?itok=LJ1RauL1 650w, /sites/default/files/styles/max_1300x1300/public/2019-07/190717_Foxconn_adrianhancu_via_123rf.jpg?itok=_BhgZTL4 1300w, /sites/default/files/styles/max_2600x2600/public/2019-07/190717_Foxconn_adrianhancu_via_123rf.jpg?itok=ftXGNfXh 2600w" sizes="(min-width: 1290px) 1290px, 100vw" src="/sites/default/files/styles/max_325x325/public/2019-07/190717_Foxconn_adrianhancu_via_123rf.jpg?itok=XkIPx_o-" alt="Foxconn" title="Since the late 1970s, Taiwanese businesses such as Foxconn have flocked to China for its promise of large markets and cheap labor. Image by adrianhancu via 123rf" typeof="foaf:Image" class="img-responsive" /> </div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><p>Taiwanese master-baker Wu Pao-chun was left in a tricky situation late last year as he opened a first Chinese outlet, in Shanghai. Needled by mainland social-media criticism about his purported support for an independent Taiwan, Wu publicly declared himself “Chinese” and a supporter of unification. But his move failed to lure Chinese customers in great number – and offended many of his long-standing Taiwanese regulars.  </p> <p><strong>Beijing seems ever more willing to interfere in economic activities </strong></p> <p>Since China launched economic reform in the late 1970s, Taiwanese businesses have flocked to China for its promise of large markets or cheap labor – or both. But Wu’s predicament shows political risks remain as Beijing seems ever more willing to interfere in economic activities. Despite four decades of economic interflows, a growing number of Taiwanese enterprises are finding the lure of “Made in China” too good to be true.  </p> <p>This is a momentous shift: as experienced manufacturing partners of Western brands and China’s tactical target of unification, Taiwanese companies are among those that pioneered investment into Chinese plant and equipment. The endless supply of commodities ‘Made in China’ that today have become part of daily life all the globe - from toys to electronics – exist thanks to Taiwanese investors as much as Chinese laborers.  </p> <p><strong>Taiwanese businesses have started to channel their capital to countries other than China </strong></p> <p>As of 2017, China’s Department of Commerce recorded Taiwan as the seventh largest source of foreign direct investment (FDI) in China – though it did not account for what are thought to be huge Taiwanese investment flows via Hong Kong, China’s largest FDI source. Together, investors from Hong Kong and Taiwan own 58 percent of foreign companies in China.  </p> <p>But in recent years, Taiwanese businesses have started to channel their capital to countries other than China. Official statistics show that Taiwanese investment into China fell from 81.2 percent of Taiwan’s total FDI-outflow in 2010 to 43 percent in 2017 as companies relocate factories to lower-cost countries in Southeast Asia, to the United States upon client’s request, or back to Taiwan.  </p> <p>The ongoing US-China trade dispute will probably only increase this trend. US imports from China decreased by 13.9 percent in the first quarter in annual comparison, while imports from Taiwan and Vietnam increased by 21.2, and 40.2 percent respectively. Taiwanese enterprises in China have started shifting investment back to Taiwan. The Ministry of Economic Affairs puts the figure at 411.7 billion New Taiwan Dollars (EUR 11.7 billion) and 36,850 jobs thus far this year – and the supply chain will likely change even more if the prospect of a long Sino-American trade stand-off prompts more manufacturers to leave China. </p> <p><strong>Taiwanese companies might be hit hard by the US-China trade conflict </strong></p> <p>Taiwan is a huge intermediary in US-China trade. 15 of the top 20 enterprises that export to the US from China are Taiwanese. With US tariffs on Chinese imports now as high as 25 percent, Taiwanese-owned manufacturing facilities in China are expected to be hit hard if high levies are extended to more consumer products. </p> <p>But the trade war might prove to be only the straw that broke the camel’s back. For some time, China has not been what it used to be for investors - the country’s competitiveness in terms of manufacturing cost is a shadow of its former self, and the effects of rising labor costs have been compounded by slowing economic growth. On top of that, Taiwanese companies have become increasingly alert to – and alarmed by – difficulties in Chinese markets. </p> <p>Many of them have come to realize that China is large, but also awkward to handle. Despite the privileges offered by the Chinese government to ‘attract investment’ (‘zhaoshang yinzi’ in earlier years), hidden rules and nationalist sentiments in many instances replaced government accountability and market transparency in daily business operations.  </p> <p><strong>Environment for Taiwanese companies in China is changing </strong></p> <p>Some companies transferred skills to Chinese counterparts but lost out to China’s home-grown “red supply chain” which often receive financial support from the government. Some were hit by labor protests that turned into nationalist rallies. The challenges keep intensifying. A newly revised guideline, for example, mandates that all publicly listed firms in China set up Communist Party organizations. “The production environment in China and its friendliness to Taiwanese business people are completely incomparable to 20 years ago,” one executive told me. </p> <p><strong>China is using the business community to interfere in Taiwan politics </strong></p> <p>As the Taiwanese economy became more dependent on China, the higher the political price Taiwan and its companies had to pay: China has not been shy to use the business community to interfere in the island’s politics. Despite Taiwan’s restrictions on Chinese investment, China has overtaken the US and Japan to become its biggest trading partner. Mr. Wu is not the only Taiwanese entrepreneur to publicly support the “One China Principle.”  </p> <p>Just as Beijing has attempted to politicize its economic engagement with Taiwan, the trade dispute between China and the United States is about much more than trade. There is an underlying clash of ideologies in which Western liberal capitalism is being challenged by China’s economic rise and “socialism with Chinese characteristics.” With China and the US seemingly on the brink of a tech war to gain geostrategic dominance, trade talks could turn to be no more than a prelude to deeper global economic restructuring.  </p> <p>What is certain is that Taiwanese companies have learned to put their eggs in different baskets. “Made in China” is no longer only about production costs, but also about political risks when China’s accountability and transparency become thorny issues. But whether their shift in investment will create a “non-red supply chain” outside China will depend on concerted government policies, perhaps also new forms of regional cooperation.</p> <p><em>Michelle Tsai was a Visiting Academic Fellow at MERICS from November to May 2019.</em></p></div> </div> </div> Tue, 16 Jul 2019 12:20:16 +0000 h.seidl 9586 at https://www.merics.org Some Athenians are all Greek to the Chinese https://www.merics.org/en/blog/some-athenians-are-all-greek-chinese <span>Some Athenians are all Greek to the Chinese</span> <span><span lang="" about="/en/user/286" typeof="schema:Person" property="schema:name" datatype="">h.seidl</span></span> <span>Wed, 07/10/2019 - 16:49</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2019-07-11T12:00:00Z">2019-07-11</time> </div> <div class="field field--name-field-authors field--type-entity-reference field--label-hidden field--items"> <a href="/en/team/jacob-mardell" hreflang="en">Jacob Mardell</a> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p><strong><span><span><span><span><span lang="EN-GB" xml:lang="EN-GB" xml:lang="EN-GB"><span><span>In Athens, local resistance to investment from China is not so much about opposing China, as resistance to change, says </span></span></span></span></span></span></span>MERICS freelance researcher Jacob Mardell. He is currently travelling countries along the Belt and Road to investigate how the initiative is being implemented on the ground.</strong></p></div> <div class="field field--name-field-main-image field--type-image field--label-hidden field--item"> <img srcset="/sites/default/files/styles/max_325x325/public/2019-07/190711_The%20new%20floating%20docks%20at%20COSCO%20owned%20Piraeus%20shipyard_Jacob_Mardell_1.png?itok=Mp1_g3zf 325w, /sites/default/files/styles/max_650x650/public/2019-07/190711_The%20new%20floating%20docks%20at%20COSCO%20owned%20Piraeus%20shipyard_Jacob_Mardell_1.png?itok=bNm6nIgr 650w, /sites/default/files/styles/max_1300x1300/public/2019-07/190711_The%20new%20floating%20docks%20at%20COSCO%20owned%20Piraeus%20shipyard_Jacob_Mardell_1.png?itok=YS0cFKLZ 1200w" sizes="(min-width: 1290px) 1290px, 100vw" src="/sites/default/files/styles/max_325x325/public/2019-07/190711_The%20new%20floating%20docks%20at%20COSCO%20owned%20Piraeus%20shipyard_Jacob_Mardell_1.png?itok=Mp1_g3zf" alt="The new floating docks at COSCO-owned Piraeus shipyard" title="The new floating docks at COSCO-owned Piraeus shipyard. Image by Jacob Mardell" typeof="foaf:Image" class="img-responsive" /> </div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><p><span><span><span><span><span lang="EN-GB" xml:lang="EN-GB" xml:lang="EN-GB"><span><span>There are two types of Chinese immigrant in Athens. The first type is found amid the fever-hot hustle and bustle of the Metaxourgeio “ghettos” and leverages connections back home to sell cheap clothes and luggage to the bargain hunters of Athens. These men and women started arriving in the 1980s from entrepreneurial, coastal Chinese cities like Wenzhou and Fuzhou. </span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-GB" xml:lang="EN-GB" xml:lang="EN-GB"><span><span>The second type are well-to-do immigrants, with money and the impetus to start a new life in Europe - the type of people we’d refer to as “expats” in polite conversation. This new wave of migration is more recent, dating back to 2013, when Greece rolled out a cash-for-residency scheme that enables foreigners to obtain a “</span></span></span><a href="https://www.enterprisegreece.gov.gr/en/greece-today/living-in-greece/residence-permits"><span><span><span>Golden Visa</span></span></span></a><span lang="EN-GB" xml:lang="EN-GB" xml:lang="EN-GB"><span><span>” if they spend at least 250,000 Euros on property. So far, 12,666 people have come to Greece on a Golden Visa, and almost two-thirds of them are from China.</span></span></span></span></span></span></span></p> <p><span><span><span><span><strong><span lang="EN-GB" xml:lang="EN-GB" xml:lang="EN-GB"><span><span>The tourist industry looks hungrily to the Chinese market</span></span></span></strong></span></span></span></span></p> <p><span><span><span><span><span lang="EN-GB" xml:lang="EN-GB" xml:lang="EN-GB"><span><span>Chinese tourists also bring cash to the economy – though not enough of it according to Effi, a Greek tour guide: “Most of them are not spending time, not spending money here,” she tells me. “They’re on all-inclusive packages - one or two might buy a tax-free Chanel bag, but that’s it.” The tourists I speak to are indeed on a tight schedule: groups gather in the olive groves at the foot of the Acropolis, listen to their tour guides, consult maps, disperse, and usually end up at Fu Yun Long for lunch.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-GB" xml:lang="EN-GB" xml:lang="EN-GB"><span><span>The Greek tourist industry still looks hungrily to the Chinese market for growth. In an effort to induce the Acropolis visitors to stay longer, the Piraeus Port Authority (PPA) has come up with a “master plan” that involves converting old warehouses into five-star hotels. Piraeus is already the beneficiary of Chinese businesspeople. Pressured by the EU to privatize state assets following the debt and economic crisis, Greece sold 67 percent of PPA to Chinese shipping colossus COSCO, a company that had been operating and investing in Piraeus as Piraeus Container Terminal SA (PCT) since 2010. </span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-GB" xml:lang="EN-GB" xml:lang="EN-GB"><span><span>Picking up on a </span></span></span><a href="http://gr.china-embassy.org/eng/zxgx/t1351970.htm"><span><span><span>quote</span></span></span></a><span lang="EN-GB" xml:lang="EN-GB" xml:lang="EN-GB"><span><span> from the Chinese ambassador describing Piraeus as Europe’s “dragon head,” commentators like to emphasize Piraeus’ role in reaching Northern European markets via the Belgrade-Budapest railway, but this is only a tiny part of the story. Piraeus’ primary function is trans-shipment by sea - breaking down the mega-ships that come from China through the Suez Canal and putting containers on smaller feeder vessels that head to dozens of ports across Europe. </span></span></span></span></span></span></span></p> <p><span><span><span><span><strong><span lang="EN-GB" xml:lang="EN-GB" xml:lang="EN-GB"><span><span>Chinese ownership <em>per se</em> is not the main objection to COSCO</span></span></span></strong></span></span></span></span></p> <p><span><span><span><span><span lang="EN-GB" xml:lang="EN-GB" xml:lang="EN-GB"><span><span>It’s the Chinese businesspeople involved with PPA and PCT that are focused on and successfully achieving economic growth. This means money, jobs, and progress - but also means noise, pollution, and more industry. Speaking to people in the poor Piraeus’ neighbourhood of Perama, it is this and not Chinese ownership <em>per se</em> that appears to be the main objection to COSCO. Good fortune is relative – things are getting better in Perama, but many still remember how good times were <em>before</em> the crisis.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-GB" xml:lang="EN-GB" xml:lang="EN-GB"><span><span>Everyone in Perama knows someone – a cousin, a friend – who owes their job to COSCO. A young man tells me about a neighbour, five years out of work, whom COSCO took on despite his advanced age. A woman, late 30s, tells me about a cousin who found work at the port as a driver. She goes on to say that she’s not a fan of COSCO. She grew up here, and it’s sad to see what Perama has become: “When I was ten, we kept the doors open all day, we had fresh air, and a nice view of the mountains.”</span></span></span></span></span></span></span></p> <p><span><span><span><span><strong><span lang="EN-GB" xml:lang="EN-GB" xml:lang="EN-GB"><span><span>China – ironically or not – has come to represent neoliberalism</span></span></span></strong></span></span></span></span></p> <p><span><span><span><span><span lang="EN-GB" xml:lang="EN-GB" xml:lang="EN-GB"><span><span>In a country governed by Syriza, the “coalition of the radical left,” Perama is especially old-school left. Neoliberalism is a dirty word around these parts. And China – ironically or not – has come to represent it. In Piraeus, I spend an evening sipping beer with a former trade union leader, Giannis Tsalimoglou, who tells me about COSCO’s erosion of workers’ rights and benefits. The conversation is long, but one sentence stands out: “They come, and they turn everything upside down.”</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-GB" xml:lang="EN-GB" xml:lang="EN-GB"><span><span>At a higher level, resistance to change is led by Greece’s powerful Central Archaeological Council (KAS), which has </span></span></span><a href="https://www.portseurope.com/greeces-central-archaeological-council-halts-coscos-piraeus-port-investment-plan/"><span><span><span>raised</span></span></span></a><span lang="EN-GB" xml:lang="EN-GB" xml:lang="EN-GB"><span><span> objections to COSCO’s ambitious development plans. The opposition party, New Democracy, has </span></span></span><a href="http://www.ekathimerini.com/239190/article/ekathimerini/news/nd-says-kas-ruling-on-piraeus-port-is-outrageous"><span><span><span>connected</span></span></span></a><span lang="EN-GB" xml:lang="EN-GB" xml:lang="EN-GB"><span><span> the decision to Syriza’s “ideological obsessions,” but others tell me local politics is probably to blame. Polyxeni Ntavarinou, an expert at the Institute of International Economic Relations, says KAS’ recalcitrance is something akin to a “natural process” to the locals. </span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-GB" xml:lang="EN-GB" xml:lang="EN-GB"><span><span>Natural or not, it’s a local resistance unfamiliar to Chinese investors. Like most of the long-term Chinese residents of Athens, Lan Sidian’s father is from Fujian province. Lan junior is CEO of Golden Alliance Investment Group, an offshoot of his father’s company that helps Chinese land their Golden Visas. When the conversation turns to KAS and the long </span></span></span><a href="https://www.thenationalherald.com/231404/after-12-years-more-delays-for-hellenikon-airport-development/"><span><span><span>delayed</span></span></span></a><span lang="EN-GB" xml:lang="EN-GB" xml:lang="EN-GB"><span><span>, Chinese-backed Hellenikon Airport, Lan sighs. “You don’t see any skyscrapers here. Imagine if they turned just one of their islands into a free trade zone. Imagine if the Greeks opened up just a little bit. But they are afraid of change.”</span></span></span></span></span></span></span></p></div> </div> </div> Wed, 10 Jul 2019 14:49:30 +0000 h.seidl 9556 at https://www.merics.org African networks, smartphones - and surveillance https://www.merics.org/en/blog/african-networks-smartphones-and-surveillance <span>African networks, smartphones - and surveillance</span> <span><span lang="" about="/en/user/286" typeof="schema:Person" property="schema:name" datatype="">h.seidl</span></span> <span>Tue, 06/18/2019 - 09:28</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2019-06-18T12:00:00Z">2019-06-18</time> </div> <div class="field field--name-field-authors field--type-entity-reference field--label-hidden field--items"> <a href="/en/team/tom-bayes" hreflang="en">Tom Bayes</a> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p><strong><span><span><span><span><span>The African continent offers Huawei and other Chinese technology giants rich opportunities. Tom Bayes unpicks the stories of their rise in Africa and warns more is at stake than technology.</span></span></span></span></span></strong></p></div> <div class="field field--name-field-main-image field--type-image field--label-hidden field--item"> <img srcset="/sites/default/files/styles/max_325x325/public/2019-06/190618_AU_Headquarters_hiroo%20yamagata%20via%20flickr%20%28CC%20BY-SA%202.0%29.jpg?itok=tXxBsYKk 325w, /sites/default/files/styles/max_650x650/public/2019-06/190618_AU_Headquarters_hiroo%20yamagata%20via%20flickr%20%28CC%20BY-SA%202.0%29.jpg?itok=JEMadIC2 650w, /sites/default/files/styles/max_1300x1300/public/2019-06/190618_AU_Headquarters_hiroo%20yamagata%20via%20flickr%20%28CC%20BY-SA%202.0%29.jpg?itok=2WG19OqT 1300w, /sites/default/files/styles/max_2600x2600/public/2019-06/190618_AU_Headquarters_hiroo%20yamagata%20via%20flickr%20%28CC%20BY-SA%202.0%29.jpg?itok=c-anXcQ5 2592w" sizes="(min-width: 1290px) 1290px, 100vw" src="/sites/default/files/styles/max_325x325/public/2019-06/190618_AU_Headquarters_hiroo%20yamagata%20via%20flickr%20%28CC%20BY-SA%202.0%29.jpg?itok=tXxBsYKk" alt="The African Union Headquarters in Ethopoia" title="The African Union headquarters in Addis Ababa was funded and built by China. In 2018, French newspaper Le Monde quoted anonymous AU sources saying that data had been transferred to Chinese servers for five years. hiroo yamagata via flickr (CC BY-SA 2.0)" typeof="foaf:Image" class="img-responsive" /> </div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><p><span><span><span><span><span>Recent controversies about </span></span><a href="https://www.bbc.co.uk/news/resources/idt-sh/Huawei"><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>Huawei</span></span></a><span><span> have centered on the developed world. But the influence of China’s emerging technology giants reaches well beyond the US and Europe. In Africa, China and its companies are shaping the tech sector – and through it the continent’s economies. With a surging population and wide digital shortfall, Africa offers rich opportunities to sell and innovate, water on the wheels of </span></span><a href="https://www.merics.org/en/papers-on-china/chinas-digital-rise"><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>China’s strategy</span></span></a><span><span> to become a “cyber superpower”. But with Beijing also keen to export its model of control through and of the internet, its ambitions reach beyond mere technology. </span></span></span></span></span></p> <p><span><span><span><strong><span><span>Huawei has come to dominate African networks</span></span></strong></span></span></span></p> <p><span><span><span><span><span>An understanding of China’s role in African tech – positive and problematic – is key to understanding what is likely to be one of the most important relationships of the 21<sup>st</sup> century. On one level, this is a story about large-scale infrastructure, just a less obvious kind than the familiar dams and railways. Since being encouraged to enter African markets under China’s 1999 “Going Out” policy, Huawei has come to dominate telecoms </span></span><a href="https://foreignpolicy.com/2019/03/19/for-africa-chinese-built-internet-is-better-than-no-internet-at-all/"><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>network installation</span></span></a><span><span> in Africa. Displacing European rivals like Eriksson and Nokia, Huawei is the number one provider in Africa (and Chinese rival ZTE number five). </span></span></span></span></span></p> <p><span><span><span><span><span>Huawei alone has installed 70% of African </span></span><a href="https://www.theepochtimes.com/huaweis-expansion-in-africa-comes-under-scrutiny_2772269.html"><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>4G networks</span></span></a><span><span>. As well as large </span></span><a href="https://knowledge.wharton.upenn.edu/article/huawei-technologies-a-chinese-trail-blazer-in-africa/"><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>profit margins</span></span></a><span><span> for Huawei, this has brought real benefits to its African clients, affordably connecting areas perhaps otherwise unreached – and stimulating economic activity perhaps otherwise left dormant. As an example of the oft-touted win-win partnership, this pays dividends for China-Africa diplomacy. </span></span></span></span></span></p> <p><span><span><span><strong><span><span>“Africa first”: Chinese companies tailoring products for the continent</span></span></strong></span></span></span></p> <p><span><span><span><span><span>On another level, this is a story about offering Africans innovative, affordable consumer electronics to exploit the new connectivity. The most striking example is Shenzhen-based </span></span><a href="https://www.bloomberg.com/news/articles/2018-03-28/this-chinese-phone-maker-has-taken-over-africa-for-better-and-worse"><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>Transsion</span></span></a><span><span>. Though it has never sold a handset in its native China, its brands Tecno, iTel, and Infinix sell more smartphones than anyone else in Africa. Transsion has successfully pursued an “Africa first” policy by </span></span><a href="https://qz.com/africa/1374404/chinas-transsion-dominates-africas-phone-market-with-tecno-itel/"><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>tailoring its products</span></span></a><span><span> to consumers - long battery life, for example, to cope with patchy power supplies.</span></span></span></span></span></p> <p><span><span><span><span><span>Having built networks and put phones in people’s pockets, Chinese companies are also looking to offer African consumers the services, apps, and platforms that exploit new technologies. China’s internet giants are closely involved. For example, roll-out of </span></span><a href="http://www.xinhuanet.com/english/2019-03/25/c_137922850.htm"><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>WeChat Pay</span></span></a><span><span> and AliPay is gathering pace, particularly in southern and </span></span><a href="https://qz.com/africa/1482013/safaricoms-m-pesa-connects-with-chinas-wechat-pay/"><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>eastern Africa</span></span></a><span><span>. High rates of “</span></span><a href="https://www.worldbank.org/content/dam/Worldbank/Research/GlobalFindex/PDF/N2Unbanked.pdf"><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>unbanked</span></span></a><span><span><span><span>”</span></span></span></span><span><span> citizens and rising mobile phone ownership in Africa offer major opportunities for mobile payments and banking services. </span></span></span></span></span></p> <p><span><span><span><span><span>But there is also a less upbeat story about China’s role in African tech: the potential for oppression through surveillance and espionage, and the promotion of restrictive internet governance.</span></span></span></span></span></p> <p><span><span><span><span><span>The shine was taken off China’s gift of a USD 200 million headquarters for the African Union (AU) when </span></span><a href="https://www.lemonde.fr/afrique/article/2018/01/26/a-addis-abeba-le-siege-de-l-union-africaine-espionne-par-les-chinois_5247521_3212.html"><em><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>Le Monde</span></span></em></a><span><span> revealed in 2018 that the building’s Huawei data infrastructure had since 2012 been secretly sending the AU’s internal data to Shanghai servers (and the building liberally peppered with hidden microphones). The embarrassing episode dented trust in Chinese tech products – indeed the AU swiftly moved to install new, non-Chinese systems in the building in Addis Ababa, Ethiopia. </span></span></span></span></span></p> <p><span><span><span><strong><span><span>China may one day be training “digital authoritarianism” in Africa</span></span></strong></span></span></span></p> <p><span><span><span><span><span>But it didn't stop Chinese-African tech cooperation. US government-backed </span></span><a href="https://freedomhouse.org/report/freedom-net/freedom-net-2018"><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>Freedom House</span></span></a><span><span> last year pointed to Beijing’s active program of training in “digital authoritarianism” for African and other government officials, sharing Chinese tools and techniques of internet censorship and surveillance. These activities align with a growing </span></span><a href="https://foreignpolicy.com/2018/07/13/africas-attack-on-internet-freedom-uganda-tanzania-ethiopia-museveni-protests/"><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>trend of restrictive internet governance</span></span></a><span><span> by some African governments - from </span></span><a href="https://edition.cnn.com/2019/01/02/africa/congo-internet-shutdown-china-intl/index.html"><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>blackouts</span></span></a><span><span> at moments of political sensitivity in the DRC, Sudan and elsewhere, to new, tighter internet and </span></span><a href="https://www.wired.com/story/uganda-social-media-tax-stays-for-now/"><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>social media laws</span></span></a><span><span> in Uganda, Kenya, and Tanzania. China is actively promoting its vision of “</span></span><a href="https://www.scmp.com/news/china/policies-politics/article/2122683/xi-jinping-renews-cyber-sovereignty-call-chinas-top"><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>cyber sovereignty</span></span></a><span><span>” and in parts of Africa it is finding willing supporters. </span></span></span></span></span></p> <p><span><span><span><span><span>As they help construct an ever-more high-tech surveillance state at home, Chinese companies are well positioned to export cutting edge surveillance technologies to Africa – including to governments with bleak governance and human rights records. In 2018, in the midst of a fraught transition from Robert Mugabe’s dictatorship, the Zimbabwean government signed a deal for Guangzhou-based Cloudwalk to build an AI facial recognition system for use by security and police forces.</span></span></span></span></span></p> <p><span><span><span><span><span>Beyond the human rights concerns, the deal pointed to another angle to the China-Africa tech story: the quest for technological advantage. As one local outlet put it: “the Zimbabwe Government is </span></span><a href="https://www.techzim.co.zw/2018/11/zimbabwe-government-is-sending-our-faces-to-china-so-chinas-artificial-intelligence-system-can-learn-to-see-black-faces/"><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>sending our faces to China</span></span></a><span><span> so China’s Artificial Intelligence can learn to see black faces”. Existing AI facial recognition technologies are principally trained on white and East Asian datasets; the Zimbabwe deal offered Cloudwalk valuable data for improving its recognition of other ethnicities – thereby strengthening the arsenal of surveillance tools available to authoritarian governments. </span></span></span></span></span></p> <p><span><span><span><span><span>By expanding into African markets, China’s tech companies are gaining access to that sought-after commodity, data. Yes, these companies are playing a positive role in connecting African citizens, consumers, and businesses. But they also have another role helping Beijing to promote its model of the internet as a controlled space - and as a data-driven instrument of social and political control.</span></span></span></span></span></p> <p><span><span><span><span><em>Tom Bayes was a Visiting Academic Fellow at MERICS from November 2018 until April 2019. His research focuses on China’s growing role in Africa’s peace and security. Prior to MERICS, he worked at the UK Permanent Representation to the EU in Brussels and in business intelligence based in London, where he conducted investigations in Francophone Africa. Bayes was educated at the University of Oxford, the London School of Economics, and Zhengzhou University.</em></span></span></span></span></p></div> </div> </div> Tue, 18 Jun 2019 07:28:49 +0000 h.seidl 9431 at https://www.merics.org China’s discreet option on trade https://www.merics.org/en/blog/chinas-discreet-option-trade <span>China’s discreet option on trade</span> <span><span lang="" about="/en/user/306" typeof="schema:Person" property="schema:name" datatype="">komprakti</span></span> <span>Tue, 06/11/2019 - 14:49</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2019-06-12T12:00:00Z">2019-06-12</time> </div> <div class="field field--name-field-authors field--type-entity-reference field--label-hidden field--items"> <a href="/en/team/maximilian-karnfelt" hreflang="en">Maximilian Kärnfelt</a> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p><strong><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">Forget Beijing “weaponizing” its currency through devaluation or the “nuclear option” of it dumping US Treasuries. It could quietly shrink the US trade deficit – at Europe’s expense. </span></strong></p></div> <div class="field field--name-field-main-image field--type-image field--label-hidden field--item"> <img srcset="/sites/default/files/styles/max_325x325/public/2019-06/190612_Dollar_Renminbi_%20Dilok%20Klaisataporn_via_123rf.jpg?itok=buxe0Qru 325w, /sites/default/files/styles/max_650x650/public/2019-06/190612_Dollar_Renminbi_%20Dilok%20Klaisataporn_via_123rf.jpg?itok=jbtBMSub 650w, /sites/default/files/styles/max_1300x1300/public/2019-06/190612_Dollar_Renminbi_%20Dilok%20Klaisataporn_via_123rf.jpg?itok=VQJtGKTA 1300w, /sites/default/files/styles/max_2600x2600/public/2019-06/190612_Dollar_Renminbi_%20Dilok%20Klaisataporn_via_123rf.jpg?itok=27J6y0WS 2508w" sizes="(min-width: 1290px) 1290px, 100vw" src="/sites/default/files/styles/max_325x325/public/2019-06/190612_Dollar_Renminbi_%20Dilok%20Klaisataporn_via_123rf.jpg?itok=buxe0Qru" alt="China’s discreet option on trade" title="Speculation has mounted that China might push its currency lower to make exports cheaper, or liquidate its hoard of US Treasury bonds. Image via 123rf" typeof="foaf:Image" class="img-responsive" /> </div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><p><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>US President Donald Trump has recently deepened the trade dispute with China by singling out microeconomic players like telecoms equipment maker Huawei. As he has done so, speculation has mounted China might retaliate at macroeconomic level by pushing its currency lower to make exports cheaper, or by liquidating its hoard of US Treasury bonds to hurt the US economy. Both fears are unrealistic – it is more likely that China will gradually re-allocate its holdings from US sovereign bonds to those of other countries to support the yuan. This option would even enable it to quietly give Trump what he wants - a reduction of the US trade deficit with its biggest trading partners.</span></span></span></span></span></span></p> <p><span><span><span><strong><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>Is China “weaponizing” its currency?</span></span></span></strong></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span><span>The yuan has fallen sharply against the US dollar since the trade negotiations between the US and China fell apart. At the time of writing, one US-Dollar buys CNY 6.9, very close to the CNY 7 mark that most analysts believe to be a critical downward threshold. Some analysts now believe China is “weaponizing” its currency, allowing it to fall so that the additional tariffs US consumers now have to pay on some Chinese goods are offset by lower US dollar prices as a consequence of a weaker yuan.</span></span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span><span>This line of thinking is compelling since China has manipulated its currency to artificially low, export-invigorating levels in the past. But it seems unlikely that the yuan’s current fall is the work of Beijing: Firstly, every time the trade conflict has escalated the yuan has suffered. Secondly, Beijing has already been gradually reducing its holdings of US Treasuries, a sign that it wants to support, not weaken its currency.  Thirdly, current market volatility makes it dangerous to play with depreciation: It could cause a mass sell off and capital flight. Finally, devaluing the yuan would further inflame Trump.</span></span></span></span></span></span></span></span></p> <p><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span><span>Aside from “weaponizing” the yuan, analysts have also been speculating about People’s Bank of China’s (POBC) use of its “nuclear option,” selling its enormous trove of US sovereign bonds that the country amassed as a consequence of years of manufacturing-driven trade surpluses. The US Treasury reckons China holds more than USD 1 trillion – USD 1,000 billion – of its bonds. Selling them</span></span></span></span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span> could see their prices tank, yields soar, and a US stock-market sell off as money flowed into bonds. </span></span></span></span></span></span></p> <p><span><span><span><strong><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>A destabilized US economy would also hurt China</span></span></span></strong></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span><span>The “nuclear option” would be very</span></span></span></span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span> destabilizing for the US – but, crucially, also costly for the world economy, China included. If China dumped its US Treasury, the value of its portfolio would plummet as it was forced to accept lower and lower prices to find buyers. Destabilizing the US would also be doubly costly: The Chinese economy still depends to a large degree on Americans buying its goods; a destabilized US economy would hurt Chinese industry considerably. Liquidating US Treasuries is a double-edged sword that any sensible Chinese leader would consider drawing only as a last resort. </span></span></span></span></span></span></span></p> <p><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>Speculation about the nuclear option was fuelled by the PBOC selling USD 20 billion in US sovereign bonds in March, its biggest monthly sale for two-and-a-half years. But such fears ignored the fact the China’s central bank has been gradually selling US Treasuries since September, mainly to keep the yuan above that mark of USD 7 as the trade dispute made investors move some funds elsewhere. Continuing on this least spectacular of the paths may be the most attractive option for China.  </span></span></span></span></span></span></p> <p><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>If China’s central bank continued its gradual sale of US Treasuries, the US Federal Reserve could print money with which to purchase them, keeping markets steady. The dollar would come under pressure as China exchanged its holding for other countries bonds. As a result, China would reduce its reliance on the US financial markets, lower the price of the dollar, and weaken American purchasing power.</span></span></span></span></span></span></p> <p><span><span><span><strong><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>Even an unspectacular option might have far-reaching effects</span></span></span></strong></span></span></span></p> <p><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>Most likely China would shift to euro-denominated sovereign bonds, the Eurozone being the only economy comparable in size to the US. With some USD 27 trillion in debt securities outstanding, the Eurozone bond market is almost as big as that of the US, which counts USD 40 trillion. European bond yields, already low, would be pushed down even further by the added liquidity, meaning China would earn even less interest than on its US Treasury holdings.  But the euro would likely rise against both US dollar and yuan, which would lead to Europeans buying more goods from the US and China. </span></span></span></span></span></span></p> <p><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>The interconnected global economy means that even China’s least spectacular option would still have far-reaching effects: A continuation of US Treasury sales would weaken the US dollar against the yuan and the euro; the Europeans and Chinese would find that US goods become cheaper and more alluring, while the Americans would find Chinese and European goods more expensive and not buy so many.  China could quietly lower the US’s trade imbalances with China and Europe. Trump might hail the lower US trade deficit. But export-dependent European businesses would be more critical and perhaps demand EU politicians “take control” of international trade by, for instance, imposing tariffs, much like Trump tries to do.</span></span></span></p> <p><strong>This article was first published on the <a href="https://www.ft.com/content/f1d87b5c-879f-11e9-97ea-05ac2431f453?fbclid=IwAR2o4DnQDik2SLESgxyrdlX2-VN5RK7er0xVtTe_C-9WjW_d-Y552gfeRxk">Financial Times' Beyond Brics blog on June 6, 2019.</a></strong></p></div> </div> </div> Tue, 11 Jun 2019 12:49:32 +0000 komprakti 9411 at https://www.merics.org Huawei’s 90-day reprieve won’t impress China’s hardliners https://www.merics.org/en/blog/huaweis-90-day-reprieve-wont-impress-chinas-hardliners <span>Huawei’s 90-day reprieve won’t impress China’s hardliners</span> <span><span lang="" about="/en/user/286" typeof="schema:Person" property="schema:name" datatype="">h.seidl</span></span> <span>Wed, 05/22/2019 - 12:07</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2019-05-22T12:00:00Z">2019-05-22</time> </div> <div class="field field--name-field-authors field--type-entity-reference field--label-hidden field--items"> <a href="/en/team/nis-grunberg" hreflang="en">Nis Grünberg</a> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p><strong><span><span><span><span><span><span><span>Erratic and aggressive in the trade dispute with Beijing, Donald Trump is emboldening China’s military hawks, industrial state-interventionists, and nationalistic cheerleaders.</span></span></span></span></span></span></span></strong></p></div> <div class="field field--name-field-main-image field--type-image field--label-hidden field--item"> <img srcset="/sites/default/files/styles/max_325x325/public/2019-05/180628_US_China_flags_pbu797742_02.jpg?itok=94j8bPZZ 325w, /sites/default/files/styles/max_650x650/public/2019-05/180628_US_China_flags_pbu797742_02.jpg?itok=pwpaiXpr 650w, /sites/default/files/styles/max_1300x1300/public/2019-05/180628_US_China_flags_pbu797742_02.jpg?itok=0Y7JYRUd 1300w, /sites/default/files/styles/max_2600x2600/public/2019-05/180628_US_China_flags_pbu797742_02.jpg?itok=4d9skzeS 2600w" sizes="(min-width: 1290px) 1290px, 100vw" src="/sites/default/files/styles/max_325x325/public/2019-05/180628_US_China_flags_pbu797742_02.jpg?itok=94j8bPZZ" alt="Image by ImagineChina" title="Image by ImagineChina" typeof="foaf:Image" class="img-responsive" /> </div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><p><span><span><span><span><span><span><span>Huawei’s 90-day reprieve from some of the US trade restrictions announced mid May seems to have set up the kind of cliff-hanger Donald Trump loves. Come August, will he have to see through the sanctions against the telecoms equipment maker, or will his Chinese counterpart have made concessions that make US President magnanimous? But lovers of suspense, Trump included, should know that China’s president Xi Jinping has no incentive to bend </span></span></span></span><span><span><span>in the trade war except as a last resort. Ever more vocal groups in China would welcom</span></span></span><span><span><span><span>e a country more decoupled from the world economy. </span></span></span></span></span></span></span></p> <h4><br /><span><span><span><span><span><span><span>Europe will soon have to think about the impact of a possible Chinese decoupling from global markets</span></span></span></span></span></span></span></h4> <p><span><span><span><span><span><span><span>Trumps erratic and aggressive style of raising the pressure on Xi, his negotiators, and Chinese companies alike has </span></span></span></span><span><span><span><span>emboldened hawks</span></span></span></span><span><span><span><span>, state-owned company officials, and nationalists. They loudly propound what Trump might call a “China first” policy that includes turning away from the country’s cautions integration into the world economy and instead strengthening China’s state capitalist model. Europe and its companies will soon have to think about the impact of a possible Chinese decoupling from global markets and value chains, and limitations on foreign-technology use.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span><span>Even before Trump went for the “</span></span></span></span><a href="https://www.bloomberg.com/news/articles/2019-05-16/trump-s-huawei-threat-is-the-nuclear-option-to-halt-china-s-rise"><span><span><span>nuclear</span></span></span></a><span><span><span><span><span> option</span></span></span></span></span><span><span><span><span>” involving Huawei, hawks such as Dai Xu, a former colonel in the People’s Liberation Army (PLA), had </span></span></span></span><a href="https://on.ft.com/2Ymhv0a"><span><span><span>publicly expressed the hope</span></span></span></a><span><span><span><span> that negotiations would break down and Beijing seize the chance to “kick out all the American companies.” Tan Yungang, another former PLA officer, </span></span></span></span><a href="https://on.ft.com/2Ymhv0a"><span><span><span>said</span></span></span></a><span><span><span><span> the US was seeking to contain China and “openly sees us as their biggest enemy.”  People like Dai and Tan have a bigger say in Beijing than in recent years.  </span></span></span></span></span></span></span></span></p> <h4><br /><span><span><span><span><span><span><span>China’s state-owned sector has little truck for the US</span></span></span></span></span></span></span></h4> <p><span><span><span><span><span><span><span><span>China’s </span></span></span></span><a href="https://worldview.stratfor.com/article/state-owned-enterprises-are-hard-habit-china-doesnt-want-break"><span><span><span><span>state-owned sector</span></span></span></span></a><span><span><span><span>, especially the industrial-military complex, also has little truck for the US. It is interested in retaining a protected home market and strong state support, not least for research and development. Even under Xi, reforms of the state-owned enterprises (SOEs) have been slow. With most industries of strategic importance to China’s development strategy and national interest dominated by SOEs, significant structural changes were unlikely even before the recent escalations. </span></span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span><span>Over recent years, senior officials such as Wang Yong, former head of the State-owned Assets Supervision and Administration Commission (SASAC), the government overseer of SEOs, have worked to strengthen the state-owned sector. “Natural monopolies” in energy, infrastructure, and resources, and state support of key technologies in car making, AI, defense, and aerospace, has created a strong dependence on SOEs as industrial backbone of China’s development. In the face of US demands, these companies now have good arguments that China needs state capitalism more than ever.</span></span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span><span><span><span><span><span><span><span>Lastly, the Chinese nationalists were also gaining in voice even before Trump’s Huawei decision. After initially muted responses to the rise in trade tensions, China’s state-run media became much more vocal mid May. Perhaps most notably, </span></span></span></span><span><span><span><span>Kang Hui, the anchor of CCTV’s prime-time news program, declared China “unwilling to fight, but not afraid to fight” over trade. “Having experienced more than 5,000 years of disturbances, what kind of battle formation have the Chinese people not seen?”</span></span></span></span></span></span></span></span></span></span></span></span></span></span></p> <h4><br /><span><span><span><span><span><span><span>Submitting to American demands would be a huge loss of face for Xi</span></span></span></span></span></span></span></h4> <p><span><span><span><span><span><span><span>These domestic strains of geopolitical hawkishness, industrial self-reliance, and historically founded nationalism feed right into the pride in China’s progress and a sense of a re-emergent China propounded by Xi.</span></span></span></span><span><span><span><span> The “rejuvenation of the Chinese nation” and the “China Dream” are themes the president has promoted intensively, starting with his opening of the exhibition </span></span></span></span><a href="http://www.chinadaily.com.cn/china/2012-11/30/content_15972687.htm"><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span><span>“The Road to rejuvenation”</span></span></span></span></a><span><span><span><span> to his comments on </span></span></span></span><a href="https://www.scmp.com/economy/china-economy/article/2169779/xi-jinping-urges-china-become-more-self-reliant-tour-southern"><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span><span>national self-reliance</span></span></span></span></a><span><span><span><span> in technology and agriculture. Given this narrative, submitting to American demands would be a huge loss of face for Xi in particular. </span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span><span>Of course, Xi knows there are good reasons for China to deepen its integration with global markets, not least for the many Chinese companies, SOEs among them, eying foreign markets. But under Xi, economic benefits will not stand in the way of more important, strategic political interests. He has made it his main political project to secure the Chinese party-state, and reestablish China as an independent nation of wealth and power. Trump’s style makes it easier for Xi to paint a hostile international environment that demands stronger Chinese state capitalism and one-party rule.</span></span></span></span></span></span></span></span><br />  </p> <h4><span><span><span><span><span><span><span><span>Trump’s erratic and aggressive course could prove opportune for Xi</span></span></span></span></span></span></span></span></h4> <p><span><span><span><span><span><span><span><span>This last point shows how deeply opportune Trump’s erratic and aggressive course could prove for Xi – so opportune, in fact, that one might speculate the US President’s initial escalation may have been deliberately provoked by China. The Chinese leadership’s extensive last-minute </span></span></span></span><span><span><span>revisions<span> to the trade deal draft, which led Trump to raise import duties on some Chinese goods, were a “</span></span></span></span><a href="https://www.nytimes.com/2019/05/16/world/asia/trade-xi-jinping-trump-china-united-states.html"><span><span><span>sea of red</span></span></span></a><span><span><span><span>,” according to Christopher Johnson, an expert at the Center for Strategic and International Studies. </span></span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span><span>But even this fascinating possibility pales beside a more fundamental point. Trump’s repeated and very public escalations have in China rallied support for the status quo – for the Chinese Communist Party, for the state-party system, including state capitalism, it underlies; and for Xi, the leader of a proud nation. Trump should use Huawei’s 90-day reprieve to reflect on the fact that his policy is legitimizing Xi’s core aims of securing the state under party control - and of making China great again.</span></span></span></span></span></span></span></span></p></div> </div> </div> Wed, 22 May 2019 10:07:22 +0000 h.seidl 9291 at https://www.merics.org Is ageing China facing a Japanese-style “lost decade”? https://www.merics.org/en/blog/ageing-china-facing-japanese-style-lost-decade <span>Is ageing China facing a Japanese-style “lost decade”?</span> <span><span lang="" about="/en/user/286" typeof="schema:Person" property="schema:name" datatype="">h.seidl</span></span> <span>Mon, 04/29/2019 - 17:04</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2019-04-30T12:00:00Z">2019-04-30</time> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p>Lauren A. Johnston</p> <p><strong>Before we write off China’s economic dynamism for a decade, we should consider the significant ways in which it differs from Japan. Differences in the timing of demographic change in the two countries in particular suggest that China’s experience will not mimic Japan’s. With appropriately targeted polices, China will avoid a “lost decade.”  </strong></p></div> <div class="field field--name-field-main-image field--type-image field--label-hidden field--item"> <img srcset="/sites/default/files/styles/max_325x325/public/2019-04/190430_University_graduates_ImagineChina_bjl8825393_1.jpg?itok=gW2w3olK 325w, /sites/default/files/styles/max_650x650/public/2019-04/190430_University_graduates_ImagineChina_bjl8825393_1.jpg?itok=WfA4a1NA 650w, /sites/default/files/styles/max_1300x1300/public/2019-04/190430_University_graduates_ImagineChina_bjl8825393_1.jpg?itok=oHifYqjZ 1300w, /sites/default/files/styles/max_2600x2600/public/2019-04/190430_University_graduates_ImagineChina_bjl8825393_1.jpg?itok=4BV1azPr 2600w" sizes="(min-width: 1290px) 1290px, 100vw" src="/sites/default/files/styles/max_325x325/public/2019-04/190430_University_graduates_ImagineChina_bjl8825393_1.jpg?itok=gW2w3olK" alt="Chinese college graduates" title="China’s younger cohort are well-positioned to utilize their relative skills to maintain, if not increase, productivity levels. Image by ImagineChina" typeof="foaf:Image" class="img-responsive" /> </div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><p>China’s leaders have recently set a growth target for 2019 of 6 -6.5%, marginally lower than the target of 2018. Intensifying population ageing is one factor attributed to fears of an emerging Chinese ‘lost decade’, akin to Japan from the mid-1990s. The comparison is especially worrying in that like Japan then China today sits mid a trade war with its most important economic partner, the United States. Lesser obviously, like Japan then, China sits a few years past its peak workforce population share (Figure 1).</p> <h4>Population ageing and the economy  </h4> <p>An ageing population poses many economic challenges: rising labor scarcity in sectors and regions where labor was once bountiful; fiscal and corporate resources increasingly directed towards pensions; more human capital directed toward caring for the old. In other words, national resources are diverted away from more productive economic endeavors.  </p> <img alt="Figure 1" data-entity-type="file" data-entity-uuid="b719503c-cc7d-42e6-8ece-65dc0d600140" src="/sites/default/files/inline-images/Economic%20Indicators_Q1_2019_Figure%201_Blog_0.jpg" class="align-center" /><p>Demographers use several different definitions for population ageing onset. China passed all the leading such indicators between 1987 and 2002. China’s workforce population share has meantime been in decline since around 2011 (Figure 1) when the workforce peaked at some 925 million workers. Despite the onset of later stage demographic transition, however, China’s per capita income remains that of just a middle-income country.  </p> <p>Although China is old before it is rich, it hence retains <a href="http://press-files.anu.edu.au/downloads/press/n2554/pdf/ch04.pdf">convergence growth potential</a>. GDP is still growing at some 6% annually (Figure 2). This means the resource envelope available to households and the government is also growing at a relatively fast rate. </p> <p>Japan, on the other hand, was already an advanced industrial economy when its population ageing intensified, amid a more established slower, steady state growth rate.  </p> <p>China experiencing demographic transition as a developing country in turn means the economic impact of population ageing is likely to be different to the Japanese case.</p> <img alt="Figure 2" data-entity-type="file" data-entity-uuid="5814aa09-10f4-4dec-9ed0-56dfd4e4bdd2" src="/sites/default/files/inline-images/Economic%20Indicators_Q1_2019_Figure%202_Blog.jpg" class="align-center" /><h4>Ageing in developed Japan vs developing China</h4> <p>Digging into the demographic data reveals other key differences. Whereas in Japan the older cohort dominated the economic agenda through their adulthood, in China the older generation have never – not even in their prime – been important drivers of consumption. Just as China puts greater emphasis on consumption as a new growth engine, it meets a newly enriched, higher-spending younger consumer class for whom a more affluent level of consumption has been a relatively norm from the get go. In Japan, in contrast, the lost-decades younger cohort feels less economically prosperous than the older population segment. </p> <p>In the same way, when the older Chinese generation leaves the workforce the impact will be different. Unlike in Japan where the education gap between generations is narrow and the human capital embodied in the older cohort deep, in China human capital is dramatically skewed in favor of the young. The lower fertility rate from the 1970s combined with rising household and national incomes means that over recent decades dramatically more resources have been invested in each child’s education. As China’s population share of workers falls, just maintaining output per capita requires improved productivity per capita. China’s younger cohort, at least theoretically, are well-positioned to utilize their relative skills to maintain, if not increase, productivity levels.  </p> <p>Finally, China’s dependency ratio, as measured by the ratio of youth (&lt;15 years) and elderly dependents (&gt;64 years) over the total working population (aged 15 to 64) will remain lower than Japan’s for some years to come. Both countries have persistent below replacement level fertility, but Japan’s demographic transition process began earlier and so the trends are more established. Japan moreover, has one of the longest life expectancies in the world, and is already home to some <a href="https://www.theguardian.com/world/2018/sep/14/japanese-centenarian-population-edges-towards-70000">70,000 centenarians</a>, ranking it among a handful of super-aged societies.</p> <h4>Ageing with Chinese characteristics</h4> <p>China may not be facing a “lost decade” akin earlier Japan, but it nonetheless must overcome its own challenges. As a developing country, it still retains pockets of poverty. Eradicating these requires consuming fiscal resources. It also awaits to be seen if the younger cohort are sufficiently educated to realize elevated national per capita productivity. </p> <p>Pension sustainability is also a major challenge. The 2019 Work Report promised to <a href="https://news.cgtn.com/news/3d3d674d3255544d33457a6333566d54/index.html">reform</a> the management of aged-care insurance funds and guaranteed the payment of pensions on time and in full.  In March, the Ministry of Finance transferred a nearly <a href="https://www.scmp.com/business/china-business/article/3001402/china-transfers-us47-billion-picc-shares-state-pension-fund">7% stake</a> in the People’s Insurance Company of China into the state pension fund. This is one step in what is expected to be a standard pattern as China sets aside assets to cover its emerging pension-related liabilities. <a href="https://www.reuters.com/article/us-china-pensions-exclusive/exclusive-foreign-insurers-gear-up-to-tap-chinas-1-6-trillion-pensions-business-sources-idUSKCN1RO0FA">New opportunities in the sector are also emerging for foreign investors.</a>  </p> <p>Avoiding the downward pull of an ageing population will not be easy. In April China’s State Council released a set of Opinions on promoting the development of pension services, which set out 28 policy proposals for addressing a breadth of issues presently or imminently expected to affect ‘ageing’ China.  </p> <p>There are grounds for hope that, given the right policies, China will not suffer Japan’s recent fate. Whether it succeeds or not otherwise, only time will tell. </p> <p><em>This article is part of the<a href="/merics-trackers/economic-indicators-q1-2019"> latest issue of the MERICS Economic Indicators, </a>a project monitoring China's economic development. It is based on Johnston, L.A. (forthcoming). The Economic Demography Transition: Is China’s “not rich, first old” circumstance a barrier to growth? Australian Economic Review (to be published in a 2019 issue). </em></p></div> </div> </div> Mon, 29 Apr 2019 15:04:18 +0000 h.seidl 9176 at https://www.merics.org Worried about Huawei? Then worry about Chinese blockchains, too https://www.merics.org/en/blog/worried-about-huawei-then-worry-about-chinese-blockchains-too <span>Worried about Huawei? Then worry about Chinese blockchains, too</span> <span><span lang="" about="/en/user/306" typeof="schema:Person" property="schema:name" datatype="">komprakti</span></span> <span>Fri, 04/26/2019 - 14:56</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2019-04-26T12:00:00Z">2019-04-26</time> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p>Kai von Carnap</p> <p><strong><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>The blockchain has become one of the key technologies flanking the Belt and Road Initiative (BRI). Innovative data management systems could soon give Beijing access to immense amounts of personal and company data from abroad.</span></span></span></span></span></span></span></strong></p></div> <div class="field field--name-field-main-image field--type-image field--label-hidden field--item"> <img srcset="/sites/default/files/styles/max_325x325/public/2019-04/190426_Blockchain_123rf_65642179_m.jpg?itok=FFV6nH-S 325w, /sites/default/files/styles/max_650x650/public/2019-04/190426_Blockchain_123rf_65642179_m.jpg?itok=Yy5cDnuu 650w, /sites/default/files/styles/max_1300x1300/public/2019-04/190426_Blockchain_123rf_65642179_m.jpg?itok=Te4nxlmb 1300w, /sites/default/files/styles/max_2600x2600/public/2019-04/190426_Blockchain_123rf_65642179_m.jpg?itok=k3GLDYDq 2484w" sizes="(min-width: 1290px) 1290px, 100vw" src="/sites/default/files/styles/max_325x325/public/2019-04/190426_Blockchain_123rf_65642179_m.jpg?itok=FFV6nH-S" alt="Worried about Huawei? Then worry about Chinese blockchain, too" title="Imports from China are increasingly managed by blockchain technology. Image by Monsit Jangariyawong via 123rf" typeof="foaf:Image" class="img-responsive" /> </div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>While the European Union is busy debating the risks of deploying Huawei’s telecoms systems, it risks overlooking a far more fundamental problem – imports from China are increasingly managed by blockchain technology, a software that could soon give the Chinese Communist Party (CCP) access to immense amounts of personal and company data from beyond Chinese borders, and open the way for legal clashes with Chinese companies.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>Blockchains are encrypted and distributed data management systems that can handle vast amounts of information quickly and securely – an extremely useful administrative innovation for China as its global influence expands. Spurred by the Belt and Road initiative (BRI), Chinese companies are bringing infrastructure, trade, and investment to 130 countries around the globe. The products and services that are changing hands and crossing borders as a result create large and enormously complex amounts of data.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>Shipping giant Yuanben, for example, says it tracks more than 50 million goods on its </span></span></span><a href="https://yuanbenlian.com/"><span><span><span><span><span>blockchain</span></span></span></span></span></a><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span> that is kept on a distributed network of computers in China, Europe, and the US. And Alibaba uses its nascent blockchain ledger to let its Chinese customers track a plethora of goods from 50 countries – and the company is already using the technology to develop a <span><span>blockchain banking service</span></span> for the world’s two billion "unbanked" people.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>Chinese companies doing business abroad are among the first in the world to put the power of the distributed data management to use, making blockchain one of the key technologies flanking the BRI. Blockchains allow fast, secure and immutable data management through clever cryptography and distributed computing, saving billions of dollars in customs procedures, and also increasing trust between counterparties. </span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>Under the motto "</span></span></span><a href="https://hkmb.hktdc.com/en/1X0AE8FX/first-person/Blockchain-The-Way-Forward"><span><span><span><span><span>One Belt, One Road, One Chain</span></span></span></span></span></a><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>", China’s Belt and Road Blockchain Consortium (BRBC) is working on standards to balance European demands with <span><span>those of Halal and Sharia law </span></span>– a third of BRI countries are Islamic. Meanwhile, Europe recently launched its latest “</span></span></span><span lang="FR" xml:lang="FR" xml:lang="FR"><span><span>international</span></span></span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>” blockchain association (INATBA) - none of its 105 founding members were from China and there was no mention of a Chinese blockchain. </span></span></span></span></span></span></span></p> <p><span><span><span><span><strong><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>Not the chip off the old block</span></span></span></strong></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>However, the Belt and Road’s blockchains are changing. Alibaba has filed an “</span></span></span><a href="http://appft.uspto.gov/netacgi/nph-Parser?Sect1=PTO1&amp;Sect2=HITOFF&amp;d=PG01&amp;p=1&amp;u=%252Fnetahtml%252FPTO%252Fsrchnum.html&amp;r=1&amp;f=G&amp;l=50&amp;s1=%252220180285837%2522.PGNR.&amp;OS=DN/20180285837&amp;RS=DN/20180285837"><span><span><span lang="FR" xml:lang="FR" xml:lang="FR"><span><span>administrative intervention</span></span></span></span></span></a><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>” patent that allows third parties like government agencies to halt so-called smart contracts or to freeze an account; more recently and significantly, the Cyber Administration of China (CAC) published </span></span></span><a href="http://www.cac.gov.cn/2019-01/10/c_1123971164.htm"><span><span><span><span><span>regulations</span></span></span></span></span></a><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span> that require Chinese blockchain companies to register with the CAC and submit users’ personal data.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>These centralizing interventions threaten not only to undermine a major reason to adopt the technology in the first place - trusting algorithms working in parallel on many computers rather than centralized institutions. The moves by Alibaba and CAC will also open legal gateways for Chinese authorities to monitor and control transactions and data, giving the CCP considerable political and economic leverage over Chinese blockchains.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>Given the internationalization of Chinese companies and the BRI’s ever lengthening reach westwards, these regulations could also soon affect European consumers: On 3 March, the <span><span>CAC said</span></span> 197 Chinese blockchains had successfully registered. Though it did not disclose whether the data of foreign customers was registered, key actors along the BRI – including e-commerce giants Alibaba and JD – were among those on the list.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>As a result, consumers and companies in Europe must be aware of this: Any interaction with a Chinese company can produce an immutable footprint stored in digital ledgers that serve as potential gateways for Chinese authorities to access realms of private and enterprise data. Given the frenzy surrounding Huawei, the European Union remains oddly silent about this. </span></span></span></span></span></span></span></p> <p><strong><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>Europeans wait and see as BRI key actors are registering Chinese blockchains</span></span></span></span></span></span></span></strong></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>The EU has adopted a wait and see approach towards blockchain to spur</span></span></span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span> innovation and entrepreneurial activity. Its hands-off stance is caused by</span></span></span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span> conceptual contradictions between blockchain and its data-protection rules. The EU’s </span></span></span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>General Data Protection Regulation (GDPR)</span></span></span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span> requires,</span></span></span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span> for example,</span></span></span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span> clearly attributable responsibilities within a network, a regulation most blockchain systems are not compatible with.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>Sadly, this lack of clarity on the part of the EU may cause a slew of European blockchain start-ups to shut their doors, while leaving ever more room for BRI-related blockchains to develop. Distracted by Huawei, confused by GDPR-compliance, and misled by false foresight about blockchain innovation, the EU is not only putting European data privacy on the line. It is running the risk that global blockchain standards will be made without it. </span></span></span></span></span></span></span></p> <p><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>The New Silk Road's blockchains look set to raise the stakes in a debate that pits unprecedented logistical efficiency against real dangers to data protection and privacy. Soon the EU may have only two options: It could relax the GDPR’s rules and accept the influence of BRI-blockchains or ban data processing on BRI- or China-controlled blockchains - and in effect the imports they manage. The EU faces tough choices about Huawei - but should look ahead to possibly tougher ones on new technologies such as blockchain. </span></span></p> <p><em>Kai von Carnap is an intern in the Society and Media program at MERICS. He holds a Master's degree in Chinese-European Economics and Business Studies from Berlin Professional School.</em></p></div> </div> </div> Fri, 26 Apr 2019 12:56:13 +0000 komprakti 9171 at https://www.merics.org