CHINAMacroReporter

China Tests Biden

In today’s issue: 1. China Tests Biden Over Taiwan / 2. The UK Stands Up, the U.S. Not So Much / 3. Why Impeding U.S.-China Capital Flows Isn't Easy
by

|

CHINADebate

January 31, 2021
China Tests Biden

In today’s issue:

1. China Tests Biden Over Taiwan

  • 'Top Conflicts to Watch in 2021: The Danger of U.S.-China Confrontation Over Taiwan'
  • ‘Analysis: China tests Biden on Taiwan, with eye on another island’
  • 'Biden’s Nightmare May Be China,' by Nick Kristoff

2. The UK Stands Up, the U.S. Not So Much

  • 'Hong Kong’s Escape Routes'
  • 'U.K. Opens Its Doors to Five Million Hong Kong Residents'
  • 'Ted Cruz, Chinese Communist Party Agree: Keep Hongkongers Trapped in China'

3. Why Impeding U.S.-China Capital Flows Isn't Easy

  • 'China is exploiting U.S. capital markets and workers. Here's what Biden should do,' Marco Rubio’
  • 'U.S.-China Capital Flows are Vastly Underestimated'
  • 'Why U.S. Securities Investment in China is Vastly Underestimated'

China has tested President Biden during his first week in office.

  • That’s not unusual – it’s become conventional wisdom that adversaries will test a new U.S. president.
  • What makes this first test a little unusual is that it was over the U.S. and China’s most contentious issue: Taiwan

As explained in the Nikkei Asian Review’s ‘Analysis: China tests Biden on Taiwan’:

  • ‘On Monday evening, as Chinese people were looking at their smartphones, watching their leader Xi Jinping talk about the importance of global cooperation at an online conference hosted by the World Economic Forum, alerts flashed across many screens.’
  • ‘It was an analysis piece by Chinese media, mocking a U.S. State Department statement that urged China to "cease its military, diplomatic and economic pressure against Taiwan." ’
  • ‘The State Department statement, issued spokesperson Ned Price on Saturday U.S. time, had taken issue with 13 Chinese military aircraft entering Taiwan's air defense identification zone earlier that day.’

‘The U.S. needed to respond.’

  • ‘If Washington had stayed silent, it could have sent the wrong signal, leading China to believe the Biden administration may be hesitant to take action even if China made military maneuvers against Taiwan.’

‘ "Pressure?" the analysis piece asked. "As everybody knows, the People's Liberation Army's combat-readiness flights in the airspace of the Taiwan Strait have become a norm." ’

  • ‘China needs nobody's permission to decide what and when to fly, it said.’
  • ‘The headline called the U.S. statement a "joke." ’
  • ‘On Sunday, another 15 Chinese aircraft flew into Taiwan's air defense identification zone, or ADIZ, according to the island's Defense Ministry.’

‘What is noteworthy is that the Chinese military planes flew between the main island of Taiwan and Pratas Island southwest of it.’

  • ‘The island, which sits in a strategic location in the South China Sea, is closer to Hong Kong than to the rest of Taiwan, though it is under Taiwan's control.’
  • ‘And it is at Pratas Island where a behind-the-scenes tug-of-war is being played out between the U.S. and China.’

Nick Kristoff of The New York Times picks up the theme in 'Biden’s Nightmare May Be China':

  • 'The first thing to say is that a war with China probably won’t happen.’
  • ‘Yet if it does, it might begin in an obscure place few have heard of, like Pratas or Kinmen’
  • ‘Both are controlled by Taiwan but are closer to China, and some Chinese and Americans alike worry that Chinese President Xi Jinping might invade one island or the other to pressure Taiwan.’

‘Or Xi might send a submarine to snip undersea cables that carry the internet to Taiwan, or he could impede oil deliveries to Taiwan.’

  • ‘Or he might order a cyberattack to bring down Taiwan’s banking system.’

‘Most experts don’t believe that such an assault is likely (an all-out invasion of Taiwan is even less probable), but it is a considerably greater risk than it had been for decades.’

  • ‘And what began on Pratas or Kinmen wouldn’t end there:’
  • ‘The United States would most likely be drawn into perhaps the most dangerous confrontation with another nuclear power since the Cuban missile crisis.’

‘The coming years represent the greatest risks since I began covering U.S.-China relations in the 1980s, partly because Xi is an overconfident, risk-taking bully who believes that the United States is in decline.’

  • ‘ “I think it’s unlikely that there’ll be a military confrontation there, but I don’t rule it out,” said Bonnie Glaser of the Center for Strategic and International Studies.’

‘That seems right to me — but I also worry that we’re wrong.’

  • ‘Few expected Xi to pick fights with India on their shared border, as he has several times in the past year, and heaven help us if he is similarly reckless toward Taiwan and sparks a war with the United States.’

Taiwan has been considered the leading flashpoint for so many years that perhaps we just take the possibility of war for granted.

  • And that of course would be a colossal error.

But as Yun Sun explains in ‘Top Conflicts to Watch in 2021: The Danger of U.S.-China Confrontation Over Taiwan’:

  • ‘While people appear to believe that the Biden administration will strive to avoid acute crisis with China over Taiwan, U.S. policy toward Taiwan only reflects half of the story.’
  • ‘The other, and more important half is from China.’

‘At least two factors contribute to China’s increasingly destabilizing stance:’

  • ‘the belief that DPP is seeking “Taiwan independence,” and’
  • ‘the indispensability of unification for China’s rise and for Xi’s glory.’

‘In this sense, the trajectory of China’s coercion will only intensify rather than subside.’  

So, China will likely continue to test Mr. Biden on Taiwan.

  • And any of those tests could lead to the miscalculation that ends in war.
  • If that happens, it will be no 'black swan' - but you can sure that is what those who didn't factor in the risk will call it.

While China was testing Mr. Biden on Taiwan, the UK was in one sense testing China on Hong Kong. As The Wall Street Journal reports:

  • ‘In an unusual move that is exacerbating tensions with Beijing, Britain has opened its doors to as many as five million residents of its former colony.’
  • ‘As of Sunday, holders of British National Overseas passports—which are available to Hong Kong citizens born in the territory before it was handed back to China in 1997—can move with their families to the U.K. on five-year visas.’

British Prime MinisterBoris Johnson said:“We have honored our profound ties of history and friendship with the people of Hong Kong, and we have stood up for freedom and autonomy—values both the U.K. and Hong Kong hold dear.”

  • And The Wall Street Journal said: ‘To its eternal credit, the British government is honoring its promise to its former colonial subjects by offering a path to citizenship for Hong Kongers who hold British National (Overseas) passports and their family members.'

If only the same 'eternal credit' attached to the U.S.

  • In December, the House passed the bipartisan ‘Hong Kong People's Freedom and Choice Act of 2020, which would grant political asylum to any resident of Hong Kong who arrives in the United States, allowing them to remain in the country legally after the expiration of any other visa.’

The bill died in the Senate thanks to Ted Cruz.

  • First, he called the bill a Democratic plot to "advance their long-standing goals on changing immigration laws."
  • Second, he argued that China would use the special immigration status to slip its agents into the United States.

The contradiction shown in Mr. Cruz’s own family history was pointed out in several commentaries. An essay in reason, ‘'Ted Cruz, Chinese Communist Party Agree: Keep Hongkongers Trapped in China,' noted:

  • ‘Cruz's father, Rafael, fled Cuba in 1957 with little more than a student visa and $100 sewn into his underwear—an oft-repeated detail that effectively conveys both the fear and hopefulness of the refugee experience.’
  • ‘Importantly, he was granted political asylum when his student visa expired.’
  • ‘If not for that last detail, it's highly unlikely that Rafael's son would have ever had the chance to stand on the floor of the U.S. Senate and declare, as he did on Friday, that America ought to make it more difficult for individuals and families to flee other oppressive communist regimes.’

Making Mr. Cruz’s opposition even more problematic:

  • ‘The United States already extends that special status to refugees from 10 other countries, and the bill would have merely added Hong Kong to the list.’

The U.S. financial markets have been targeted for decoupling for some time now. Part of the reason is explained by Senator Marco Rubio in his op-ed, 'China is exploiting U.S. capital markets and workers.'

  • 'For decades, establishment elites in our nation’s two major political parties ignored — and oftentimes furthered — the Chinese Communist Party’s efforts to undermine our national security, industrial capacity and the well-being of American workers.’
  • ‘The greatest example of this is China’s exploitation of U.S. capital markets and Wall Street’s role in facilitating the transactions that transfer American investment to malicious Chinese companies.’

‘China can finance its industrial ambitions with the deepest, most liquid capital markets in the world — our own.’

  • ‘In Congress, we must continue our bipartisan efforts to stop China’s exploitation of U.S. finance. I will soon be reintroducing my American Financial Markets Integrity and Security Act, which would ban malicious Chinese companies from operating in U.S. capital markets.’

But Chinese companies ‘exploiting’ U.S. capital markets is only a part of the picture.

  • There is also the matter of U.S. investment in Chinese securities.

Until the publication ofUS-China Financial Investment: Current Scope and Future Potential, A Report by the US-China Investment Project,’ policymakers like Mr. Rubio underestimated the amount of bilateral capital flows.

  • And equally important they were unaware of opaque conduits that make calculation difficult.
  • Without this understanding, no way could they limit the capital invested in Chinese securities - they can't hit what they can't see. (Whether these efforts are good policy is another question.)

This 24-page report is a joint effort between the Rhodium Group and the National Committee on U.S.-China Relations.

  • Here is just one highlight:

'The United States is China’s most important financial counterpart, save for Hong Kong. US markets have been critical to Chinese company fundraising.'

  • 'We estimate there was as much as $3.3 trillion in US-China two-way equity and bond holdings (including securities held by central banks as reserves) at the end of 2020—nearly double the official figure of $1.8 trillion.'
  • 'Official underreporting reflects the complex, multi-modal structures that are often used for international securities investments and the challenges statistical agencies have determining securities issuers’ and owners’ nationalities.'

'US holdings of Chinese securities neared $1.2 trillion at the end of 2020.'

  • 'We estimate that US investors held $1.1 trillion in equity and $100 billion in debt securities issued by Chinese entities at the end of 2020.'
  • 'That is about five times the holdings captured in official US data, which shows $211 billion in equity and $29 billion in debt holdings as of September 2020.'
  • 'Most of the disparity is accounted for by firms from China using complex legal structures to issue shares out of tax havens that trade on US exchanges.'

‘Chinese holdings of US securities reached as much as $2.1 trillion.’

  • ‘We estimate Chinese investors held $700 billion in equity and $1.4 trillion in debt securities issued by US entities at the end of 2020.’
  • ‘In comparison, official US data report $240 billion of equity and $1.3 trillion of debt holdings as of September 2020.’
  • ‘Most of this difference is accounted for by equity investments misclassified in official sources due to investor efforts to circumvent Beijing’s capital controls or the use of Hong Kong as an investment intermediary.’

This graphic summarizes the Project’s finding on this topic:

This analysis is spectacular – and, if absorbed by D.C. policymakers and think tank analysts alike, it will have a big impact on how we think about the U.S.-China investment relations.

  • This is one you should definitely read carefully.


CHINADebate, the publisher of the China Macro Reporter, aims to present different views on a given issue. Including an article here does not imply agreement with or endorsement of its contents.

More

CHINAMacroReporter

July 10, 2022
Building Biden's 'Great Wall' Around China
Whether you view it as an aggressive adversary or a nation asserting itself in ways commensurate with its rising status, China is creating risks – some subtle, some obvious - that, along with reactions of the U.S. and its allies, have to be factored, into every related business, investment, and policy strategy.
keep reading
July 1, 2022
A Debt Crisis of its Own Making
Ever since Xi Jinping announced ‘One Belt, One Road’ in 2013, I watched it expand China’s economic and geopolitical influence and lay the foundation for projecting its military power – and become by many accounts an exploiter of the developing world itself.
keep reading
June 22, 2022
No. Ukraine Won't Change Xi's Plans - or Timetable - for Taiwan
Ukraine won't speed up or delay Mr. Xi's timetable. (But it may cause him to work harder to strengthen China's military and insulate its economy from external pressure.)
keep reading
August 24, 2023
Xi Jinping: 'The East is Rising' | Yes. Rising against China
All our careful analyses of PLA capabilities, the parsing of Mr. Xi’s and Mr. Biden’s statements, the predictions as to the year of the invasion, everything – all out the window. This is one you won’t see coming – but one you have to have prepared for.
keep reading
July 23, 2023
‘The U.S. Has Tactics, But No China Strategy’ | Bill Zarit
‘The U.S. needs national review of outward investment to China, but it has to be narrow and targeted and done in conjunction with our allies and partners.’
keep reading
July 10, 2023
‘Is Xi Coup-proof?’ (after the march on Moscow, I have to ask)
What about the guys without guns? So if Mr. Xi doesn’t face a rogue army or a military coup… How about a coup by Party elites?
keep reading
April 2, 2023
Xi Jinping: 'Change unseen for a 100 years is coming.'
Time went of joint in the mid-1800s when China began its ‘Century of Humiliation.’ And Mr. Xi, with a sense of destiny, seems to feel he was born to set it right. (I very much doubt that Mr. Xi would add: ‘O cursed spite’ – he seems to relish his role and the shot it gives him to go down in history as China’s greatest ruler.)
keep reading
January 2, 2023
Xi Jinping: Bad Emperor?
Some have asked me what will be the greatest risk to China in the next five years. My answer: That Xi Jinping will overstep and enact policies that Chinese people won’t accept, especially those that have a direct impact on their lives and livelihoods.
keep reading
November 22, 2022
'Strangling with an intent to kill.’
I began to have some hope of getting our act together with Mr. Biden. He worked to rebuild relations with allies who could join the U.S. in the competition. And he understood the need for America to strengthen itself for competition. Hence, the infrastructure, CHIPS, and other acts. But whether Mr. Trump or Mr. Biden, one thing nagged me beyond all the rest. Why is America strengthening our competitor? — In the instant case: Why is America giving our competitor advanced semiconductor resources to strengthen itself to compete against us?
keep reading
October 31, 2022
Xi's China: 'less reliable, less predictable, and less efficient'
‘China’s predictability is being eroded by the frequent, erratic policy shifts that have taken place in recent months, such as the unexpected disruptions to power supplies that took place in 2021, and the sudden mass lockdowns that were imposed in an attempt to contain COVID.'
keep reading
October 18, 2022
Xi Jinping: ‘Crossing a threshold to outright dictatorship?’'
The view from inside China appears to be quite different. Yes, the Chinese people may grumble about the Zero-COVID lockdowns, and just a few days a banner critical of Mr. Xi and his regime was unveiled over an overpass in Beijing.
keep reading
October 10, 2022
The 20th Party Congress with All Eyes are on Xi Jinping
The attention to Mr. Xi is in large part because he will exit the Party Congress with even greater power, no discernible opposition, and a new five-year term (with more likely to follow). And many of the constraints that may have been in place not to jeopardize his reappointment will be gone.
keep reading
September 26, 2022
China Coup: How Worried Should Xi Be?
‘Xi and the phrase #ChinaCoup trended on social media after tens of thousands of users spread unconfirmed rumors that the president was detained and overthrown by the China's People's Liberation Army.’
keep reading
September 18, 2022
'How do you spy on China?'
Many of you have asked about my own take on the issues I analyze in these pages and about my background. Today is some of both.I am honored to have been interviewed by the terrific Jeremy Goldkorn, editor-in-chief of The China Project. Below is part of that interview.
keep reading
September 5, 2022
Xi’s Dangerous Radical Secrecy
In a world of political hardball, investigative reporting, and tabloids, we know a lot (if not always accurate or unspun) about world leaders, especially those in functioning democracies. Not so with Xi Jinping.
keep reading
July 10, 2022
Building Biden's 'Great Wall' Around China
Whether you view it as an aggressive adversary or a nation asserting itself in ways commensurate with its rising status, China is creating risks – some subtle, some obvious - that, along with reactions of the U.S. and its allies, have to be factored, into every related business, investment, and policy strategy.
keep reading
July 1, 2022
A Debt Crisis of its Own Making
Ever since Xi Jinping announced ‘One Belt, One Road’ in 2013, I watched it expand China’s economic and geopolitical influence and lay the foundation for projecting its military power – and become by many accounts an exploiter of the developing world itself.
keep reading
June 22, 2022
No. Ukraine Won't Change Xi's Plans - or Timetable - for Taiwan
Ukraine won't speed up or delay Mr. Xi's timetable. (But it may cause him to work harder to strengthen China's military and insulate its economy from external pressure.)
keep reading
June 12, 2022
'The competitiveness of China is eroding.'
Understanding the drivers of China’s rise to supply chain prominence gives (me anyway) insights to help analyze the changes – or not – of ‘decoupling.’
keep reading
June 5, 2022
U.S.-China Relations: A Chinese Perspective
Wang Jisi notes that the views are his own, and certainly we don’t know how closely, if at all, they reflect the thinking of anyone in the leadership. But given his straightforward and thorough analysis, free of canned arguments and slogans, I hope they do. I also hope the Biden administration pays heed.
keep reading
May 30, 2022
Is Xi Jinping China's Biggest Problem?
And while the impact of Zero Covid may be relatively short-lived, the impact of Mr. Xi’s return to the socialist path will be felt for a very long time, both in China and the world. So the impact will no doubt be felt as long as Mr. Xi leads China.
keep reading
May 22, 2022
The Next U.S.-China Crisis: CEOs & Boards Are Not Ready
‘The bad news is that very few corporations engaged in China have contingency plans or long-term strategies to hedge against the downside risks of growing geopolitical competition.’
keep reading
May 14, 2022
China GDP: 'A very long period of Japan-style low growth.’
Here are some of the insights from ‘The Only Five Paths China’s Economy Can Follow’ by Peking University’s Michael Pettis. This excellent analysis of China’s economy is worth a careful reading.
keep reading
May 1, 2022
'Zero Covid' & the Shanghai lockdown
Joerg Wuttke is the president of the EU Chamber of Commerce in China - the 'official voice of European business in China.'
keep reading
April 17, 2022
Is China's Tech 'Crackdown' Really Over?
Today, I’m sharing with you a bit of Ms. Schaefer’s analysis of the tech ‘crackdown’ (but not of the AI and algorithm law). She explains why...
keep reading
April 17, 2022
China: 'Sleep Walking into Sanctions?'
A looming risk is Russia-like sanctions on China. The sanctions on Russia are causing plenty of disruptions. But those disruptions would be nothing compared to the catastrophe of Russia-like sanctions on China. The good news is that if China does violate the sanctions, the violations would likely be narrow and specific - even unintentional. So secondary sanctions - if they come at all - likely won't hit China’s economy and financial system deeply – or (fingers crossed) U.S.-China relations.
keep reading
April 5, 2022
Russian Sanctions' Impact on China
In the meantime, some contend, China has a payment system, the Cross-Border Interbank Payment System or CIPS, that could make it independent of SWIFT.
keep reading
March 21, 2022
Faint Cracks
For some time now we’ve taken it for granted that Xi Jinping has so consolidated his power that his will is China policy.
keep reading
March 13, 2022
Is China in a Bind?
It wants to support Russia, but also wants to support the international order from which benefits and doesn’t want to alienate the major economies its own economy is intertwined with.
keep reading
February 19, 2022
Under Construction: Two (Opposing) World Orders
Years ago, before the so-called ‘New Cold War,’ when asked what China issue interested me most, I said, ‘China and the liberal world order.’
keep reading
February 17, 2022
'A Fateful Error'
As the 1904 cartoon from Puck magazine shows, this isn’t the first time in the past 100 or so years that Russia has shattered the peace. [Or has been defeated, as it was in 1905 by the Japanese in the Russo-Japanese War.]
keep reading
February 2, 2022
Ukraine, Taiwan, & the 'Nightmare Scenario'
This in no way diminishes the calamity of a war with China. But the ability of the U.S. to wage that war would not be diminished by having to fight Russia at the same time.
keep reading
January 18, 2022
This is Mr. Xi's Big Year - and Nothing Better Spoil It
Every politician going into an election wants a strong economy. Xi Jinping is aiming to be reelected (and all indications are he will be) to a third five-year term at the National Party Congress this autumn. So Mr. Xi will ease (and stimulate ) as much as he can without creating major headaches to deal with after his reelection - all in the name of 'stability.'
keep reading
January 5, 2022
Bachelors, Mother-in-Laws, & China's Economy
‘In the long-term, demographics is one of the most important forces that will shape the growth momentum of China for the next decades. Two demographic features that are especially worth paying attention:’
keep reading
December 30, 2021
Q&A 6 | China Reverse Its Declining Birthrate?
‘A lot of people feel like the ideal, the optimum number of children is a maximum of two children. So it's not a surprise to me that the three-child policy hasn’t had a high response in the short term. But I think in the long term it will be much better.’
keep reading
December 30, 2021
Shang-jin Wei Presentation-1 | Drivers of Growth Momentum
‘In the last year and a half we saw a spate of government actions all contributed to not just falling stock prices for companies in certain sectors but a deterioration in investor sentiment more broadly. These include:...’
keep reading
December 30, 2021
Q&A 1 | How Much Does the Gender Imbalance Contribute to China’s Rising Housing Prices?
‘Gender imbalance accounts for about one-third of the increase in China’s housing prices in the last two decades or so.’
keep reading

Heading

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat. Aenean faucibus nibh et justo cursus id rutrum lorem imperdiet. Nunc ut sem vitae risus tristique posuere.