9/21/2019

September 21, 2019

<div><table class="nl" cellspacing="0" cellpadding="0" width="100%" style="border-collapse: collapse;width: 100%;font-family: 'Lato', sans-serif;text-align: center;background-color: #f5f5f5;"><tbody><tr><td class="wrapper" style="max-width: 600px;"> <table class="card" style="border-collapse: collapse;width: 100%;max-width: 600px;margin: 0 auto;text-align: left;background: #fff;"><tbody><tr><td class="h20" style="height: 20px;"></td></tr><tr><td id="nl-header" style="text-align: center;font-family: 'Lato', sans-serif;font-size: 1.85em;font-weight: 700;color: #0970b3;letter-spacing: -0.4px;line-height: 1.5em;padding: 0 5%;">Debunking Trump’s China Tweets: Nick Lardy ‘Seeks Truth from Facts.’</td></tr><tr><td id="nl-author" style="color: #001544;font-size: .8750em;line-height: 1.5em;font-family: 'Lato', sans-serif;text-align: center;padding-bottom: 0em;padding-top: 1.05em;">By <a href="https://www.linkedin.com/in/malcolmriddell/" target="_blank" style="color: #001d5d;border-bottom: 0px solid #008dc8;text-decoration: none;">Malcolm Riddell</a>·September 21, 2019</td></tr><tr><td class="h20div" style="height: 20px;border-bottom: 20px solid #f5f5f5;"></td></tr><tr><td class="nl-topic" style="display: block;font-size: 1.35em;font-weight: 700;color: #fff;line-height: 1.5em;letter-spacing: 0.4px;text-align: center;text-transform: uppercase;background-color: #001544;padding: 5px 0;border-bottom: 5px solid rgba(225, 225, 225, 1);">1. LARDY DEBUNKS TRUMP</td></tr><tr><td><img src="https://cdn.prod.website-files.com/5c864c33af62620dca1373ac/5d11a317695b56026131e29e_Nicholas%20R.%20Lardy%20copy.jpg" alt="CHINADebate" style="width: 100%;"> </td></tr><tr><td class="nl-post" style="padding: 0 3.5% 1.2em 3.5%;">If you only learned about the Chinese economy and the impact of U.S. tariffs from President Trump’s tweets, then you would think the President has single-handedly driven China into the ground. And, that Xi Jinping badly wants to make a deal. Yet, China hasn’t cried uncle.Nick Lardy of the Peterson Institute explains why in three short essays:<ul><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;"><a href="https://www.piie.com/experts/senior-research-staff/nicholas-r-lardy" target="_blank" style="color: inherit;border-bottom: 1px solid #0970b3;text-decoration: none;">‘China's Growth Is Slowing, but not Because of the Trade War,’</a> August 21, 2019</li><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;"><a href="https://www.piie.com/blogs/china-economic-watch/are-foreign-companies-really-leaving-china-droves" target="_blank" style="color: inherit;border-bottom: 1px solid #0970b3;text-decoration: none;">‘Are Foreign Companies Really Leaving China in Droves?’</a> September 10, 2019</li><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;"><a href="https://www.piie.com/blogs/china-economic-watch/chinas-manufacturing-job-losses-are-not-what-they-seem" style="color: inherit;border-bottom: 1px solid #0970b3;text-decoration: none;">‘China's Manufacturing Job Losses Are Not What They Seem’</a> August 29, 2019</li></ul>And, in an 16m podcast interview, <a href="https://www.piie.com/experts/peterson-perspectives/trade-talks-episode-102-trump-beating-chinese-economy" target="_blank" style="color: inherit;border-bottom: 1px solid #0970b3;text-decoration: none;">‘Is Trump Beating the Chinese Economy?’</a> September 17, 2019 – an excellent summary of the three essays.</td></tr><tr><td class="h5div" style="height: 10px;border-bottom: 5px solid #f5f5f5;"></td></tr><tr><td class="nl-post-title" style="display: block;font-family: 'Lato', sans-serif;font-size: 1.45em;font-weight: 700;line-height: 1.5em;letter-spacing: -0.2px;padding: 1.2em 3.5% 0 3.5%;"><a href="https://www.piie.com/blogs/china-economic-watch/chinas-growth-slowing-not-because-trade-war" target="_blank" style="color: #001d5d;border-bottom: 0px solid #008dc8;text-decoration: none;"><img class="nl-source-logo" src="https://cdn.prod.website-files.com/5c864c33af62620dca1373ac/5d8575ac08e53e77edde4a50_piie-twitter.jpg" alt="CHINADebate" style="width: 60px;display: block;float: left;margin: 7px 16px 0 0;border: 1px solid rgba(225, 225, 225, 1);">1. ‘China's Growth Is Slowing, but not Because of the Trade War’</a></td></tr><tr><td class="nl-post" style="padding: 0 3.5% 1.2em 3.5%;"><a href="https://www.piie.com/experts/senior-research-staff/nicholas-r-lardy" target="_blank" style="color: inherit;border-bottom: none;text-decoration: none;">Nicholas R. Lardy | Peterson Institute for International Economics</a>August 21, 2019<hr style="border: 0;border-top: 1px solid #ececec;height: 5px;margin: 20px auto;text-align: center;">Trump: “China is doing very, very poorly. The tariffs have really bitten into China. They haven't bitten into us at all." Lardy: ‘The facts don’t support his claims.’ <table class="qtable" style="border-collapse: collapse;width: 100%;margin: 0;"><tbody><tr><td class="qborder" style="border-left: 7px solid rgba(225, 225, 225, 1);padding: 0 17px;">President Donald Trump has repeatedly defended his tariff hikes on China by saying that they are not impeding US economic growth but are a main reason why China’s growth is slowing.<ul><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">“China is doing very, very poorly,” Trump told reporters recently, referring to its economy. “The tariffs have really bitten into China. They haven't bitten into us at all."</li><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">The Chinese economy is so poor, he asserts, Beijing will soon agree to US terms for a trade agreement.</li></ul>The facts don’t support his claims. First, China’s growth began to slow long before the trade war started (see figure).<ul><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">The pace of growth has moderated from the double-digit pace of 2010 to only 6.2 percent in the most recent quarter.</li></ul>As for the assertion that the trade war has accelerated China’s economic decline, the facts show the opposite.<ul><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">As shown in the figure, the pace of the slowdown has moderated since the initial imposition of tariffs by the United States in July 2018.</li><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">Most of the slowdown is the result of President Xi Jinping’s ill-advised policy choice of allocating credit and other resources to less efficient state firms rather than private firms.</li><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">Moreover, since 2017, China has reduced the growth of credit overall in order to reduce financial risk at a time of growing corporate indebtedness, a trend that also contributes to slowing growth throughout the economy.</li></ul></td></tr></tbody></table> <img src="https://cdn.prod.website-files.com/5c864c33af62620dca1373ac/5d85ac4b08e53e6966dfc16a_default_files_documents_pb19-11.png" alt="CHINADebate" style="width: 100%;"> <table class="qtable" style="border-collapse: collapse;width: 100%;margin: 0;"><tbody><tr><td class="qborder" style="border-left: 7px solid rgba(225, 225, 225, 1);padding: 0 17px;">Second, properly measured, China’s dependence on exports to the United States is not as large as some, including President Trump, may think. China’s exports to the United States before tariffs were imposed ran at $500 billion annually, or 4 percent of its $12.25 trillion GDP, which in theory is a significant number. In fact, the percentage is far less.<ul><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">The potential impact of US tariffs on China’s growth needs to be adjusted to measure only value added by China.</li><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">GDP is measured in value-added terms; US imports from China are measured in gross sales.</li></ul>The value-added share in US imports from China is about one-half, so the direct contribution to China’s GDP from its sales to the United States is approximately $250 billion or only 2 percent of China’s GDP. At least prior to the rollout of new US tariffs on September 1, 2019, only about half of US imports from China were subject to tariffs.<ul><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">So, the potential direct hit to China’s GDP if the sales of these tariff-ridden goods collapsed is even less—about $125 billion, or 1 percent of China’s GDP.</li><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">That is hardly enough to explain China’s growth slowdown in recent years.</li></ul>Third (from the <a href="https://www.piie.com/experts/peterson-perspectives/trade-talks-episode-102-trump-beating-chinese-economy" target="_blank" style="color: inherit;border-bottom: 1px solid #0970b3;text-decoration: none;">interview</a>), China's exports overall in the first eight months of this year grew at 6.1%.<ul><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">China’s exports to the U.S. are down $30 billion in the first six months because of the tariffs.</li><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">But this has been more than offset by increased sales to the rest of the world.</li></ul>As the trade war grinds on, Trump’s claim that they are easy to win is proving elusive, and his conviction that China’s difficulties will persuade its leaders to capitulate to US demands on trade is looking more and more problematic.</td></tr></tbody></table></td></tr><tr><td class="h5div" style="height: 10px;border-bottom: 5px solid #f5f5f5;"></td></tr><tr><td class="nl-post-title" style="display: block;font-family: 'Lato', sans-serif;font-size: 1.45em;font-weight: 700;line-height: 1.5em;letter-spacing: -0.2px;padding: 1.2em 3.5% 0 3.5%;"><a href="https://www.piie.com/blogs/china-economic-watch/are-foreign-companies-really-leaving-china-droves" target="_blank" style="color: #001d5d;border-bottom: 0px solid #008dc8;text-decoration: none;"><img class="nl-source-logo" src="https://cdn.prod.website-files.com/5c864c33af62620dca1373ac/5d8575ac08e53e77edde4a50_piie-twitter.jpg" alt="CHINADebate" style="width: 60px;display: block;float: left;margin: 7px 16px 0 0;border: 1px solid rgba(225, 225, 225, 1);">2. ‘Are Foreign Companies Really Leaving China in Droves?’</a></td></tr><tr><td class="nl-post" style="padding: 0 3.5% 1.2em 3.5%;"><a href="https://www.piie.com/experts/senior-research-staff/nicholas-r-lardy" target="_blank" style="color: inherit;border-bottom: none;text-decoration: none;">Nicholas R. Lardy | Peterson Institute for International Economics</a>September 10, 2019<img src="https://cdn.prod.website-files.com/5c864c33af62620dca1373ac/5d859a5782aa6e2e01a5ca4d_Donald%20J.%20Trump%20on%20Twitter%20aug10.png" alt="CHINADebate" style="width: 100%;"> ‘The trade war has not dampened FDI in china.’ <table class="qtable" style="border-collapse: collapse;width: 100%;margin: 0;"><tbody><tr><td class="qborder" style="border-left: 7px solid rgba(225, 225, 225, 1);padding: 0 17px;">President Donald Trump, in defending his trade war with China, has yet again let his Twitter fingers get ahead of reality. He <a href="https://twitter.com/realdonaldtrump/status/1160309383701680129" target="_blank" style="color: inherit;border-bottom: 1px solid #0970b3;text-decoration: none;">tweeted</a> in late August that “China wants to make a deal so badly.<ul><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">He <a href="https://twitter.com/realdonaldtrump/status/1160309383701680129" target="_blank" style="color: inherit;border-bottom: 1px solid #0970b3;text-decoration: none;">tweeted</a> in late August that “China wants to make a deal so badly. Thousands of companies are leaving because of the Tariffs. They must stem the flow.”</li></ul>This supposed exodus of foreign firms is another element informing his view that China is under increasing economic pressure and thus anxious to accept US terms for a trade agreement. First, nonfinancial foreign direct investment (FDI) in China is currently running at an annual rate of almost $140 billion, meaning that thousands of new foreign firms are established in China every month.<ul><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">Moreover, as shown in the figure below, since the tariff war broke out in mid-2018 FDI has expanded about 3 percent annually, roughly the same pace as in the previous five years.</li><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">This is creating huge numbers of new foreign firms in China. <ul><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">The official number for the first six months of this year is that more than 20,000 new foreign firms were established.</li></ul></li></ul>(From the <a href="https://www.piie.com/experts/peterson-perspectives/trade-talks-episode-102-trump-beating-chinese-economy" target="_blank" style="color: inherit;border-bottom: 1px solid #0970b3;text-decoration: none;">interview</a>) The U.S. share of foreign investment going into China is actually relatively small - it's less than 10% of the total.<ul><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">Most foreign investment coming in from China is from multinationals based outside of the United States.</li><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">It could be that the U.S. is tapering off a little bit or moderating, but the aggregate figure is still growing.</li><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">Other multinationals are more than taking up the slack.</li></ul>Continued large inbound FDI flows are consistent with the expectations of member companies of the US-China Business Council.<ul><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">The Council’s very <a href="https://www.uschina.org/reports/uscbc-2019-member-survey" target="_blank" style="color: inherit;border-bottom: 1px solid #0970b3;text-decoration: none;">recent member survey</a> found that 97 percent reported that their operations in China are profitable, and 87 percent said they had not relocated and had no plans to relocate any of their activities.</li></ul>In short, there is little support for the view that large numbers of foreign firms are fleeing China; the opposite seems to be the case.</td></tr></tbody></table> <img src="https://www.piie.com/sites/default/files/styles/slimmed_natural/public/lardy2019-09-09.png?itok=ScfvFpmQ" alt="CHINADebate" style="width: 100%;"> <table class="qtable" style="border-collapse: collapse;width: 100%;margin: 0;"><tbody><tr><td class="qborder" style="border-left: 7px solid rgba(225, 225, 225, 1);padding: 0 17px;">Second, China has over a half million foreign-invested firms.<ul><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">A large share of foreign firms in China, especially US firms, are there primarily to produce goods to sell on China’s still rapidly growing domestic market.</li><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">These firms have no incentive to relocate within Asia, much less to the United States. </li></ul>Third, relocating production out of China is easier said than done.<ul><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">Foreign affiliates operating in China draw on an extensive local supply chain that has been built up over the decades and employ about 25 million Chinese workers, a significant share of which are skilled engineers and managers. </li></ul>Despite US tariffs on China’s exports to the United States, it appears, at least so far, that multinational firms, including those based in the United States, continue to find China an attractive environment for new investment.<ul><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">Thus, Trump’s claim that an exodus of foreign firms will force China to capitulate to US demands to settle the trade war is wishful thinking at best.</li></ul></td></tr></tbody></table></td></tr><tr><td class="h5div" style="height: 10px;border-bottom: 5px solid #f5f5f5;"></td></tr><tr><td class="nl-post-title" style="display: block;font-family: 'Lato', sans-serif;font-size: 1.45em;font-weight: 700;line-height: 1.5em;letter-spacing: -0.2px;padding: 1.2em 3.5% 0 3.5%;"><a href="https://www.piie.com/blogs/china-economic-watch/chinas-manufacturing-job-losses-are-not-what-they-seem" target="_blank" style="color: #001d5d;border-bottom: 0px solid #008dc8;text-decoration: none;"><img class="nl-source-logo" src="https://cdn.prod.website-files.com/5c864c33af62620dca1373ac/5d8575ac08e53e77edde4a50_piie-twitter.jpg" alt="CHINADebate" style="width: 60px;display: block;float: left;margin: 7px 16px 0 0;border: 1px solid rgba(225, 225, 225, 1);">3. ‘China's Manufacturing Job Losses Are Not What They Seem’</a></td></tr><tr><td class="nl-post" style="padding: 0 3.5% 1.2em 3.5%;"><a href="https://www.piie.com/experts/senior-research-staff/nicholas-r-lardy" target="_blank" style="color: inherit;border-bottom: none;text-decoration: none;">Nicholas R. Lardy | Peterson Institute for International Economics</a>August 29, 2019<img style="border: 2px solid rgba(225, 225, 225, 1);width: 100%;" src="https://cdn.prod.website-files.com/5c864c33af62620dca1373ac/5d85992af0c5f3ceac7c49bc_Donald%20J.%20Trump%20on%20TwitterJuly%2030th.png" alt="CHINADebate"> ‘President Donald Trump’s latest misrepresentation about the Chinese economy would have you believe that China’s manufacturing sector is on the ropes and that President Xi Jinping has no choice but to yield to US demands on trade. This claim is delusional.’ <table class="qtable" style="border-collapse: collapse;width: 100%;margin: 0;"><tbody><tr><td class="qborder" style="border-left: 7px solid rgba(225, 225, 225, 1);padding: 0 17px;">President Donald Trump’s latest misrepresentation about the Chinese economy would have you believe that China’s manufacturing sector is on the ropes and that President Xi Jinping has no choice but to yield to US demands on trade. China International Capital Corporation Limited (CICC) estimates that combined employment in mining, manufacturing, utilities, and construction, an aggregate the firm refers to as “broad manufacturing,” has fallen by 5 million since July 2018, when President Trump first imposed tariffs. <ul><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">But CICC also shows that employment in broad manufacturing shrank by 23 million between 2015 and 2017, a decline of almost 8 million a year.</li><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">So, the contraction of employment in broad manufacturing has not increased since the trade war began in July 2018. Instead it appears to have slowed.</li><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">And, total employment continued to expand throughout this period because of rapidly expanding demand for labor in services.</li></ul>Looking more directly at trade, while Chinese exports to the United States have <a href="https://www.piie.com/blogs/china-economic-watch/chinas-growth-slowing-not-because-trade-war" target="_blank" style="color: inherit;border-bottom: 1px solid #0970b3;text-decoration: none;">fallen by 13 percent </a>or about $30 billion since tariffs were first imposed in mid-2018, its exports to the rest of the world have expanded by more than enough to offset the loss of sales to the United States.<ul><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">Measured in terms of yuan, China’s global exports in the first six months of 2019 were up 6.1 percent over a year ago, just before the United States first imposed tariffs.</li></ul>Total sales in the subsectors of manufacturing most exposed to the tariffs imposed by the United States in July and September 2018 have grown rather than fallen. <ul><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">While employment in these exporting subsectors has fallen, the decline is smaller than the average for manufacturing as a whole.</li></ul>The assertion that China is suffering from a crisis of employment as a result of the tariffs imposed by the United States is, therefore, not based on the evidence.<ul><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">Employment in broad manufacturing has been falling over the past year, but at a slower pace than in 2014–17, before the tariffs were imposed.</li><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">China’s exports to the rest of the world are growing enough to more than offset the lost sales to the United States, so employment losses due directly to the trade war seem to be de minimis.</li></ul>Basing trade policy on a bogus premise may be an effective way to sell it to the US public, but it is hardly likely to work with the Chinese.</td></tr></tbody></table></td></tr><tr><td class="h20div" style="height: 20px;border-bottom: 20px solid #f5f5f5;"></td></tr><tr><td class="nl-topic" style="display: block;font-size: 1.35em;font-weight: 700;color: #fff;line-height: 1.5em;letter-spacing: 0.4px;text-align: center;text-transform: uppercase;background-color: #001544;padding: 5px 0;border-bottom: 5px solid rgba(225, 225, 225, 1);">2. THE GREAT DECOUPLING</td></tr><tr><td class="nl-post-title" style="display: block;font-family: 'Lato', sans-serif;font-size: 1.45em;font-weight: 700;line-height: 1.5em;letter-spacing: -0.2px;padding: 1.2em 3.5% 0 3.5%;"><a href="https://www.foreignaffairs.com/articles/asia/2019-08-12/trumps-assault-global-trading-system" target="_blank" style="color: #001d5d;border-bottom: 0px solid #008dc8;text-decoration: none;"><img class="nl-source-logo" src="https://cdn.prod.website-files.com/5c864c33af62620dca1373ac/5d8196ecd805197b52193e7c_foreign%20affairs.png" alt="CHINADebate" style="width: 60px;display: block;float: left;margin: 7px 16px 0 0;border: 1px solid rgba(225, 225, 225, 1);">‘Trump’s Assault on the Global Trading System’</a></td></tr><tr><td class="nl-post" style="padding: 0 3.5% 1.2em 3.5%;">Chad P. Bown | Peterson Institute for International Economics <a href="https://www.piie.com/experts/senior-research-staff/nicholas-r-lardy" target="_blank" style="color: inherit;border-bottom: none;text-decoration: none;">Douglas A. Irwin | Dartmouth College</a> September/October 2019 <hr style="border: 0;border-top: 1px solid #ececec;height: 5px;margin: 20px auto;text-align: center;">‘Why Decoupling From China Will Change Everything’ Thorough analysis of Trump & trade. Here’s an excerpt about China: <table class="qtable" style="border-collapse: collapse;width: 100%;margin: 0;"><tbody><tr><td class="qborder" style="border-left: 7px solid rgba(225, 225, 225, 1);padding: 0 17px;">Many observers assumed that the Trump administration simply wanted to get a better deal from China. But what constituted a better deal was always vague.<ul><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">If the primary concern was the bilateral trade deficit, China could be pressured to go on a massive spending spree, buying up U.S. soybeans and energy products.</li><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">If it was intellectual property theft, China might be persuaded to change a few laws and commit to international norms.</li></ul>It has become clear, however, that the administration does not want a permanent deal, or at least any deal with an explicit path forward that the Chinese government might accept.<ul><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">Even if Trump and Chinese President Xi Jinping come to some superficial agreement, it is unlikely to be more than a temporary truce in what is now a permanent trade war.</li></ul>The administration’s goal seems to be nothing less than the immediate and complete transformation of the Chinese economy or bust—with bust the most likely outcome.<ul><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">No one seriously expects China’s leaders to cede control of the economy simply because of U.S. threats. </li><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">The Trump administration may not even expect them to; it may have been asking all along for something that it knew China could not deliver.</li></ul>If so, the objective was never a comprehensive deal; it was the tariffs themselves.<ul><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">For one thing, if the administration had been serious about getting a deal from China, it would have maximized its leverage by bringing along Japan and the EU, both of which have similar economic concerns.</li><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">Indeed, Japan and the EU have made considerable efforts to work with the administration when it comes to China. They have mostly been rebuffed.</li></ul>There were hints from the beginning that the administration was never searching for a deal that would truly end the trade war.<ul><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">In 2017, Navarro outlined the administration’s view that trade with China threatened U.S. national security.</li><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">He also let slip that he wanted to rip up the supply chains that bound the United States and China together.</li><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">At the time, some dismissed him as a rogue eccentric. Now, the United States is on the cusp of slapping tariffs on all imports from China—the first step toward Navarro’s goal.</li><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">Geopolitics has trumped economics. </li></ul>This is not protectionism in the sense of trying to help a domestic industry in its struggle against imports.<ul><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">The goal is much broader and more significant: the economic decoupling of the United States and China.</li></ul>That would mark a historic fragmentation of the world economy. It would represent, in the words of former Treasury Secretary Henry Paulson, the falling of an “economic iron curtain” between the world’s two largest economies.<ul><li style="font-family: Georgia, serif;font-size: 1.05em;color: #001544;line-height: 1.825em;letter-spacing: -0.1px;margin: 0em;">Such a separation would have foreign policy and national security implications well beyond the economic consequences. </li></ul></td></tr></tbody></table></td></tr></tbody></table></td></tr></tbody></table><div></div></div>

8/1/2019

August 1, 2019

<div id="NLpost" class="nl-post-wrapper" style="padding:0 3.5%;margin:0 auto;"><div id="NLHeader" class="post-card"><div id="Page-header" class="mainheader"><h1 class="t1">‘Wall Street will be the next US-China battleground’</h1><div class="date">August 1, 2019</div><a href="https://www.linkedin.com/in/malcolmriddell/" target="_blank" class="date" style="color: inherit;border-bottom: 0 solid #008dc8;text-decoration: none;">by Malcolm Riddell</a></div><div class="table-block w-condition-invisible w-dyn-bind-empty w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"></div></div><div class="section_title w-condition-invisible">I. THE LAW AND THE PROTESTS</div><div id="article1" class="post-card"><div class="t2-block">1. TRADE TALKS</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;"><h5 class="no_margin nl-sub-title" style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.375em;margin-top: 0;padding-bottom: .2em;border-bottom: 2px solid #c80000;background-color: #fff;padding: 20px;border: 1px solid #ededed;"><a href="https://www.wsj.com/articles/slow-progress-in-trade-talks-is-partly-a-result-of-chinas-new-tactic-to-wait-11564574957?mod=hp_lead_pos2" target="_blank" style="color: inherit;border-bottom: 0 solid #001544;text-decoration: none;">‘Slow Progress in Trade Talks Is Partly a Result of China’s New Tactic to Wait’ | WSJ</a></h5><img width="100%" src="https://images.wsj.net/im-94854?width=620&size=1.5" alt="CHINADebate" style="width: 100%;margin: 0 auto;">WSJ<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘Beijing wants to appear willing to negotiate but also thinks it can extract better terms by not hurrying into concessions.’<a href="https://www.wsj.com/articles/trump-warns-china-of-tougher-trade-deal-if-he-wins-second-term-11564488023?mod=article_inline" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Plodding progress in trade negotiations</a> between the U.S. and China this week is partly the result of a new tactic from Beijing, which increasingly thinks waiting may produce a more-favorable agreement,’ <a href="https://www.wsj.com/articles/slow-progress-in-trade-talks-is-partly-a-result-of-chinas-new-tactic-to-wait-11564574957?mod=hp_lead_pos2" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">reports</a> the Wall Street Journal.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Beijing, while wanting to appear willing to negotiate, thinks it can extract better terms by not hurrying into concessions, according to Chinese experts and others briefed on the talks.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">“China can take it easy and wait patiently,” said Mei Xinyu, a researcher at a think tank under China’s Commerce Ministry. China’s economy is recovering, he said, while the U.S.’s is likely to slow: “The impact of the trade war falls in the early stage on China’s economy but in a later stage for the U.S. economy.”</li></ul>‘Agricultural purchases were supposed to be a goodwill measure in restarting the negotiations. Mr. Trump has said Chinese President Xi Jinping promised them when the two leaders met a month ago and agreed to resume negotiations.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Beijing is likely holding out on buying large amounts of U.S. farm goods while waiting for concessions from the U.S. side, the people following the talks said.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Key among those <a href="https://www.wsj.com/articles/huawei-shows-resilience-in-the-face-of-u-s-blacklisting-11564473991?mod=article_inline" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">is relaxing the blacklisting </a> of Chinese telecommunications gear-maker Huawei Technologies Co., blocking its access to U.S. technology.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Mr. Trump had previously said U.S. companies would be <a href="https://www.wsj.com/articles/trump-says-he-is-set-to-discuss-huawei-with-xi-11561769726?mod=article_inline" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">allowed to resume sales to Huawei</a> as part of his agreement with Mr. Xi.’</li></ul>‘China’s greater patience over a deal contrasts with Beijing’s attitude late last year, when a precipitous slowdown in the economy unnerved Mr. Xi and his top officials, driving them to the negotiating table.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In recent months, economists and other analysts, at the behest of the government, have been touring the provinces and poring over data to assess whether the domestic economy can withstand the protracted impact of punitive tariffs by the U.S., according to people briefed on the matter.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘One issue being examined is the potential impact of U.S. companies moving supply chains out of China.’</li></ul>‘Officials have said publicly that <a href="https://www.wsj.com/articles/china-may-boost-stimulus-to-speed-economy-after-current-efforts-fall-short-11563193843?mod=article_inline" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">they have enough policy tools to keep growth stable</a> and achieve the government’s target of between 6% and 6.5% this year. At a key economic policy meeting Tuesday, the Communist Party’s Politburo said that authorities will boost measures to tackle “new challenges” in the economy.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Top leaders also urged financial institutions to provide longer-term funding to manufacturers to help stabilize investment.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘An official gauge of activity in China’s manufacturing sector picked up in July, though it remained in contractionary territory as it has been for much of the year.’</li></ul></td></tr></tbody></table><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;"><h5 class="no_margin nl-sub-title" style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.375em;margin-top: 0;padding-bottom: .2em;border-bottom: 2px solid #c80000;background-color: #fff;padding: 20px;border: 1px solid #ededed;"><a href="https://www.youtube.com/watch?v=F1RHLKyFD98" target="_blank" style="color: inherit;border-bottom: 0 solid #001544;text-decoration: none;">‘No Urgency on Either Side to Reach China-U.S. Trade Deal’ | David Dollar, Brookings</a></h5><img width="100%" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d4356f4a345e56009141041_No%20Urgency%20Brookings%20Fellow%20Says.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;">Bloomberg<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘Well, to be honest, I had low expectations and still they were disappointed.’Q: ‘So was this progress or not?<a href="https://www.brookings.edu/experts/david-dollar/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">David Dollar:</a> ‘Well, to be honest, I had low expectations and still they were disappointed.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘I thought there would be what I called the “mini deal” where we got more specificity about the agricultural purchases that China will resume; in return, the US would ease up on the sanctions on Huawei.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘I thought they could get the details down for that mini-deal. It sounds like they didn't.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The White House is saying that China has agreed in general to resume the agricultural purchases.’</li></ul>‘The main thing is after a short meeting, they agreed to reconvene in September.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘No one feels any great urgency about reaching a deal here.’</li></ul>Q: ‘That’s the question about the sense of urgency. Let's look at it from the Chinese side first, and we had manufacturing PMIs out overnight, still below 50, which is contracting, not expanding - up a bit from where they had been, but still below 50. Does president Xi feel pressure from that at all?’Dollar: ‘I don't think so.’ <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘As you say, the manufacturing PMI ticked up a little bit, still below 50, but it's stabilized. It's rising.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The services, PMI is still well above 50.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Their economy grew at 6.2% in the second quarter, so they're growing about three times faster than the United States.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘I think the storyline that their economies in terrible shape, that's really exaggerated.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘There certainly are some concerns there, but I think President Xi feels he's got the domestic tools he needs to deal with that.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘I don't see the Chinese feel any great urgency to make a deal.’</li></ul>Q: ‘One of the things that was different about these negotiations was the negotiating team for the Chinese - they added their Commerce Minister, who is thought to be something of a hard liner or a hawk. We talked with Michael Pillsbury of the Hudson Institute yesterday, and he said, actually, that isn’t a good sign. This is what he said.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Pillsbury: “Now that the Chinese team has got some real hawks on it, we have a better chance of coming to a deal that will stick and that will work without violation or cheating.”</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Is that right, David? Do you read it the same way? This is good news because that sort of protects President Xi’s right flank.’</li></ul>Dollar: ‘I see it cutting both ways.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Zhong Shan, the Minister of Commerce, he's certainly a staunch defender of China's trade rights. I don't see him signing up to anything that gives away a lot from the Chinese side.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But I think Michael Pillsbury is correct that if the two sides can reach a practical compromise, Minister Zhong Shan is in a good position to sell that to the Politburo.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘I still think Liu He, who's the deputy prime minister, who's responsible for all this still has huge influence in China.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Certainly the two of them could sell it if there's a practical compromise.’</li></ul></td></tr></tbody></table></td></tr></div></div><div id="article2" class="post-card"><div class="t2-block">2. BEYOND THE TRADE WAR</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;"><h5 class="no_margin nl-sub-title" style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.375em;margin-top: 0;padding-bottom: .2em;border-bottom: 2px solid #c80000;background-color: #fff;padding: 20px;border: 1px solid #ededed;"><a href="https://asia.nikkei.com/Opinion/Wall-Street-will-be-the-next-US-China-battleground2" target="_blank" style="color: inherit;border-bottom: 0 solid #001544;text-decoration: none;">‘Wall Street will be the next US-China battleground’ | Fraser Howie</a></h5><img width="100%" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d4357a59da8898906758886_Fraser%20Howie.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;">Asia Nikkei<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘The escalation from import tariffs to capital markets means that the U.S. and China are now engaged in the early stages of an economic war.’‘The U.S. now considers China more a strategic adversary than a partner,’ <a href="https://asia.nikkei.com/Opinion/Wall-Street-will-be-the-next-US-China-battleground2" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">write</a><a href="https://www.lowyinstitute.org/the-interpreter/contributors/articles/fraser-howie" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Fraser Howie</a>, co-author of "Red Capitalism: The Fragile Financial Foundation of China's Extraordinary Rise" and Roger Garside, a former British diplomat.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This shift in view showed up first in trade policy.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Now a new front has begun to open in the capital markets.’</li></ul>‘Senator Marco Rubio fired the first major salvo last month by introducing legislation that would increase oversight of Chinese companies listed on American stock exchanges, delisting those that fail to comply with the new requirements.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Chinese companies have been tapping the U.S. capital markets since the early 1990s.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘A listing in New York has long been seen as confirmation that a company is indeed one of China's best and brightest.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Yet an American listing did not necessarily assure good corporate governance. U.S. regulators have never been able to examine audit documents from Chinese companies as Beijing considers that practice a breach of its sovereignty and a risk to its state secrets.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The issue of inadequate disclosure by Chinese companies listed in the U.S. has been left unaddressed for too long.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Now higher requirements will likely be enshrined in law.’</li></ul>‘Rubio's bill seems poised to gain momentum.’ <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘If indeed passed, it would represent a new front in the U.S. economic war with China and could have a dramatic impact on global investment flows.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Such a law would weigh heavily on China-related stocks around the globe and could even have domestic political repercussions for President Xi Jinping.’</li></ul>‘Rubio's initiative marks the most dramatic escalation since Trump launched his trade offensive.’China’s Options‘While many Chinese companies might seek to shift their primary listing to Hong Kong if Rubio's bill were passed, success is not a given.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Hong Kong would no doubt welcome a surge of such initial public offerings, but the world is a global marketplace and investors would still ask why the companies were unable to provide better disclosure in the U.S.’</li></ul>‘Beijing could not effectively reciprocate in kind because of the comparatively tiny sums of Chinese money invested in overseas stocks due to its capital controls.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Even if China responded by dumping U.S. Treasurys and other bonds, it would be kicking itself in the teeth as there would be nowhere else to put their money and the U.S. bond market is liquid enough to absorb even aggressive selling.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And, raising the stakes with restrictions on U.S. investments in listed companies in Hong Kong and China would truly be a nuclear option that the current situation does not require.’</li></ul>Out Rubio-ing Rubio‘Other politicians would go further than Rubio.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Some voices are demanding that Trump restrict U.S. pension funds and other such asset managers from investing in Chinese companies or at least blacklist state-owned ones.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The U.S. has the power and capacity to do this via the Department of the Treasury and the Office of Foreign Assets Control.’</li></ul>‘If the U.S. blacklisted Chinese companies this way, billions of dollars of stocks would have to be dumped.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘U.S. investment company BlackRock alone holds around $3.3 billion of investor money in Hong Kong-listed exchange traded funds tied to domestic Chinese shares besides its China-focused mutual funds.’</li></ul>‘Indeed, regardless of where they are listed, affected Chinese companies would no longer be able to count on U.S.-based funds as investors.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That would be an incredible blow to China Inc., and one that China would have little in its arsenal with which to react.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The U.S. has many alternatives to China but China does not enjoy the same luxury of choice.’</li></ul>‘Finally, the U.S. administration has only recently recognized that America's advantages in taking on China lie in its control over the global reserve currency and the world's greatest capital market.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘If Chinese leaders are worried by the threat to limit their nation's access to the world's largest capital market, they should ask themselves what the effect would be if their banks were denied access to the U.S. dollar clearing market too.’</li></ul>Pressure on Chinese Leadership‘The Chinese leadership could also face internal pressure in the case of such dramatic capital market conflict.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘By listing their companies overseas, China's business elites, and by extension their political associates, have effectively put billions of dollars of assets beyond the country's capital controls.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This has undoubtedly provided vast opportunities for payoffs and favors, free from local oversight and surveillance.’</li></ul>‘If the most extreme sanctions were to gain traction, those who gained most from China's economic rise would suddenly find their assets effectively frozen offshore or remitted back onshore.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It surely would play badly for President Xi Jinping if the Chinese elites were thus left substantially poorer and very much shackled within the nation's financial system.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The links between billions of dollars in offshore assets, self-made tycoons, bosses of state-owned enterprises and the nation's political leaders are deliberately opaque.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But it would be naive to think that a hard blow to the pocketbooks of China's elites would not echo around the courtyards of the Zhongnanhai leadership compound in Beijing.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Xi might then find himself forced to compromise far quicker than he would like and by those he needs to keep closest at hand.’</li></ul></td></tr></tbody></table></td></tr></div></div><div id="article3" class="post-card"><div class="t2-block">3. HONG KONG</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;"><h5 class="no_margin nl-sub-title" style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.375em;margin-top: 0;padding-bottom: .2em;border-bottom: 2px solid #c80000;background-color: #fff;padding: 20px;border: 1px solid #ededed;"><a href="https://www.bloomberg.com/news/articles/2019-07-29/hong-kong-s-waning-importance-for-china-s-economy-chart" target="_blank" style="color: inherit;border-bottom: 0 solid #001544;text-decoration: none;">Hong Kong’s Waning Importance for China’s Economy | Bloomberg</a></h5><img width="100%" src="https://assets.bwbx.io/images/users/iqjWHBFdfxIU/irp0iJQdnIdQ/v2/1400x-1.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;">Bloomberg'Hong Kong’s relevance as China’s gateway to global markets is diminishing,' <a href="https://www.bloomberg.com/news/articles/2019-07-29/hong-kong-s-waning-importance-for-china-s-economy-chart" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">according</a> to Bloomberg. <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'Still, it retains a distinctive role as staging post for outbound investment, and source of equity and bond finance.' </li></ul></td></tr></tbody></table><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;"><h5 class="no_margin nl-sub-title" style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.375em;margin-top: 0;padding-bottom: .2em;border-bottom: 2px solid #c80000;background-color: #fff;padding: 20px;border: 1px solid #ededed;"><a href="https://www.youtube.com/watch?v=YRwHYk2EcRI" target="_blank" style="color: inherit;border-bottom: 0 solid #001544;text-decoration: none;">VIDEO | AmCham Urges Hong Kong Action to Quell Growing Business Concerns | Bloomberg</a></h5><img width="100%" src="https://assets.bwbx.io/images/users/iqjWHBFdfxIU/ifkkqJRFMZTY/v5/-1x-1.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;">Bloomberg‘<a href="https://www.amcham.org.hk/about/staff/tara-joseph" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Tara Joseph</a>,  president of AmCham Hong Kong, discusses the Hong Kong protests and how they’re impacting business’ in a Bloomberg<a href="https://www.youtube.com/watch?v=YRwHYk2EcRI" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">video interview</a>.‘AmCham said members reported that some overseas customers have said Hong Kong “has become less safe and a riskier place in which to conduct business,” and that the primary winner of the decline in its reputation was rival Asian financial center Singapore’.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">“While members made clear Hong Kong’s many unique competitive advantages remain largely intact, they voiced concern that a failure to address the instability and worsening perceptions toward the city now may lead to irreparable damage over the long term,” AmCham’s statement said.’</li></ul></td></tr></tbody></table><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;"><h5 class="no_margin nl-sub-title" style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.375em;margin-top: 0;padding-bottom: .2em;border-bottom: 2px solid #c80000;background-color: #fff;padding: 20px;border: 1px solid #ededed;"><a href="https://www.youtube.com/watch?v=SwbbpStz5SY&feature=youtu.be" target="_blank" style="color: inherit;border-bottom: 0 solid #001544;text-decoration: none;">VIDEO | ‘Chinese army's Hong Kong garrison releases video showing anti-riot drills, featuring tanks’ | SCMP</a></h5><img width="100%" src="https://ichef.bbci.co.uk/news/624/cpsprodpb/B742/production/_108141964_de28.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;">SCMP‘China's army in Hong Kong has released a three-minute video showing troops carrying out "anti-riot" exercises, in what is being seen as a thinly veiled warning to pro-democracy protesters,’ <a href="https://www.bbc.com/news/world-asia-china-49190755" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">reports</a> the BBC.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><a href="https://www.reuters.com/article/us-hongkong-protests-pla/chinas-hong-kong-pla-garrison-releases-video-with-scenes-of-anti-riot-operations-idUSKCN1UR3HK" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Reuters:</a> ‘In one sequence in the PLA video, titled “anti-riot drill footage”, ranks of troops advance with shields and truncheons on protesters, firing rifles into the air.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Tear gas and water cannons rained down on protesters, as armored personnel carriers with battering rams raced forward, and troops laid barbed wire coils on the ground.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">“All consequences are at your own risk,” one soldier shouted in Cantonese, the main Chinese dialect in Hong Kong, during the video clip.’</li></ul></li></ul>Here is the <a href="https://youtu.be/SwbbpStz5SY" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">video report</a> from the South China Morning Post.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">And here’s <a href="https://twitter.com/i/status/1156827062230867968" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">the full 3m video</a>.</li></ul></td></tr></tbody></table><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;"><h5 class="no_margin nl-sub-title" style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.375em;margin-top: 0;padding-bottom: .2em;border-bottom: 2px solid #c80000;background-color: #fff;padding: 20px;border: 1px solid #ededed;"><a href="https://www.ft.com/content/2974b0da-af96-11e9-8030-530adfa879c2" target="_blank" style="color: inherit;border-bottom: 0 solid #001544;text-decoration: none;">‘China’s garrison in Hong Kong is not symbolic’ | FT</a></h5><img width="100%" src="https://si.wsj.net/public/resources/images/BN-RD765_1209le_GR_20161209024422.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;">FT<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘The Chinese garrison in Hong Kong, rather like the British garrison here before 1997, is not meant to be token, ceremonial or symbolic.’<a href="https://www.ft.com/content/2974b0da-af96-11e9-8030-530adfa879c2" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Letter to the FT</a> from <a href="https://en.wikipedia.org/wiki/Leung_Chun-ying" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">CY Leung</a>,  former Hong Kong Chief Executive ‘Let me add just one point to your report, <a href="https://www.ft.com/content/abc14182-adcc-11e9-8030-530adfa879c2" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">“Beijing warns it can send army into Hong Kong”</a> (July 24).’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The arrangement for the Chinese garrison in Hong Kong is found not only in the Hong Kong Garrison Law as you reported.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It is stipulated also in Article 14 of the Hong Kong Basic Law.’</li></ul>‘In passing I should also mention that the Chinese garrison in Hong Kong, rather like the British garrison here before 1997, is not meant to be token, ceremonial or symbolic.’</td></tr></tbody></table></td></tr></div></div><div class="section_title w-condition-invisible">II. POTENTIAL BACKLASH FROM THE U.S. </div><div id="article4" class="post-card"><div class="t2-block">4. GEO-POLITICS</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;"><h5 class="no_margin nl-sub-title" style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.375em;margin-top: 0;padding-bottom: .2em;border-bottom: 2px solid #c80000;background-color: #fff;padding: 20px;border: 1px solid #ededed;"><a href="https://www.bloomberg.com/opinion/articles/2019-07-30/russia-china-are-crushing-the-u-s-in-the-battle-for-the-arctic" target="_blank" style="color: inherit;border-bottom: 0 solid #001544;text-decoration: none;">‘America Is Losing the Battle of the Arctic to China & Russia’ | Hal Brands, SAIS</a></h5><img width="100%" src="https://assets.bwbx.io/images/users/iqjWHBFdfxIU/ibpHBjXZbxJc/v1/1400x-1.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;">Bloomberg<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘Climate change is transforming the region, and thereby opening new shipping lanes and facilitating exploitation of undersea resources.’‘There's no mystery why the Arctic is getting so much attention,’ <a href="https://www.bloomberg.com/opinion/articles/2019-07-30/russia-china-are-crushing-the-u-s-in-the-battle-for-the-arctic" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">writes</a><a href="https://kissinger.sais-jhu.edu/brands.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Hal Brands</a> of the School of Advanced International Studies and AEI.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Climate change is transforming the region, and thereby opening new shipping lanes and facilitating exploitation of undersea resources.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Northern Sea Route, which runs along Russia’s northern coast, slashes shipping times between East Asian and European ports compared to existing routes through the Strait of Malacca.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And by some estimates, the Arctic contains 30 percent of the world's natural gas and over $1 trillion in strategically important rare-earth minerals.’</li></ul>‘At the same time, the Arctic is becoming a contested zone.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Russia is enhancing its power-projection capabilities and asserting control over key sea routes.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China, a self-proclaimed “near-Arctic” power, is starting to develop a military presence and linking its activities there to its globe-spanning Belt and Road Initiative.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘As the frictions between the major powers intensify around the world, they will increasingly spill over into the Arctic.’ </li></ul></td></tr></tbody></table></td></tr></div></div><div id="article5" class="post-card"><div class="t2-block">5. ECONOMY</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;"><h5 class="no_margin nl-sub-title" style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.375em;margin-top: 0;padding-bottom: .2em;border-bottom: 2px solid #c80000;background-color: #fff;padding: 20px;border: 1px solid #ededed;"><a href="https://www.bloomberg.com/news/articles/2019-07-29/china-s-economy-weakened-further-in-july-early-indicators-show" target="_blank" style="color: inherit;border-bottom: 0 solid #001544;text-decoration: none;">‘China's Economy Weakened Further in July, Early Indicators Show’</a></h5><img width="100%" src="https://assets.bwbx.io/images/users/iqjWHBFdfxIU/iu0xDAqYaWGI/v2/560x-1.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;">Bloomberg <p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘China’s second-half economic outlook continues to be clouded by great uncertainty over trade relations with the U.S.’“China’s second-half economic outlook continues to be clouded by great uncertainty over trade relations with the U.S., which in turn constrains its policy responses,” Liu Li-gang, chief China economist at Citigroup Inc. in Hong Kong, <a href="https://www.bloomberg.com/news/articles/2019-07-29/china-s-economy-weakened-further-in-july-early-indicators-show" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">reports</a>Bloomberg.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">“Policy easing will continue, but any stimulus will be restrained to leave fiscal head-room if U.S.-China trade tensions re-escalate.”</li></ul></td></tr></tbody></table></td></tr></div></div><div class="section_title w-condition-invisible">III. CONGRESS & THE PRESIDENT REACT </div><div id="article6" class="post-card"><div class="t2-block">6. ONLINE BANKING</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;"><h5 class="no_margin nl-sub-title" style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.375em;margin-top: 0;padding-bottom: .2em;border-bottom: 2px solid #c80000;background-color: #fff;padding: 20px;border: 1px solid #ededed;"><a href="https://www.bloomberg.com/news/articles/2019-07-28/jack-ma-s-290-billion-loan-machine-is-changing-chinese-banking" target="_blank" style="color: inherit;border-bottom: 0 solid #001544;text-decoration: none;">‘Jack Ma’s $290 Billion Loan Machine Is Changing Chinese Banking’ | Bloomberg</a></h5><img width="100%" src="https://s.yimg.com/ny/api/res/1.2/36XnpDquNAUNsJPhizyPkQ--~A/YXBwaWQ9aGlnaGxhbmRlcjtzbT0xO3c9ODAw/https://media.zenfs.com/en/bloomberg_markets_842/89dba3a36bdb235c07de7e989629b5a0" alt="CHINADebate" style="width: 100%;margin: 0 auto;">Bloomberg <p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘Jack Ma’s online bank is leading a quiet revolution in the way China lends to small businesses.’‘Jack Ma’s online bank is leading a quiet revolution in the way China lends to small businesses, taking aim at a credit bottleneck that has held back Asia’s largest economy for decades,’ <a href="https://www.bloomberg.com/news/articles/2019-07-28/jack-ma-s-290-billion-loan-machine-is-changing-chinese-banking" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">reports</a>Bloomberg.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Using real-time payments data and a risk-management system that analyzes more than 3,000 variables, Ma’s four-year-old MYbankhas lent 2 trillion yuan ($290 billion) to nearly 16 million small companies.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Borrowers apply with a few taps on a smartphone and receive cash almost instantly if they’re approved.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The whole process takes three minutes and involves zero human bankers.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The default rate so far: about 1%.’</li></ul></td></tr></tbody></table></td></tr></div></div><div id="article7" class="post-card"><div class="t2-block">7. MANUFACTURING LEAVING CHINA</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;"><h5 class="no_margin nl-sub-title" style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.375em;margin-top: 0;padding-bottom: .2em;border-bottom: 2px solid #c80000;background-color: #fff;padding: 20px;border: 1px solid #ededed;"><a href="https://www.ft.com/content/0885b080-addf-11e9-8030-530adfa879c2#myft:my-news:page" target="_blank" style="color: inherit;border-bottom: 0 solid #001544;text-decoration: none;">‘China scrambles to stem manufacturing exodus as 50 companies leave’</a></h5><img width="100%" src="https://www.ft.com/__origami/service/image/v2/images/raw/http%3A%2F%2Fcom.ft.imagepublish.upp-prod-us.s3.amazonaws.com%2Ff1cfd076-ae8f-11e9-8030-530adfa879c2?fit=scale-down&source=next&width=700" alt="CHINADebate" style="width: 100%;margin: 0 auto;">FT<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘To counter tariff blow, government eases restrictions and offers perks’‘A year into the trade war with Washington, more than 50 global companies, including Apple and Nintendo, have announced or are considering plans to move production out of China,’ <a href="https://www.ft.com/content/0885b080-addf-11e9-8030-530adfa879c2#myft:my-news:page" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">reports</a>  the Financial Times.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And not just foreign companies. Chinese manufacturers, as well as those from the US, Japan and Taiwan, are part of the drain, including makers of personal computers, smartphones and other electronics.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">“We need permanent measures to avoid the risk of tariffs and be eligible for US government procurement,” said Kiyofumi Kakudo, chief executive of PC maker Dynabook.’ </li></ul>‘The trade dispute is beginning to show up in flows of goods and capital.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'In the first five months of the year, exports from China to the US fell 12 per cent on the year in value terms.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Exports from India, Vietnam and Taiwan logged double-digit gains.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Exports aimed at bypassing US tariffs by disguising the origin of products may also be increasing.’</li></ul>‘Many companies, alarmed by the prospect of a prolonged trade conflict, are hedging their bets.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘While looking for alternative production sites for US-bound goods, many will keep factories operating in China for the domestic Chinese market.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Thus, many manufacturers will be forced to set up dual supply chains: one for China and one for other markets, raising their costs and denting profits.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Other than higher costs, companies will probably face excess capacity in a decoupled world economy.’</li></ul>“The possibility of the world market dividing into China and non-China is growing,” said Yuji Miura, a senior economist at the Japan Research Institute.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">“Decoupling” — that is, an unwinding of economic ties between the US and China and a division of the world economy into hostile blocs — is a real possibility.’</li></ul>‘Much of the shift is to south-east Asia, especially Vietnam, which is becoming home to many manufacturers of electrical and electronic equipment.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Among them is South Korea’s Samsung Electronics, which makes smartphones in the country.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Vietnam also offers logistic advantages because it shares a land border with China.’</li></ul>‘Manufacturers are also moving production back home to take advantage of existing procurement networks for exports aimed at large, developed-country markets.’</td></tr></tbody></table></td></tr></div></div><div id="article8" class="post-card"><div class="t2-block">8. CHINESE INVESTMENT IN THE U.S.</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">Great <a href="http://www.aei.org/multimedia/chinese-investments-us-handout/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">summary</a> infographic of Chinese investment in the U.S. from AEI’s  <a href="http://www.aei.org/china-global-investment-tracker/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘China Global Investment Tracker’</a> created and managed by <a href="http://www.aei.org/scholar/derek-m-scissors/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Derek Scissors</a>.<img width="100%" src="http://www.aei.org/wp-content/uploads/2018/08/china-2019.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;">AEI</td></tr></div></div></div>

7/24/2019

<div id="NLpost" class="nl-post-wrapper" style="padding:0 3.5%;margin:0 auto;"><div id="NLHeader" class="post-card"><div id="Page-header" class="mainheader"><h1 class="t1">‘Does China rule the Fortune 500?’</h1><div class="date">July 24, 2019</div><a href="https://www.linkedin.com/in/malcolmriddell/" target="_blank" class="date" style="color: inherit;border-bottom: 0 solid #008dc8;text-decoration: none;">by Malcolm Riddell</a></div><div class="table-block w-condition-invisible w-dyn-bind-empty w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"></div></div><div class="section_title w-condition-invisible">I. THE LAW AND THE PROTESTS</div><div id="article1" class="post-card"><div class="t2-block">1. ‘Who Likes Facebook's Libra Currency? Not the Chinese.’</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d37d989f1f7ed20f2773d9a_Martin%20Chorzempa.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">PIIE<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘Thus, ironically, after years of benefitting from copying others, China is wringing its hands over an American tech company copying Chinese innovation.’‘As envisioned by Facebook, Libra is a currency existing in digital format that could be used to make payments or money transfers,’ writes <a href="https://www.piie.com/experts/senior-research-staff/martin-chorzempa" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Martin Chorzempa</a> of the Peterson Institute for International Economics (PIIE) in <a href="https://www.piie.com/blogs/realtime-economic-issues-watch/who-likes-facebooks-libra-currency-not-chinese" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Who Likes Facebook's Libra Currency? Not the Chinese.’</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Pushed out seamlessly to Facebook’s 2.4 billion users, Libra could transform ecommerce and finance overnight.’</li></ul>‘China’s top fintech companies have over a billion users accustomed to carrying out commercial and business transactions in what is becoming the world’s biggest cashless society.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Chinese fintech companies are among the world’s most valuable.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They are already expanding into the United Kingdom and Southeast Asia.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘With Libra, Facebook could leapfrog China by pushing out its currency to almost 2.5 times the user base of WeChat or Alipay overnight, with a worldwide reach.’</li></ul>‘Facebook’s new business <a href="https://www.facebook.com/notes/mark-zuckerberg/a-privacy-focused-vision-for-social-networking/10156700570096634/?mod=article_inline" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">strategy</a> is exactly how WeChat in China became a super app.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Mark Zuckerberg <a href="https://www.facebook.com/notes/mark-zuckerberg/a-privacy-focused-vision-for-social-networking/10156700570096634/?mod=article_inline" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">wants to</a> “build more ways for people to interact on top of [private messaging], including calls, video chats, groups, stories, businesses, payments, commerce, and ultimately a platform for many other. . .services.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Thus, ironically, after years of benefitting from copying others, China is wringing its hands over an American tech company copying Chinese innovation.’</li></ul>‘WeChat and Alipay turned China into a cashless society where people use their apps for everything, while Americans still use billions of checks and carry plastic cards.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So far, Chinese super apps have been truly successful only in their protected home market, where Facebook and Google are blocked and foreign payments companies cannot legally operate.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Outside China, Ant Financial and WeChat must start from scratch because they lack the users and ecosystems that made them so successful at home.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘American tech is the opposite. US tech companies have succeeded wildly beyond American shores.’</li></ul>‘Facebook’s nearly 2.4 billion total users attest to the company’s enormous advantages in data, users, and technology.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘There is no telling what additional advantages could accrue from its model being successfully applied to finance.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Libra project signals that American big tech’s timidity over entering finance is coming to an end.’</li></ul>‘Globally Facebook has the same strengths that Chinese tech had domestically, so China knows Libra could rapidly make Facebook a financial powerhouse.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That is why Chinese officials see Libra as an economic and geopolitical threat.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They have long been unhappy about the dollar’s dominance in the global financial system and are frightened by the prospect of an American company dominating the future world of digital money.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Former governor Zhou Xiaochuan of China’s central bank, the People’s Bank of China (PBOC), who is one of the foremost cheerleaders of fintech in China, framed Libra as indicative of a larger movement to create a “currency that's more conducive to globalization.”’</li></ul>‘Wang Xin, research bureau director at PBOC, said Libra has lent greater urgency to the central bank’s own plans for a <a href="https://www.piie.com/blogs/china-economic-watch/chinas-central-bank-backed-digital-currency-anti-bitcoin" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">digital currency</a>, which have been in the works since 2014, in partnership with Ant Financial.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He <a href="https://www.scmp.com/economy/china-economy/article/3017716/facebooks-libra-forcing-china-step-plans-its-own" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">noted</a>,“We had an early start…but lots of work is needed to consolidate our lead,” and he lumped Facebook in with the US government, warning that Libra could lead to a world with “one boss, the Dollar, America.”’</li></ul>‘China has the strictest <a href="https://www.piie.com/blogs/china-economic-watch/why-china-cracking-down-cryptocurrencies-and-icos" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">regulation</a> on cryptocurrencies and initial coin offerings in the world, fearing a loss of control that could be posed by rival currencies to the Chinese renminbi, financial risk from speculation, and evasion of its capital controls.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But in a striking reversal, Wang suggested that China may loosen its control to ensure China has a home-grown digital currency that would “mainly be used to compete with Libra.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He seems to be fine with anyone but the United States or an American company launching a digital currency, suggesting that individual countries could be forced to issue their own or that the International Monetary Fund (IMF) could issue one based on the basket of currencies in the Special Drawing Rights (SDR), which includes the Chinese yuan.’</li></ul>‘Another PBOC official, Payments Department Deputy Director-General Mu Changchun, <a href="https://www.caixinglobal.com/2019-07-09/opinion-facebooks-libra-needs-central-bank-supervision-101437334.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">warned rightly </a>that Libra adoption could lead many to dump their national currencies, producing "a deterioration in local people's own economic conditions.”’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He said,“We must prevent [currencies like Libra] from becoming monopolies,” going as far as suggesting that international institutions will need to “control Libra’s circulation and monitor currency exchange rates” or even “lead to the emergence of an international central bank.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In other words, China wants Libra bogged down in as many regulatory hurdles as possible, is warning other countries against allowing adoption in their jurisdictions, and if that fails, suggests an international effort to wrest control of Libra from Facebook.’</li></ul></td></tr></div></div><div id="article2" class="post-card"><div class="t2-block">2. ‘Does China rule the Fortune 500?’ Pro & Con</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://content.fortune.com/wp-content/uploads/2019/07/Sinopec-China-Global-500.jpg?fit=1920,1080" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">Fortune<table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;"><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">Fortune 500: ‘It’s China’s World’</h5><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘American companies account for 121 of the world’s largest corporations by revenue. Chinese companies account for 129 (including 10 Taiwanese companies).’‘For the first time since the debut of the Global 500 in 1990, and arguably for the first time since World War II, a nation other than the U.S. is at the top of the ranks of global big business,’ according to Fortune in <a href="https://fortune.com/longform/fortune-global-500-china-companies" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘It’s China’s World.’</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘American companies account for 121 of the world’s largest corporations by revenue.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Chinese companies account for 129 (including 10 Taiwanese companies).’</li></ul>A few details:<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Chinese companies’ revenues account for only 25.6% of the Global 500 total, well behind America's 28.8%.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The No. 1 nationality among the top 50 companies in this year’s Global 500 is American; among the bottom 50, it’s Chinese.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘82 of the Chinese firms in the Global 500 are state-owned enterprises - “SOEs”— which receive generous subsidies that advantage them over the West’s private sector.’ </li></ul></td></tr></tbody></table><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;"><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">‘Does China rule the Fortune 500?’: Derek Scissors</h5><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘But the list reveals more weakness than strength, unless you believe that being permanently sheltered from competition constitutes strength.’‘The latest list of the world’s largest companies by revenue has 121 American companies on it, and 119 from the People’s Republic of China’ writes AEI’s Derek <a href="http://www.aei.org/scholar/derek-m-scissors/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Scissors</a> in <a href="http://www.aei.org/publication/does-china-rule-the-fortune-500/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Does China Rule the Fortune 500?’</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Fortune itself has decided to hype this.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And it is true that China is, in fact, large.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But the list reveals more weakness than strength, unless you believe that being permanently sheltered from competition constitutes strength.’</li></ul>‘It’s worth noting at the outset that disclosures from Chinese companies are not reliable.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘On their own, Chinese firms make ugly mistakes.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Further, the Communist Party does not like bad news, about its economy or its mainstay enterprises.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘There certainly are very large Chinese companies, but many of them may not be permitted to report declines in the revenue Fortune measures.’</li></ul>‘Tying together size and lies is ownership.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘While 119 out of 500 is impressive, one out of 100 is not.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘There is one private Chinese firm in the Fortune 100 by revenue: Pacific Construction Group at 97.’</li></ul>‘Ping An reports itself as “non state-owned,” which Fortune and many others wrongly treat as private.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It has foreign investors but was founded by state-owned China Merchants.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It was later treated as a state majority-owned company.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It was never announced as privatized and its ownership structure remains opaque.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Huawei claims to be private, but telecom is required by law to beabsolutely controlled by the state and the firm has an ownership structure designed to obscure.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘If it is also labeled as non-state-owned, Chinese participation in the top 100 consists of 20 state-owned enterprises (SOEs) and three “other.”’</li></ul>‘The same issues occur in the rest of the list and a good estimate is about 100 SOEs in the top 500 and about 20 non-state.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This should not be surprising and it renders the Chinese performance not just less impressive, but a sign of low productivity and innovation.’</li></ul>‘To illustrate, Sinopec Group is second globally only to Walmart in revenue.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Walmart has some monopoly characteristics but, to maintain its dominant position, has to battle Amazon, smaller competitors, and any other firms which wants to enter.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In contrast, Sinopec is guaranteed monopoly rightsin a range of oil and petrochemical activities in southern Chinese provinces.’</li></ul>‘Fortune number four China National Petroleum is guaranteed those rights in northern provinces.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Number five State Grid is the northern monopoly power distributor(its southern counterpart is #111).’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The five Chinese banks in the top 67 are the only ones allowed to engage in certain large-scale business.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘None of the SOEs in the top 500 can ever fail due to commercial competition.’</li></ul>‘If anything, profits rankings are more disturbing than revenue. China has four entries in the top 10 for total profits, but they are all state banks. There is no good interpretation here.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘One possibility is that the banks are simply lying, given that we knowtheir reports of non-performing loans are lies.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Cue outraged government officials claiming non-performing loans are low.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But if banks aren’t lying, then they are state instruments profiting at the expense of ordinary depositors and SOE borrowers to the tune of $140 billion just for those four.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Of course, this could make sense if there was, say, something fundamentally wrong with state financesthat is never fixed year after year.’</li></ul>‘If China matched the US in private firms, it would have size and productivity.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘As it is, China has undermined the potential indicated by its size. SOEs and state banks are handed a huge market and effectively told to stay out of trouble.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Why would they innovate? Why would productivity be high?’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The huge sum of revenue at Chinese firms in the Fortune 500 primarily represents waste.’</li></ul></td></tr></tbody></table></td></tr></div></div><div id="article3" class="post-card"><div class="t2-block">3. ‘China's Private Firms Continue to Struggle’: Nick Lardy</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d18026cf3be3c823e8a2e92_PIIE-Flow%20of%20loans%20tononfinancial__.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">PIIE<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘Has the access of private firms to credit improved?’ The latest data show that this trend has continued despite pledges by Chinese leadership to support lending to private sector enterprises.’‘The plight of China’s private firms, which produce about two-thirds of China’s GDP, has received widespread attention, as private credit to these firms has lagged behind the flow to state-owned enterprises.’ <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The latest data show that this trend has continued despite pledges by Chinese leadership to support lending to private sector enterprises.</li></ul>‘Has the access of private firms to credit improved?’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The latest data show that this trend has continued despite pledges by Chinese leadership to support lending to private sector enterprises.’</li></ul>‘One metric commonly taken as a proxy for private firm access to credit is bank lending to micro and small enterprises (MSEs).’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But this measure is flawed.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘For years in which the central bank has presented bank borrowing by firm size cross-classified by ownership, only about a quarter of new loans to MSEs are to private companies while two-thirds are to state companies.’</li></ul>‘A better proxy metric is lending to “people-run” (民营) firms, frequently mistranslated as private.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The People’s Bank of China’s coverage of people-run entities includes lending to private, collective, as well as foreign firms, with private accounting for about two-thirds of the total.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘On this metric, the flow of loans to private firms continues to lag.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Loans to people-run firms in the first quarter of 2019 rose only 6.7 percent, according to a <a href="https://finance.sina.com.cn/money/bank/bank_hydt/2019-05-28/doc-ihvhiqay1984304.shtml" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">statement by central bank deputy governor Chen Yulu</a>.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This is half the 13.7 percent pace of growth of overall bank lending.’</li></ul>‘The flow of bank credit to private firms collapsed after 2013, shortly after President Xi Jinping came to power (see figure above).’‘Private firms partially compensated by turning to shadow banks.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But starting in 2017, China’s deleveraging campaign reduced lending by these less well-regulated institutions.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Consequently, the growth of private firms has slowed relative to state firms, dampening China’s growth.’</li></ul>‘And as shadow banks called in their loans, many private listed companies were left with no choice but to sell shares, in many cases to better financed state firms.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In the process, some private firms were nationalized as state entities became majority owners.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And large numbers of non-listed private firms exited, many through bankruptcy.’</li></ul></td></tr></div></div><div class="section_title w-condition-invisible">II. POTENTIAL BACKLASH FROM THE U.S. </div><div id="article4" class="post-card"><div class="t2-block">4. ‘Does China’s “Invisible Hand” Steer Funds to State-Owned Firms?’</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d37db3797a39ef2ba3a1bec_Does%20China%E2%80%99s%20%E2%80%9CInvisible%20Hand%E2%80%9D%20Steer%20Funds%20to%20State-Owned%20Firms%3F%20.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">CFR<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘This finding is powerful evidence that the government is guiding banks to lend to SOEs on much more favorable terms.’“Market outcomes,” U.S. Trade Representative Robert Lighthizer told Congress in February, must “determine winners” in China,' write  <a href="https://www.cfr.org/expert/benn-steil" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Benn Steil</a> and <a href="https://www.cfr.org/bio/benjamin-della-rocca" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Benjamin Della Rocca</a> of the Council on Foreign Relations in <a href="https://www.cfr.org/blog/does-chinas-invisible-hand-steer-funds-state-owned-firms" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Does China’s “Invisible Hand” Steer Funds to State-Owned Firms?’</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It can no longer be “state capitalism.” As a precondition for any trade deal, Lighthizer insists that China halt aid to state-owned enterprises (SOEs), a practice that disadvantages both domestic and foreign private competitors.’</li></ul>‘China, however, while acknowledging that it subsidizes companies in strategic industries, insists that it does not favor state-owned firms over private ones.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘“We have no special institutional arrangements,” said a government spokesperson last month, “for additional subsidies to state-owned enterprises.”’</li></ul>‘This carefully hedged statement may be valid, insofar as one cannot find laws or regulations defining “special institutional arrangements” for SOEs.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But it does not preclude“invisible hand” interventions on their behalf.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘We therefore set out to see if these exist, in terms of preferential financing arrangements.’</li></ul>‘In a competitive market, it is axiomatic that more profitable firms pay lower borrowing rates than less profitable ones.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Greater profitability means lower risk of insolvency.’</li></ul>‘But what about in China—does this relationship hold there?’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The blue bars in the figure above show that private firms in China are vastly more profitable than state-owned ones.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘We would therefore expect them to pay commensurately lower interest rates on loans.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Yet the red bars show this is not the case: private and state-owned firms pay almost identical interest as a percentage of their liabilities.’</li></ul>‘This finding is powerful evidence that the government is guiding banks to lend to SOEs on much more favorable terms.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In short, Lighthizer is right that China offers an un-level playing field for private and state-owned firms, to the detriment of U.S. companies operating, or wishing to operate, in the country.’</li></ul><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The challenge he faces is in eliminating a subsidy whose existence can only be seen in data studies like ours.’</li></ul></td></tr></div></div><div id="article5" class="post-card"><div class="t2-block">5. ‘Party Loyalty in China Helps Private Companies Get Cheaper Loans’</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d37dbe6ca62b613e9abce1b_China%20Debt%20as%20a%20Share%20of%20GDP%20.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">Bloomberg<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘A new government program offers low-interest “red loans” to firms supporting Xi Jinping and Chinese Communist Party’‘President Xi Jinping has overseen a resurgence of party influence in China over everything from corporate boards to houses of worship,’ says Bloomberg in <a href="https://www.bloomberg.com/news/articles/2019-05-01/party-loyalty-in-china-helps-private-companies-get-cheaper-loans" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Party Loyalty in China Helps Private Companies Get Cheaper Loans.’</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He has famously used a phrase from Mao Zedong: “East, west, north, and center—the party leads everything.”</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Nowadays it appears China’s Communist Party even controls which private companies get bank loans.’</li></ul>‘To accumulate political capital, Qiu Rongquan, chairman of Zhejiang Taida Miniature Electrical Machinery Co., began making a concerted effort to promote the party at work about four to five years ago.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘“The party-building work has paid off,” Qiu says. “We have got the government support. It means a lot.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The company was granted a so-called “red loan” under a new local government program that rewards successful companies that promote the party.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Taida pays the benchmark interest rate of 4.35 percent on its 3 million-yuan ($445,500) loan.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Usually, it would have paid 20 percent to 30 percent more.’</li></ul>‘Red loans are now available in an area with a population of 14 million—more than Hong Kong and Singapore combined.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The size of loans and their interest rates are based on an index that quantifies an organization’s party loyalty, the local government says.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The criteria for scoring high on the index include participating in study groups, donating a portion of income to the party, and wearing pins with the party flag during business hours.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Taizhou businesses scoring at least four stars out of five qualify for loans of 500,000 yuan to 10 million yuan.’</li></ul>“If you move toward a system where the most loyal party supporters get more money from the financial system, the outcome is not likely to be very good, either in terms of supporting economic growth or maintaining the health of the overall financial system,” says Nicholas Lardy of the Peterson Institute for International Economics.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">“Foreigners don’t understand us Chinese people,” says Taida’s Qiu. “They think companies are not related to the government. But in China, businesses are always related to the government.”’</li></ul></td></tr></div></div><div class="section_title w-condition-invisible">III. CONGRESS & THE PRESIDENT REACT </div><div id="article6" class="post-card"><div class="t2-block">6. 'Why the United States doesn’t need to return to a gentler China policy'</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://www.washingtonpost.com/resizer/TyVOmyJRV-7i6KStWPWx5MDU9H0=/1484x0/arc-anglerfish-washpost-prod-washpost.s3.amazonaws.com/public/F53UZ4U44II6TA7DIX663DUNFY.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">Washington Post<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘The main fruit of a generally cooperative policy from Washington, at least during the Obama years, has been an emboldened China eager to reach for more.’A few weeks ago I reprinted <a href="https://www.washingtonpost.com/opinions/making-china-a-us-enemy-is-counterproductive/2019/07/02/647d49d0-9bfa-11e9-b27f-ed2942f73d70_story.html?utm_term=.eeca951c41ee" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘China is not an enemy,’</a> a letter signed by, at last count, more than 150 leaders from business, academia, diplomacy, and the military and addressed to the President and members of Congress. It was published in the Washington Post.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">The letter generated commentary for and against and in between.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Below is an especially thoughtful response from <a href="https://en.wikipedia.org/wiki/John_Pomfret_(journalist)" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">John Pomfret</a>, <a href="https://www.washingtonpost.com/opinions/2019/07/09/why-united-states-doesnt-need-return-gentler-china-policy/?utm_term=.3781dcd9e878" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Why the United States doesn’t need to return to a gentler China policy</a>, also in WAPO.</li></ul>‘Near the end of the Vietnam War, American historian Barbara Tuchman came up with a theory on how the United States got into the ill-starred conflict’:<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It was, she said, because of a failure to cultivate Chinese leader Mao Zedong in the 1940s.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Tuchman’s supposition, which she spelled out in an <a href="https://www.foreignaffairs.com/articles/asia/1972-10-01/if-mao-had-come-washington-essay-alternatives" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">essay in Foreign Affairs</a> in October 1972, argued that had the U.S. government seized the opportunity to befriend Mao during World War II, it could have mellowed Mao’s radicalism and averted the Vietnam and Korean wars.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Never mind that Mao was an avowed Marxist-Leninist who idolized Joseph Stalin. Tuchman viewed the Chinese Communists almost as if they were a whiteboard upon which Americans could map out China’s future.’</li></ul>‘<a href="https://brill.com/previewpdf/journals/jaer/4/3/article-p249_3.xml" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Subsequent work</a> by Chinese and Western historians has debunked the theory.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But the impulse behind it remains relevant today because it is indicative of something else: a profoundly paternalistic strain in the U.S. view of China.’</li></ul>‘I was reminded of this story last week when I read the <a href="https://www.washingtonpost.com/opinions/making-china-a-us-enemy-is-counterproductive/2019/07/02/647d49d0-9bfa-11e9-b27f-ed2942f73d70_story.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">open letter</a> signed by scores of prominent experts on China.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Like Tuchman, they deny agency to the Chinese Communist Party by placing the bulk of the blame for the current crisis in U.S.-China relations at the feet of the Trump administration.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The letter nods to China’s misbehavior but focuses far more attention on what it calls the "many U.S. actions” that “are contributing directly to the downward spiral in relations.”’</li></ul>‘To be sure, it’s easy to criticize the Trump administration when it comes to China.’ <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘<a href="https://www.washingtonpost.com/news/worldviews/wp/2018/04/13/a-timeline-of-trumps-complicated-relationship-with-the-tpp/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Pulling the United States out of the Trans-Pacific Partnership </a>weakened U.S. leverage over China.’ </li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘<a href="https://www.reuters.com/article/us-usa-trade-china-timeline/timeline-key-dates-in-the-us-china-trade-war-idUSKCN1SE2OZ" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Tariffs</a> are on one day and off the next.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And the failure of federal agencies to make their case to the public has sparked <a href="https://www.nature.com/articles/d41586-019-02063-z" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">fears</a> that Chinese Americans are going to be racially profiled as U.S. law enforcement cracks down on espionage.’</li></ul>‘But to blame the president for the current crisis with Beijing is redolent of an old view of China that has been around since the days of Christian missionaries.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Treat China as an enemy, the tired chestnut goes, and China will become one.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Treat China as a friend, and China will become a friend.’</li></ul>‘It’s as if China has no role to play in this drama whatsoever.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Can’t we bury that notion once and for all?’</li></ul>‘The CCP is far more responsible for what happens in China — and for the current crisis with the United States — than any American.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Since the financial crisis of 2008 and the rise of President Xi Jinping, China has stopped <a href="https://www.scmp.com/news/china/diplomacy/article/2185905/china-puts-its-economy-risk-spurning-market-oriented-reforms-it" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">market-oriented economic reforms</a>, launched a massive crackdown that has resulted in the incarceration of <a href="https://www.amnesty.org/en/latest/news/2018/09/china-up-to-one-million-detained/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">more than 1 million Uighurs</a> in Xinjiang, <a href="https://www.scmp.com/news/world/united-states-canada/article/2173843/china-has-taken-gloves-its-thefts-us-technology" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">ramped up</a> efforts to steal Western technology, <a href="https://www.straitstimes.com/asia/east-asia/chinas-president-xi-broke-promise-on-south-china-sea-says-top-us-general" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">broken a promise</a> made to a U.S. president not to militarize the South China Sea and tried to export <a href="https://qz.com/1225347/xi-jinping-says-chinas-one-party-authoritarian-system-can-be-a-model-for-the-world/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">its system</a>’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It has squeezed aspirations for democracy in <a href="https://www.washingtonpost.com/world/why-hong-kong-has-grown-increasingly-fearful-of-chinese-control/2019/07/01/0cc61276-9c0e-11e9-a1fc-7337aeb9179e_story.html?utm_term=.47bceabc44d8" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Hong Kong</a> and launched a campaign to undermine the democratic system in ’</li></ul>‘The main fruit of a generally cooperative policy from Washington, at least during the Obama years, has been an emboldened China eager to reach for more.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Last week’s letter continues in this wrongheaded vein by repurposing the tired trope that we should tailor our China policy to support “Chinese leaders who want China to play a constructive role in world affairs.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But all the evidence I have seen from living in China for nearly 20 years indicates that there are no such “Chinese leaders” waiting in the wings. Xi has <a href="https://www.fpri.org/article/2018/08/xi-jinpings-anti-corruption-campaign-the-hidden-motives-of-a-modern-day-mao/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">purged</a> many of them, and others — reading the tea leaves — have changed their tune.’</li></ul>‘At root, the letter seems to misunderstand the nature of power in a Marxist-Leninist system such as China’s.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Many in the American China-watching community have what former assistant secretary of state for East Asian affairs Kurt Campbell has called a “<a href="https://www.nytimes.com/2018/02/27/us/politics/trump-china-united-states.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">romantic</a>” attachment to China.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They want to be friendly toward China and, in truth, there are millions of everyday Chinese people who feel the same way.’</li></ul>‘What many of these experts fail to grasp is that the people who run the Chinese Communist Party are of a different ilk.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘“These guys think and go to school on power on a regular basis,” Campbell noted in a <a href="https://supchina.com/podcast/kurt-campbell-on-u-s-china-diplomacy/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">wide-ranging interview</a> last year on the Sinica Podcast.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Campbell also had another observation that was unusual for a former official in a Democratic administration: “President Trump has basically received and gotten more Chinese leverage,” he said, “… by this brutal approach than we got by treating China as a partner and with deep respect.”’</li></ul>‘Indeed, when Trump bellows about China, as he has over and over, he doesn’t blame his “<a href="https://twitter.com/realdonaldtrump/status/989834048796266498?lang=en" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">good friend</a>” Xi or previous Chinese leaders for stealing our lunch.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He blames past U.S. administrations for allowing it to happen — and he is talking about the very people who signed this letter.’</li></ul>‘As is often the case, China’s reaction to these types of proposals is telling.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China’s state-run media lauded the open letter and cherry-picked some quotes. A spokesman for China’s foreign ministry <a href="https://www.fmprc.gov.cn/mfa_eng/xwfw_665399/s2510_665401/t1678570.shtml" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">called</a> it “rational and objective.”’ </li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The China Daily <a href="http://global.chinadaily.com.cn/a/201907/04/WS5d1d73b3a3105895c2e7bab5.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">praised</a> it, and it even made the nightly national <a href="http://news.cctv.com/2019/07/01/ARTIbOgzWVeBTsX2ozcGEtkX190701.shtml" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">news</a>.’</li></ul>‘It’s not clear that Trump is going to be able to carry out his strategy to introduce reciprocity into U.S. relations with China.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘To accomplish this, the United States is going to need help and, given Trump’s mercurial nature, cooperation with our allies has been scattershot.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But the Trump administration is the first one in decades to tell China that the status quo is broken.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘What China watchers should be doing is building on that insight, and not returning to promises of a kinder, gentler policy that wouldn’t have worked in the 1940s and won’t work today.’</li></ul></td></tr></div></div></div>

7/20/2019

<div id="NLpost" class="nl-post-wrapper" style="padding:0 3.5%;margin:0 auto;"><div id="NLHeader" class="post-card"><div id="Page-header" class="mainheader"><h1 class="t1">'China’s State-Driven Growth Model Is Running Out of Gas'</h1><div class="date">July 20, 2019</div><a href="https://www.linkedin.com/in/malcolmriddell/" target="_blank" class="date" style="color: inherit;border-bottom: 0 solid #008dc8;text-decoration: none;">by Malcolm Riddell</a></div><div class="table-block w-condition-invisible w-dyn-bind-empty w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"></div></div><div class="section_title w-condition-invisible">I. THE LAW AND THE PROTESTS</div><div id="article1" class="post-card"><div class="t2-block">1. Trade war fallout not crushing China’s economy: Stephen Roach</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;position: relative;display: block;padding-bottom: 56.25%;"><iframe class="embed-responsive-item" src="https://player.cnbc.com/p/gZWlPC/cnbc_global?playertype=synd&byGuid=7000089199"></iframe></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">CNBCJust back from China, Yale’s Stephan Roach gave his impressions in a <a href="https://www.cnbc.com/2019/07/16/trade-war-fallout-is-not-crushing-chinas-economy-stephen-roach.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">CNBC video interview</a>.‘One of Wall Street’s leading authorities on Asia believes China is in no rush to cut a trade deal with the United States.’‘Despite China’s <a href="https://www.cnbc.com/2019/07/16/trade-war-fallout-is-not-crushing-chinas-economy-stephen-roach.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">worst quarterly growth</a> number in 27 years, Yale University senior fellow Stephen Roach contends its economy isn’t as bad as the latest figure implies.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">“I was in China last week. And the general sense was that the economy, while slowing in the manufacturing sector, the larger, more rapidly growing services sector was likely to provide a source of resilience.”</li></ul><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">“And that of course did come through in the numbers that were released overnight.”</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">“The services sector GDP held at about 7% the same as in the first quarter.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">“And the sector has grown by about 10 percentage points of GDP over the past 12 years.”</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">“The manufacturing sector indeed weakened, and there's probably further downside should the tariff war escalate.”</li></ul>‘Roach, who lived in China from 2007 to 2012 while he was chairman of Morgan Stanley Asia, still regularly meets with government officials, business executives and academics in the region.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘During his latest talks, he didn’t observe a heightened sense of anxiety over the ongoing trade war.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘According to Roach, the climate suggests China will resist moving aggressively to cut a trade deal out of economic slowdown fears.’</li></ul>‘Unless the trade war with Washington escalates, Roach contends China’s coping strategies will be effective.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">“China has ample policy space to continue to address the downside of its current growth trajectory,” he said in a note to CNBC, citing monetary, fiscal and currency issues.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">“They’re focused on doing a lot of strategic things to their economy,” Roach added.’</li></ul>‘Roach has been against the trade war, concerned that Washington is being too aggressive.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Following<a href="https://www.cnbc.com/2019/05/06/chinese-team-will-come-to-us-for-trade-talks-after-trump-tariff-threat.html?&amp;amp;amp;qsearchterm=patti domm" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">President Donald Trump’s tariff threats in a series of May 5 tweets</a>, Roach told “Trading Nation” that odds of a <a href="https://www.cnbc.com/2019/05/23/odds-of-us-china-trade-deal-rapidly-receding-stephen-roach.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">trade deal were rapidly receding</a>.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Even though Roach believes the trade war is in a standstill, he thinks a resolution may not be in the cards this year.’</li></ul></td></tr></div></div><div id="article2" class="post-card"><div class="t2-block">2. ‘Trump tries to woo Federal Reserve in China trade fight’</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://www.ft.com/__origami/service/image/v2/images/raw/http%3A%2F%2Fcom.ft.imagepublish.upp-prod-us.s3.amazonaws.com%2Fd4085c22-a7df-11e9-90e9-fc4b9d9528b4?fit=scale-down&source=next&width=700" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">FT<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘While an interest-rate cut would arguably represent a legitimate attempt by the Fed to protect the US economy from damage inflicted by Mr Trump’s trade wars, it also carries the risk of encouraging his brinkmanship.’‘Shortly after trade talks with China broke down acrimoniously in mid-May, US president Donald Trump very publicly turned to Jay Powell, head of the Federal Reserve, for help in confronting Beijing,’ writes the FT’s <a href="https://www.uschamber.com/james-politi" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">James Politi</a> in <a href="https://www.ft.com/content/596e7c72-a7cf-11e9-984c-fac8325aaa04" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Trump tries to woo Federal Reserve in China trade fight.’</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘“China will be pumping money into their system and probably reducing interest rates, as always, in order to make up for the business they are, and will be, losing,” Mr Trump wrote in a tweet. “If the Federal Reserve ever did a 'match', it would be game over, we win!”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Later this month, Mr Trump’s wish could come true since Mr Powell is steering the US central bank towards a possible interest rate cut, in a <a href="https://www.ft.com/content/78441c44-a3fe-11e9-a282-2df48f366f7d" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">sharp reversa</a>l from last year’s tightening of monetary policy.’</li></ul>'The Fed is tilting towards looser policy largely due to the uncertainty caused by trade tensions, which remain unresolved — even after the latest truce struck at the G20 in Osaka, Japan — and are casting a cloud over the global economy.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Mr Powell and other Fed officials, who have stressed their independence from Mr Trump, would bristle at the thought that they are in any way following the White House’s lead.’</li></ul>‘But while an interest-rate cut would arguably represent a legitimate attempt by the Fed to protect the US economy from damage inflicted by Mr Trump’s trade wars, it also carries the risk of encouraging his brinkmanship.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘A traditional argument against monetary easing in major economies has been that it creates moral hazard: encouraging bad behaviour on budgetary policy and fomenting asset bubbles.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘We can now possibly add protectionist trade measures to that list.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘With equity markets at record highs, and the Fed on an easing path, Mr Trump might feel emboldened to press ahead with more tariffs on Chinese products, and aggressive action against the EU in coming months.’</li></ul>‘A key byproduct of Fed easing would also be a less valuable dollar, which the White House also sees as a desirable goal in the trade wars.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This is in contrast to previous administrations which have stressed the importance of a strong US currency.’</li></ul>‘Mr Trump could yet be disappointed by the Fed’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Whereas administration officials want at least a 50 basis point rate cut now, the US central bank is expected to press ahead with only a 25 basis point interest rate reduction at its next monetary policy meeting on July 30-31.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘At that point, the Fed could decide to pause the easing to gauge how far the trade wars are affecting the real economy, before pulling the trigger on more cuts.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Such a delay could frustrate White House officials and again make Mr Powell a target of presidential attacks.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But for now, Mr Trump can draw comfort from the fact that his disruptive trade policies have more of a monetary crutch to support them than they did in 2018.’</li></ul></td></tr></div></div><div id="article3" class="post-card"><div class="t2-block">3. ‘China’s State-Driven Growth Model Is Running Out of Gas’</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;position: relative;display: block;padding-bottom: 56.25%;"><iframe class="embed-responsive-item" src="https://video-api.wsj.com/api-video/player/v3/iframe.html?guid=C1806D1B-77FC-4703-932D-9E5DB8F38AFE" autoplay="no"></iframe></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">WSJ<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘Latest data suggest China may not match the trajectory of Taiwan, South Korea and Japan.’‘China doesn’t measure up to the economies it seeks to emulate,’ writes the WSJ’s <a href="https://gregip.wordpress.com/my-bio/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Greg Ip</a>, part of a team that won the Pulitzer Prize, in <a href="https://www.wsj.com/articles/chinas-state-driven-growth-model-is-running-out-of-gas-11563372006" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘China’s State-Driven Growth Model Is Running Out of Gas.’</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Taiwan, South Korea and Japan all opened their economies to global trade and investment, enjoyed superfast growth for several decades, then slowed as they reached middle-income status—the early 1970s for Japan, the 1980s and early 1990s for Taiwan and South Korea.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In theory, China should be able to sustain rapid growth even longer because rich countries such as the U.S. have pushed the technological frontier out further, offering more room for China to catch up.’</li></ul>‘In fact, China seems to be slowing sooner than the others.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘After reaching levels comparable to China today, Taiwan’s per-capita income grew 7.5% for another decade, South Korea 6.3% and Japan 4.7%.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Yet for China it will be “very difficult to sustain rates of growth above 4% under the current policy environment,” says Loren Brandt, an expert on Chinese growth at the University of Toronto.’</li></ul>‘Some of the reasons are immutable.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China’s working-age population has stopped growing.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The big shift of labor from rural farms to urban factories is largely complete.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And Andrew Tilton, economist at Goldman Sachs, notes China can no longer rely on exports as much as smaller countries because of its size: It has saturated foreign markets and generated a protectionist backlash.’</li></ul>‘China may also pay a penalty for its current growth model.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘For 30 years the Communist Party opened ever more of the economy to private enterprise, trade, foreign investment and market forces.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Yet it never relinquished its commitment to socialism and Mr. Brandt says that since the mid-2000s [with the arrival of Xi Jinping] the government has tightened control over sectors it considers militarily or economically strategic, such as telecommunications.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Some Chinese officials“truly believe a dominant state sector is exactly what China needs to become globally and strategically important.”’</li></ul>‘China today differs in significant ways from Taiwan, South Korea and Japan at similar stages of development.’ <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘One is that infrastructure, most of it state-led, and housing, are much more important in China, representing half of total investment, says Dwight Perkins, a China expert at Harvard University.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This made sense when the average family’s apartment was just 200 square feet and even its most densely populated regions lacked freeways.’ </li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Now, though, the average apartment is 800 feet, and new highways and railroads increasingly serve remote areas with less potential payoff.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘“It’s good for those areas, but the return on that investment has undoubtedly fallen very sharply.”’</li></ul>‘Another difference is China’s reliance on debt, which, according to Mr. Tilton, is, as a share of GDP, two to four times that of its East Asian peers at similar stages of development.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The upshot: China invests just as heavily but far less efficiently than its peers did.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It shows: The return on capital plummeted from 19% in 2007 to 8.4% in 2017, according to Andrew Batson of Gavekal Dragonomics, a research service.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The China Development Research Foundation, a government think tank, says total-factor productivity, which measures how efficiently labor and capital are deployed, <a href="http://cdf-en.cdrf.org.cn/cdf2019en/xzbg/8498.jhtml?mod=article_inline" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">began growing faster in 2016</a>, led by services.’ </li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But some analysts are skeptical of official data and say productivity growth has been negative for years.’</li></ul>‘An inefficient state sector matters less if the private sector grows fast enough. But in recent years, private firms in China have faced multiple headwinds.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘State-controlled banks prefer to lend to state-owned enterprises, so private firms borrow from less-regulated “shadow banks,” which the authorities have targeted in their crackdown on excess lending.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The domestic private sector’s share of total sales has dropped about 5 percentage points since 2016, according to Goldman, while the state sector’s share has risen roughly as much.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The trade clash has also hurt the private firms, many foreign owned, that dominate exports while rallying nationalists to defend China’s state-centric model.’</li></ul>‘China still has many reformers pressing to expand the role of private enterprise. The top banking regulator, Guo Shuqing, earlier this year denied the country owed its rapid growth to “state monopoly capitalism,” said foreign and private capital can enter almost any industry, and vowed to keep opening up the financial sector.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Yet Mr. Batson says the trade confrontation could make it “politically more and more difficult for people like Guo to both defend China’s system against foreign attacks, and continue to nudge it in a different direction.”’</li></ul></td></tr></div></div><div class="section_title w-condition-invisible">II. POTENTIAL BACKLASH FROM THE U.S. </div><div id="article4" class="post-card"><div class="t2-block">4. ‘U.S.-China Trade: If We Get to Yes, Will It Make Any Difference?’</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://csis-prod.s3.amazonaws.com/s3fs-public/styles/csis_banner/public/publication/190716_trade.jpg?itok=arYGr_PE" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">CSIS<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘So what might look like, and will certainly be touted as, a great success when it occurs may not look so great a year later if it becomes clear that very little has changed, or the United States has restarted the trade war with new tariffs due to Chinese noncompliance.’ <h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">The China Model</h5>‘Having watched the rapid development of Japan, the original “capitalist developmental state” (a term coined by Chalmers Johnson), and then the Asian Tigers—South Korea, Hong Kong, Singapore, and Taiwan—China has developed its own blend of state control and market policies, with the emphasis on the former,’ writes <a href="https://www.csis.org/people/william-alan-reinsch" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Bill Reinsch</a> of the Center for Strategic and International Studies in <a href="https://www.csis.org/analysis/us-china-trade-if-we-get-yes-will-it-make-any-difference" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘U.S.-China Trade: If We Get to Yes, Will It Make Any Difference?’</a>‘While some elements of Chinese policy are similar to those Japan employed in the 1980s, there are some important differences.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Ironically, one is that China is more open to imports than Japan was.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘At $32.67 billion, China had a global trade surplus (its exports are <a href="https://www.ceicdata.com/en/indicator/china/trade-balance" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">15 percent greater </a>than its imports) in March 2019; by comparison, Japan had <a href="http://www.customs.go.jp/toukei/suii/html/nenbet_e.htm" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">26 percent more </a>exports than imports in 1985.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China has bilateral deficits with many countries—including South Korea (-<a href="http://www.customs.go.kr/kcshome/trade/TradeCountryList.do?layoutMenuNo=21031" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">$55.6 billion</a>), Australia (-<a href="https://dfat.gov.au/trade/resources/Documents/chin.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">$26.8 billion</a>) and Brazil (-<a href="http://dataviva.info/en/trade_partner/aschn" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">$7.4 billion</a>)—and as its gross domestic product (GDP) growth is <a href="https://fas.org/sgp/crs/row/R45420.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">expected to slow down</a>, its global trade balance may begin to shift toward deficit, as well.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The more significant differences, however, have been China’s willingness to use extra-legal tactics to obtain technology from advanced countries and its growing direct and indirect control over its economy, not to mention Chinese society—a stark contrast to Japan’s Ministry of International Trade and Industry’s (now the Ministry of Economy, Trade and Industry) “guidance” to Japanese companies on where and how they should compete.’</li></ul>‘It did not start out that way, however.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘When China sought to join the World Trade Organization (WTO), its premier at the time, Zhu Rongzhi, made clear that his government saw WTO accession and the obligations it required as a means of bringing China into the Western trading system and forcing internal reforms.’</li></ul>‘That was then. Now, the current Chinese leader, Xi Jinping, strongly favors state-owned enterprises over private companies and uses a mix of tactics that are creating consternation in developed economies, beginning with the United States.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘These changes, and the negative consequences they have for China’s own economy, are well documented in the latest book by Nick Lardy of the Peterson Institute, The State Strikes Back(2019).’</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">U.S. Responses</h5>‘The past several U.S. administrations have all complained about Chinese theft of U.S. intellectual property, unfair and discriminatory treatment of U.S. companies operating in China, forced technology transfer, channeling of resources to state-owned enterprises, and massive subsidies.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But they soft-pedaled such criticism to obtain cooperation on other foreign policy goals, such as Iran, North Korea, and climate change.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In contrast, the Trump administration decided to tackle these practices head-on.’</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">The Three Components of a Trade Deal</h5>‘If an agreement is reached, it will likely have three components, along with the resolution of a number of specific bilateral trade irritants that have been pending for some time.’1. ‘The first part is the easiest—Chinese commitments to buy more U.S. goods.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That is not difficult for China to do, and it scratches the president’s itch for a visible concession that he can boast about, and which will reduce our bilateral trade deficit.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Ironically, however, the real issues here may be the United States’ ability to manufacture as much stuff as the Chinese have agreed to buy and the wisdom of putting too many trade eggs in a Chinese basket at the expense of other markets.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In the long run, that would create a dependence on the Chinese market that would make us more, rather than less, vulnerable.’</li></ul>2. ‘The second component of an agreement will address the structural reforms that go to the core of our dispute.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The most likely outcome is that the Chinese give us some, but not all, of what we have been asking for by making commitments on intellectual property theft, forced technology transfers and opening investment in China, and agreeing to do away with various forms of discrimination against foreign companies.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘One particular change— doing away with joint venture requirements—would go a long way toward reducing the threat of forced technology requirements, which often occurs as a consequence of negotiations between the U.S. company and the required Chinese partner.’</li></ul>‘Missing from this will be unequivocal promises to turn away from a state-dominated economy—subsidies, support for state-owned enterprises and implementation of Made in China 2025 (the Chinese government’s guidebook for developing national champions in 14 critical technologies)—and move in the direction of a genuine market economy.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘While doing that would make sense, the Chinese Communist Party’s primary goal has always been maintaining control, and the past few years have made it abundantly clear that for Xi Jinping, that includes maintaining the government’s heavy hand in directing the economy.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘At the same time, pursuing that policy poses the risk of further slowing growth, which would increase grumbling within both the party and the public.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Xi’s dilemma is that such an outcome may, in the long run, prove a greater risk to party control than shifting to a market economy.’</li></ul>3. ‘The third element of any agreement will be an enforcement package, and that has proved to be the most contentious part of the debate.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The United States insists that China give it the unilateral right to determine compliance and to act unilaterally if Washington believes it is necessary.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Chinese view that as a violation of their sovereignty and argue for a consultative process, which is not sufficient for the administration.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That issue, as well as the disposition of the existing tariffs, will likely end up in the laps of the two presidents.’</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">A Robust Trade Agreement?</h5>‘A trade agreement with China will be good news in the short term because it will produce a positive bump in the financial markets.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But the path to lasting improvement in the relationship, as well as political success for President Trump, is a narrow one.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It requires a strong agreement that the Chinese actually implement.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘If the agreement is only about buying more stuff with a few intellectual property concessions thrown in, it will be heavily criticized as both a policy failure and a failure of the president’s self-proclaimed negotiating skills.’</li></ul>‘Even if it is better than that, the likelihood of full Chinese compliance is low.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So what might look like, and will certainly be touted as, a great success when it occurs may not look so great a year later if it becomes clear that very little has changed, or the United States has restarted the trade war with new tariffs due to Chinese noncompliance.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘President Trump, who does not have a history of looking ahead to the possible consequences of his actions, should do so very carefully in this case, as the negative outcome that is possible next year will be a lot closer to the election than the success of an agreement announced this year.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Sadly, that may be the most likely outcome, even though it does not serve either country’s long-term interests.’</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">The Importance of Building Coalitions</h5>‘One important piece missing in this equation is the role of other countries.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘President Trump, who is a noted skeptic of multilateralism, prefers to approach issues bilaterally in the belief that U.S. dominance is so great we can leverage the behavior we want from the other party.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That worked with South Korea, worked up to a point with Mexico and Canada, and may well work with Japan.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But it does not appear to be working with either the European Union or China, both of which are bigger than we are. Size matters in the global economy, and the U.S. footprint continues to shrink.’</li></ul>‘In the case of China, this is a particularly important missed opportunity.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Historically, China has been uncomfortable being the outlier, and joint efforts by Western nations have generally been more successful in changing Chinese behavior than individual ones.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That makes even more sense now, since other nations, notably in the European Union, have begun to show higher levels of concern about China’s policies, suggesting they are ripe for coalition building.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘However, aside from a useful effort to develop a trilateral (U.S.-EU-Japan) paper on redefining subsidies in the WTO, there has been little effort so far to bring other nations together to act in concert.’</li></ul>‘In the end, that may prove a fatal mistake.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Building a coalition does not simply mean persuading others to make the same demarches to the Chinese government that we have made.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It also means building or strengthening institutions that give meaning to the open, rules-based trading system that Western nations have supported since the 1944 Bretton Woods Agreement.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That is what the Trans-Pacific Partnership and the Trans-Atlantic Trade and Investment Partnership were really about: creating structures that would stand for, and enforce, common rules based on openness, transparency, and sound science—which other nations would have to respect if they wanted access to the markets covered by those agreements.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Since both sets of signatories represent large consumer markets, China would have a significant incentive to adhere to their rules and perhaps ultimately join the agreements.’</li></ul>‘Coalition building also implies a recognition that the real commercial battleground with China is neither here nor there but in third countries where the playing field is more level.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Pursuing more open markets in China is a noble exercise that deserves to be undertaken, but governments doing it need to be realistic about the prospects for success, particularly in the short term.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They also need to focus more of their resources on competing in other countries that are more open to their efforts.’</li></ul>‘The reality of modern competition is that if one is in a race, there are only two ways to win: run faster or trip the opponent.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Trump administration’s policy, as well as much of the ensuing congressional and public debate, has focused on the latter.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But the surer path to success is the former.’</li></ul></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="h10div" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"></td></tr></div></div><div id="article5" class="post-card"><div class="t2-block">5. ‘Who Actually Pays Tariffs?’</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://images.axios.com/Z3Rw_qW6mGhBXbVPLm0vGde6lEs=/0x94:3000x1782/1600x900/2019/05/14/1557828550742.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">AXIOS<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘Tariffs are a tax on imports, paid by importers. It's that simple, but somehow there's a misunderstanding about how tariffs work.’ Maybe the reason I get so exercised when President Trump says that China – not the U.S. – pays the tariffs is that, according to Axios’ Jonathan Swan, Mr. Trump believes it. From <a href="https://www.pbs.org/weta/washingtonweek/profile/jonathan-swan" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Jonathan Swan</a>’s <a href="https://www.axios.com/donald-trump-us-china-trade-war-tariffs-deal-e154abe0-a00e-4c2f-8caa-1e9a6f370238.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Trump’s Long Trade War’</a>:<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘I've asked several current and former administration officials whether Trump actually believes that China pays the tariffs — rather than the reality that U.S. importers and consumers do.’</li><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The consensus is "yes": That's what he actually believes.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And as one former aide said: There’s little point trying to persuade Trump otherwise, because his belief in tariffs is "like theology."’</li></ul></ul>So here we go again. This time with a 98-second video from the Center for Strategic and International Studies, <a href="https://www.youtube.com/watch?v=RvXy6Y7rBXA" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Who Actually Pays Tariffs?’</a>‘There's only one answer to the question. Who pays U.S. tariffs? And it's a simple one.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The answer is importers, namely U.S. companies and consumers.’</li></ul>‘Tariffs are a tax on imports, paid by importers.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It's that simple, but somehow there's a misunderstanding about how tariffs work.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Some people [President Trump, Peter Navarro, et. Al] claim exporters' or foreign governments pay U.S. tariffs, but that's not how tariffs work.’</li></ul>‘Foreign countries don't pay U.S. tariffs.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Instead, U.S. companies pay tariffs would imports come across the border?’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This is how every tariff in the history of tariffs has worked.’</li></ul>‘When tariffs go up, companies usually raise prices to make up for the new tax.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So ultimately U.S. consumers pay tariffs.’</li></ul>‘Even worse, tariffs can put U.S. companies out of business.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Higher prices can turn consumers away, or if companies may no longer be able to afford imports, they need to do business in the U.S.’</li></ul>‘If a company is big enough, it can avoid raising consumer prices, but at a cost.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘A large company can just eat the tariff, but that would hurt their bottom line.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Large companies can also force their suppliers to cut prices, which can hurt upstream businesses.’</li></ul>‘There's only one right answer to the question. Who pays the tariffs?’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘U.S. tariffs are a tax paid for by U.S. consumers and businesses, not foreign governments and companies.’</li></ul></td></tr></div></div><div class="section_title w-condition-invisible">III. CONGRESS & THE PRESIDENT REACT </div><div id="article6" class="post-card"><div class="t2-block">6. ‘Is China Weakening the Yuan to Fight U.S. Tariffs?’</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d2fc66585ef61c3415aba92_Michael%20Klein.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">EconoFact<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘While the Chinese government maintains broad control over its currency’s value, the key point is that the dollar is strong against a wide range of currencies, and not just the yuan.’<h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">Key Points</h5>‘President Trump <a href="https://www.cnbc.com/2019/06/10/trump-says-china-devalues-its-currency-and-us-needs-fair-playing-field-as-yuan-hits-lows-of-year.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">claims</a> that the weak yuan represents an effort to offset <a href="https://www.piie.com/system/files/documents/trump-trade-war-timeline.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">tariffs imposed on China</a> by his administration; the 10 percent tariffs on $200 billion of Chinese imports in September 2018 and the raising of these tariff rate to 25 percent in May 2019, writes <a href="https://fletcher.tufts.edu/people/michael-w-klein" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Michael Klein</a> of the Fletcher School of Law and Diplomacy in <a href="https://econofact.org/is-china-weakening-the-yuan-to-fight-u-s-tariffs" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Is China Weakening the Yuan to Fight U.S. Tariffs?’</a>’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The President has even <a href="" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">demanded</a> that the Federal Reserve weaken the dollar in response.’</li></ul>‘While the Chinese government maintains broad control over its currency’s value, the key point is that the dollar is strong against a wide range of currencies, and not just the yuan.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This broad strength points to domestic sources of the dollar’s high value, not Chinese actions.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The most likely sources are widening U.S. budget deficits and the strength of the U.S. economy relative to its trading partners.’</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">The Issue</h5>‘The yuan has declined in value against the dollar by about 9 percent since the Spring of 2018.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘A weaker yuan tends to make Chinese goods cheaper in the United States and would partially offset the tariffs that the Trump administration is imposing on Chinese imports.’</li></ul>‘Treasury Secretary Steven Mnuchin <a href="https://www.scmp.com/news/china/diplomacy/article/3013678/china-letting-value-yuan-slide-offset-trade-war-tariffs-us" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">accused</a> China of allowing the yuan to weaken to offset the effects of U.S. tariffs while at the G-20 Economic Summit in Japan in June.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Commerce Department is <a href="https://www.govinfo.gov/content/pkg/FR-2019-05-28/pdf/2019-11197.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">considering regulations</a> to treat currency undervaluation as an unfair export subsidy.’</li></ul>‘But while the yuan has been weak against the dollar, its value has remained stable against other currencies, with <a href="https://fred.stlouisfed.org/graph/?id=RBCNBIS," target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">an index of the yuan</a> against the currency of 60 countries 0.7 percent stronger in May 2019 than it was in October 2016.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And, as will be demonstrated below, while the dollar has been strong against the yuan, it has also been strong against other currencies as well.’</li></ul><img width="100%" src="https://econofact.org/wp-content/uploads/2019/07/KleinYuanUpdateWEB-1-1024x683.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;"><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">The Facts</h5>‘The Chinese government largely manages the value of the yuan, not least through its restrictions on capital flows into and out of the country and the use of its stock of foreign currency reserves.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘However, the capital controls are not airtight, and market pressures do influence the exchange rate to some degree.’ </li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Exchange rate policy in China has gone through gradual reform since 2005.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The government shifted from promoting exports with a fixed exchange rate that many considered undervalued to allowing its currency to appreciate and even, in the wake of financial disruption in August 2015, undertook efforts to keep the yuan from falling in value (See this <a href="https://www.imf.org/en/Publications/WP/Issues/2019/03/07/Chinas-Evolving-Exchange-Rate-Regime-46649" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">2019 International Monetary Fund (IMF) report</a> for a recent history of exchange rate policy in China).’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The IMF <a href="https://www.imf.org/en/Publications/WP/Issues/2019/03/07/Chinas-Evolving-Exchange-Rate-Regime-46649" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">estimated</a> the value of an index of China’s currency with respect to its trading partners to be fairly valued in 2017, and <a href="https://fred.stlouisfed.org/graph/?id=RBCNBIS," target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">this index shows</a> a stronger yuan in the first half of 2019 than its 2017 average value.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Similarly, the Japanese financial firm Nomura published <a href="https://www.cnbc.com/2019/03/11/chinas-yuan-may-already-be-overvalued-and-is-set-to-slide-nomura.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">a March 2018 report</a> stating that the yuan was stronger against the dollar than what was warranted by underlying economic conditions and, if anything, was poised to weaken in the future.’</li></ul>‘Most analysts agree that the dollar is significantly <a href="https://www.morganstanley.com/ideas/us-dollar-weakness-2019" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">overvalued</a> against the currencies of its trading partners — not just the yuan.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘A broad index of the value of the dollar against its trading partners (adjusting for inflation) has risen by over 7 percent since April 2018.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This reflects U.S. policies, including the fiscal expansion related to the December 2017 tax cut and subsequent increase in government spending, and the strong U.S. growth relative to other countries.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘One important source of the overall strength of the dollar is <a href="https://econofact.org/government-budget-deficits-and-economic-growth" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">the large federal budget deficit</a>, and the <a href="https://econofact.org/are-growing-federal-budget-deficits-and-debt-cause-for-concern" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">prospect for ongoing and increasing deficits</a>, since these draw in capital from the rest of the world to finance the deficit and the inflow of capital bids up the value of the dollar.’</li></ul>‘The movements of the dollar against the yuan closely track an index of the dollar against its other major trading partners.’ <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The chart above illustrates the movement of the bilateral exchange rate between the United States and China, as well as the value of the dollar against its other major trading partners.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The dollar weakened against the yuan and also against the currencies of the major trading countries between late 2016 and the beginning of 2018 (it took fewer yuan to purchase a dollar, as shown with reference to the right axis, and the index fell, as shown with reference to the left axis).’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Subsequently, the dollar strengthened both against the yuan and against all other currencies.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The common path of the dollar against the yuan, and of the dollar against currencies other than the yuan, becomes even clearer by comparing the solid orange line (the dollar against all its major trading partners) and the dashed red line (the dollar against all its major trading partners but for China).’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘These two lines follow each other very closely over the entire three-year period depicted in the figure.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In particular, both index lines show a strengthening of the dollar during the first three quarters of 2018 and, after a small retrenchment at the end of the year, continued strengthening in the Spring of 2019.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In fact, the index that excludes the yuan strengthened a bit more during 2019 than the index that included it.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘(The <a href="https://fred.stlouisfed.org/graph/?id=TWEXBMTH," target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">index of the dollar against the currencies of 25 countries plus the euro area</a> weights currencies by the amount of their trade with the United States. The dashed red line represents the broad index but excludes the Chinese yuan, the weight given to the yuan is about 16 percent during this period).’</li></ul></td></tr></div></div><div id="article7" class="post-card"><div class="t2-block">7. ‘China’s Exchange Rate Policy Woes’</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;position: relative;display: block;padding-bottom: 56.25%;"><iframe class="embed-responsive-item" src="https://player.vimeo.com/video/334504889" autoplay="no"></iframe></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">EconoFact<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘Because China was pegged to the dollar, it didn't really have a stable exchange rate in terms of trade with everybody else.’<a href="https://www.brookings.edu/experts/jay-shambaugh/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Jay Shambaugh</a> of Brookings explains the difficulty China has had in getting its exchange rate right in a 5m video EconoFact interview <a href="https://econofact.org/chinas-exchange-rate-policy-video" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘China’s Exchange Rate Policy’</a> with interviewer <a href="https://fletcher.tufts.edu/people/michael-w-klein" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Michael Klein</a> of the Fletcher School of Law and Diplomocy.<h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">The Issue</h5>‘China has <a href="https://www.imf.org/en/Publications/WP/Issues/2019/03/07/Chinas-Evolving-Exchange-Rate-Regime-46649" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">been moving from</a> an exchange rate regime in which the yuan was pegged to the U.S. dollar to one in which the relationship between the two currencies is somewhat looser.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But the path to this transformation has been bumpy.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The difficulties illustrate the challenges China faces in the process for determining the value for its currency.’</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">What this Means</h5>‘A relatively stable and predictable exchange rate between the yuan and the dollar facilitates trade and investment decisions for businesses in China and the United States.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But staying too close to the dollar can be a problem for China with respect to its other major trading partners in East Asia, Europe and elsewhere.’</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">The Interview</h5>Jay Shambaugh:‘China for quite some time has pegged to the US dollar, and so the nominal exchange rate was staying fixed.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But starting around 2015, China loosened that relationship to some extent and that that has been difficult.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Because of differences in productivity growth across the two countries, over time it seemed quite clear the RMB was undervalued against the dollar.’</li></ul>Michael Klein:‘And there is a lot of political controversy about that – China was accused of purposefully doing that to help their export growth.’Shambaugh:‘Exactly. And so then it becomes controversial.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘From China's perspective they say, we're not doing anything wrong, we're just staying pegged. We're staying constant. That seems fair. Lots of countries do.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But when you look at what's happening in the real economy it's having real serious impacts on the value of goods across the countries.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So then China lets the exchange rate actually appreciate some and get more expensive for a little while and then they re-pegged.’</li></ul>‘But then eventually in 2015 China decided they want to start to loosen this relationship. In part, going back to this monetary trilemma.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They realize China always has to follow U.S. policy or keep tight capital controls. They didn't want to do either of those anymore.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So they tried to come up with a way to loosen the exchange rate regime.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They argued they were now pegging to a basket of currencies instead of just the dollar, although that didn't seem to really be true.’</li></ul>‘When China announced this change, suddenly expectations became quite unanchored. China created a lot more uncertainty.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘When you have a fixed exchange rate, everyone knows what's supposed to happen next year with the exchange rate.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Now what China was doing now was unclear.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So, suddenly capital flow started moving more and China found they had tighten up their capital controls - as other side of the trilemma - to regain some control over China’s exchange rate.’</li></ul>‘This episode - why China wanted to change - is a great example about what happens when you're pegging to one country.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Because the dollar was getting more expensive on world markets and because China was pegged to the dollar, the RMB was getting more expensive on world markets.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So China wanted to unpeg from the dollar - they didn't want to go for that ride with the dollar.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Important: contrary to expectations, because China was pegged to the dollar, it didn't really have a stable exchange rate in terms of trade with everybody else.’</li></ul>‘For example, say you’re El Salvador and almost all your trade is with the United States, stabilizing against the dollar matters a huge amount.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘You may not care what happens with your price of your currency against India's currency because you don’t trade with India at all.’</li></ul>‘But if you’re China and you trade a lot with Southeast Asia, with Europe, with South America, having your currency move against them matters.’</td></tr></div></div></div>

7/17/2019

<div id="NLpost" class="nl-post-wrapper" style="padding:0 3.5%;margin:0 auto;"><div id="NLHeader" class="post-card"><div id="Page-header" class="mainheader"><h1 class="t1">China’s slowing economy not caused by trade war</h1><div class="date">July 17, 2019</div><a href="https://www.linkedin.com/in/malcolmriddell/" target="_blank" class="date" style="color: inherit;border-bottom: 0 solid #008dc8;text-decoration: none;">by Malcolm Riddell</a></div><div class="table-block w-condition-invisible w-dyn-bind-empty w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"></div></div><div class="section_title w-condition-invisible">I. THE LAW AND THE PROTESTS</div><div id="article1" class="post-card"><div class="t2-block">1. China’s slowing economy not caused by trade war</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="http://prod-upp-image-read.ft.com/6446a4a9-cc8b-44ce-83c7-3adbfde1f527" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">James Kynge | FT<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘China's GDP slow down to 6.2% in the second quarter down from 6.6% in all of last year is not primarily the result of the trade war.’‘China's economic growth slowed to its lowest level in nearly 30 years in the second quarter of this year,’ say the FT’s China editor James Kynge in a great 2m video <a href="https://www.ft.com/video/542a1a89-9603-485c-8ac2-8513e3f5dfab#myft:my-news:page" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Why China's own economy trumps the US trade war.’</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Donald Trump claims that this shows his trade war policies are hurting Beijing.’</li></ul><twitter-widget class="twitter-tweet twitter-tweet-rendered" id="twitter-widget-0" style="position: static;visibility: visible;display: block;transform: rotate(0deg);max-width: 738px;width: 500px;min-width: 220px;margin-top: 10px;margin-bottom: 10px;margin: 0 auto;" data-tweet-id="1150717475421663233"></twitter-widget><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But in reality the situation is far more complicated.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China's GDP slow down to 6.2% in the second quarter down from 6.6% in all of last year is not primarily the result of the trade war.’</li></ul>‘Of course, the tit for tat tariffs have hit trade.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China's exports to the U.S. fell 7.8% in June and US exports to China slumped 31%.’</li></ul>‘But such numbers, although stark have little impact on the broader Chinese economy.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In truth net exports contribute less than 1% of China's total GDP.</li></ul>‘China’s slowdown has been created overwhelmingly by domestic drivers that have little to do with US policy.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The main drags on Chinese dynamism come from weakening investment in infrastructure, slowing industrial output, and a decline in the construction of new houses.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘All of these weaknesses derive from domestic sources rather than from the trade war.’</li></ul>‘And in any case, China remains by far the world's most vibrant economy, even growing at its lowest level in 30 years.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It is still on track this year to add more than 1. 4 trillion US dollars in value.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That for context is bigger than the entire Australian economy.’</li></ul></td></tr></div></div><div id="article2" class="post-card"><div class="t2-block">2. China’s economy doing better than latest numbers</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;position: relative;display: block;padding-bottom: 56.25%;"><iframe class="embed-responsive-item" src="https://www.youtube.com/embed/B3tSlxFF5rk"></iframe></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">Leland Miller | CEO, China Beige Book.<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘When an official data catches up with our data that you may see some upside surprises later in the year.’<a href="https://www.chinabeigebook.com/executive-leadership/#1502903411393-b7fd121d-e431" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Leland Miller</a> is CEO of the <a href="https://www.chinabeigebook.com/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">China Beige Book</a>.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">The China Beige Book‘provides independent data and in-depth analysis on every key component of China’s diverse economy—from growth dynamics to labor market and inflation trends to the world’s only tracker of the credit environment and shadow banking.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Leland gave his comments in a <a href="https://youtu.be/B3tSlxFF5rk" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Bloomberg video interview</a>.</li></ul>Q: ‘6.2% - do we believe it?’Leland Miller: ‘We absolutely do not believe it – the numbers are too low. We're seeing much better metrics in our China Beige Book data than China is reporting.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China BeigeBook collects from over 3,300 Chinese firms, so it's a very big database nationally.’</li></ul>‘China's GDP data is, is never accurate. There's a lot of reasons, but it's not always political manipulation.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘A lot of is simply lag - it takes a long time to collect the data.’</li></ul>‘But when the Chinese see a particularly problem period in the economy like the Q4 2018 they don't want to show that the growth indicators have fallen off a cliff.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So they smooth it out, they spread the weakness to later.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘A lot of what you're seeing reported right now is weakness that we saw Q4 2018.’</li></ul>‘So the major sectors are actually doing better than is being reported right now.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Or, in other words, the latest reports are reflecting what's happening better than the ones of a few weeks ago.</li></ul>Q: ‘What other data indicators can you look to give you a better idea of what's going on?’Miller: ‘Separately you need to look at credit.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘For some of the official credit indicators, it takes a long time for certain developments to filter in to the government data.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China Beige Book has showed an extremely active credit environment for all of 2019 - there's a lot more credit going out.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Chinese are a much more aggressive right now than people think.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So it shouldn't surprise people that more growth is going to come from it.</li></ul>‘But here's the problem.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Every time the Chinese do what they're doing right now, they're kicking the can down the road.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It means they're putting a lot of their credit into riskier and riskier borrowers.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They're getting a worse return on investment.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That means growth is going to slow more in the future.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So they're creating major obstacles to be able to fix this next year and the year after.’</li></ul>‘There's a lot of corporate credit provision in the economy that people don't understand, so we're not looking for this falloff in growth.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘When we're looking at 2019, I think people have bought into too much this China is falling off a cliff narrative.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘If you read the average investor note in Wall Street though any signs of good news causes a blip, I don't think that's right.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘We’re seeing a lot more strength in our China Beige Book data than you are an official data right now. And that's because it hasn't flown through.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘When an official data catches up with our data that you may see some upside surprises later in the year.’</li></ul></td></tr></div></div><div id="article3" class="post-card"><div class="t2-block">3. ‘China’s global business footprint shrinks’: China Global Investment Tracker (CGIT)</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="pdf-container" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;padding: 0 2%;background-color: #ccc;"><iframe src="https://docs.google.com/viewer?url=http://www.aei.org/wp-content/uploads/2019/07/Chinas-Global-Business-Footprint-Shrinks.pdf&embedded=true" style="width:100%; height:500px;border:none;"></iframe></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘The People’s Republic of China’s (PRC) globalization efforts are being exaggerated in terms of the amount of money involved and Beijing’s ability to allocate more resources.’‘The China Global Investment Tracker (CGIT) from the American Enterprise Institute is the only fully public record of outbound investment and construction worldwide. All 3,500 transactions are profiled in a public data set.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Read the full report <a href="http://www.aei.org/wp-content/uploads/2019/07/Chinas-Global-Business-Footprint-Shrinks.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">here</a>.</li></ul>‘In the first half of 2019, investment fell just over 50 percent compared to the first half of 2018,’ writes AEI’s Derek Scissors, the creator of the CGIT.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The 2019 results to date are similar to 2011, when Chinese investment was far from a global issue and considerably more welcome .’</li></ul>‘China’s global investment and construction have shown a clear change over the past nine months’:<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The country’s state-controlled giants are engaging in fewer transactions, especially large transactions.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They are still slowly moving auto and steel capacity outside China, but the eye-catching sums spent by the likes of Ping An in acquiring a stake in HSBC have disappeared.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They are still building new expressways and cement plants in developing economies, but less frequently and on a smaller scale.’</li></ul>‘One explanation is greater foreign hostility toward Chinese investment, starting with but not limited to the US.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘However, this does not account for the recent absence of large construction projects in the much-hyped Belt and Road Initiative, which is utterly dominated by state-owned enterprises (SOEs).’</li></ul>‘Instead, the principal explanation is that fear of balance of payments and exchange rate weakness has caused rationing of the hard currency used to make investments and finance construction.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Until this situation changes—and there is no sign it will—China’s global business footprint cannot again approach its 2016 peak.’</li></ul>‘Declining Chinese investment globally reinforces a continuous drop in the US since 2016 and the need for American policymakers to shift attention.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The People’s Republic of China’s (PRC) globalization efforts are being exaggerated in terms of the amount of money involved and Beijing’s ability to allocate more resources.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘What has not declined are the threat to the rule of law, especially regarding intellectual property (IP); the extent of Chinese subsidies; and the Communist Party’s human rights violations.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Changing policies to address these problems will better safeguard America’s security, prosperity, and leadership role.’</li></ul></td></tr></div></div><div class="section_title w-condition-invisible">II. POTENTIAL BACKLASH FROM THE U.S. </div><div id="article4" class="post-card"><div class="t2-block">4. China: ‘The Art of Wait and See’</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://media.theindependent.sg/2018/02/WEF-women.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">Jin Keyu | Associate Professor (with tenure) of Economics at the London school of Economics and Carol Li Rafferty | Managing Director for Yale Center Beijing<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘The Chinese have concluded that Trump’s flailing truculence will continue to wreak havoc on the US economy, potentially forcing him to back off in the run-up to the 2020 US presidential election.’Jin Keyu is becoming an increasingly prominent and influential voice in discussions of China’s economy and the trade war.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Here is her background, as reported in <a href="http://theindependent.sg/two-women-caught-our-eyes-at-davos/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">The Independent</a>:</li></ul>‘Jin Keyu is an Associate Professor (with tenure) of Economics at the London school of Economics (LSE).’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Born in 1983, she hails from Beijing, China, and obtained her B.A., M.A. ‘and Ph.D. from Harvard University.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Her research focuses on international macroeconomics and the Chinese economy.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘She completed her Ph.D. when she was 25 and became the youngest ever tenured professor at LSE when she was 29.’</li></ul>‘Jin has had prior experience at the International Monetary Fund (IMF), the World Bank, the New York Federal Reserve, Goldman Sachs, as well as other financial institutions.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘She was named Young Global Leader by the WEF in 2014.’</li></ul>‘Jin is the daughter of Jin Liqun, President of the Asian Infrastructure Investment Bank (AIIB).’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The elder Jin is recognised as a top economist in China.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He was formerly the Vice Minister of Finance in China and Vice President of the Asian Development Bank.’</li></ul>Here are excerpts from one her latest essays, <a href="https://www.project-syndicate.org/commentary/china-us-trade-war-strategy-by-keyu-jin-2019-07" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘The Art of Wait and See’</a>.‘Those now hoping for an eventual trade deal between China and the United States should not hold their breath,’ writes Jin Keyu.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Contrary to what US President Donald Trump seems to think, the Chinese have not reached their wits’ end, and will not suddenly accede to his demands.’</li></ul>‘Trump’s supporters insist that he should be taken seriously, not literally. Chinese leaders seem to agree.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They have shrugged off the Trump administration’s excessive and unreasonable demands, but harbor little doubts about its intent: to keep China down.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That objective has little to do with specific business concerns, and may even <a href="https://www.project-syndicate.org/commentary/trump-race-war-against-china-by-minxin-pei-2019-05" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">derive</a> from “civilizational” – if not racist – hostility.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Chinese thus have had to adjust their strategic calculus, both in the short and long run.’</li></ul>‘The Chinese have realized with hindsight that appearing too eager for a deal made them look weak and vulnerable during the earlier stages of the conflict. China’s current wait-and-see strategy is premised on two judgments.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘First, the Chinese have concluded that Trump’s flailing truculence will continue to wreak havoc on the US economy, potentially forcing him to back off in the run-up to the 2020 US presidential election.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Second, the Chinese know that Trump’s recent <a href="https://www.project-syndicate.org/commentary/trump-mexico-tariff-threat-by-anne-krueger-2019-06" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">declaration of victory</a> over Mexico was an act of theater in response to growing market jitters.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The latest US-Mexico deal was based almost entirely on previously concluded agreements and fictitious Mexican concessions that exist only in Trump’s Twitter account.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So, China is not going to rush to make concessions when market unease could force a change in the US position at any moment.’</li></ul></li></ul>‘Chinese leaders’ doubt that the Trump administration’s real interest is in making a deal, rather than in undercutting China’s economy - they will have prepared for another breakdown in the negotiations.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘To manage the economic costs of the trade war, China has already activated a number of compensatory levers, many of which are not available to the US.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘These include fiscal and monetary stimulus, measures to encourage more lending, and a strengthening of the Chinese financial system.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And this, in turn, has allowed for a weakening of the renminbi to offset the competitive disadvantage stemming from tariffs.’</li></ul></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It is also making efforts to bypass or otherwise mitigate the effects of the exclusionary military alliances that underpin the Western-led order - China is making new friends and appeasing former foes.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It is mending fences with Japan and – thanks to Trump – Russia.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Xi’s Belt and Road Initiative (BRI) of investment and infrastructure projects across Eurasia would not be possible without the Kremlin’s implicit consent.’</li></ul></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And, in the emerging Chinese view, any leverage or advantage the US has over China in trade is far exceeded by the Chinese people’s willingness to withstand the pressure.’</li></ul>‘At the same time, China is taking advantage of doubts about Western liberalism by pushing a new worldview of its own.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The West’s vulnerability has been exposed by its slow economic recovery since the 2008 financial crisis, declining life expectancy among some cohorts, stagnant standards of living, and the breakdown of traditional alliances.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In exporting an alternative agenda, China is unapologetically advocating increased state intervention to improve livelihoods, as well as a <a href="https://www.project-syndicate.org/onpoint/can-the-east-save-the-west-by-parag-khanna-2019-05" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">value system</a> that ranks collective welfare above individual desires.’</li></ul>‘China cannot simply write off economic and trade relations with the US.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But in the near term, it is unrealistic to expect China to change its laws or abandon its development model, as the Trump administration is demanding.’</li></ul>‘The US, for its part, should consider the Chinese perspective.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China, a 5,000-year-old civilization, knows that those desperate for a deal will end up losing in the end, while those who remain patient and aloof will come out on top.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That stance will guide China’s strategy, both in the near term and in the years to come.’</li></ul></td></tr></div></div><div id="article5" class="post-card"><div class="t2-block">5. Why China Still Needs Hong Kong</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="pdf-container" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;padding: 0 2%;background-color: #ccc;"><iframe src="https://docs.google.com/viewer?url=https://www.hkex.com.hk/-/media/HKEX-Market/Market-Data/Statistics/Consolidated-Reports/Annual-Market-Statistics/2018-market-statisitcs.pdf&embedded=true" style="width:100%; height:500px;border:none;"></iframe></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘The Chinese leadership realizes that for the sake of its own prosperity, China still needs a capitalist Hong Kong.’‘Some <a href="https://www.nytimes.com/2019/07/03/opinion/hong-kong-protest.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">argue</a> [‘<a href="https://www.nytimes.com/2019/07/03/opinion/hong-kong-protest.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Why China No Longer Needs Hong Kong</a>’ by Eswar Prasad] that China’s rapid economic development has diminished Hong Kong’s relevance to the mainland over time, thus giving Beijing greater leeway in treating Hong Kong with a heavy hand,’ Tianlei Huang of the Peterson Institute of International Economics in ‘<a href="https://www.piie.com/blogs/china-economic-watch/why-china-still-needs-hong-kong#_ftn2" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Why China Still Needs Hong Kong</a>.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘There may be some truth to this argument, but the way I see it is different.’</li></ul>‘Though Hong Kong’s economy has shrunk relative to the mainland’s, it remains vital to China as a whole.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Hong Kong’s importance to the Chinese economy is disproportionate to its size.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Since Hong Kong’s handover in 1997, China has developed massive economic and business interests in the territory.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Chinese leadership realizes that for the sake of its own prosperity, China still needs a capitalist Hong Kong.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘However, Beijing must know that preserving Hong Kong’s unique economy means more than allowing free enterprise.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It entails a strong and unwavering commitment to its rule of law, the key to Hong Kong’s economic success.’</li></ul>‘Though entrepôt trade via Hong Kong has diminished with China joining the World Trade Organization, Chinese outbound investment into Hong Kong is significant in both flow and stock.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘According to <a href="http://www.mofcom.gov.cn/article/tongjiziliao/sjtj/ndyuxgjm/201903/20190302844193.shtml" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">the Ministry of Commerce of China</a>, over 58 percent (around US$70 billion) of China’s nonfinancial outbound direct investment (ODI) flow went to Hong Kong in 2018.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘By the end of 2018, stock volume of China’s nonfinancial ODI in Hong Kong reached US$622 billion.<a name="_ftnref1" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"></a>[<a href="https://www.piie.com/blogs/china-economic-watch/why-china-still-needs-hong-kong#_ftn1" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">1</a>] That amount was roughly 170 percent of Hong Kong’s GDP in the same year.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘A great amount of Chinese investment does not remain in Hong Kong.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It is either repatriated to China as profits and funds or sent elsewhere in the rest of the world.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Mainland companies take such a detour with their investments via Hong Kong to take advantage of the territory’s favorable regulatory environment and available professional services.’</li></ul>‘The mainland companies detouring through Hong Kong include a growing presence of China’s state-owned enterprises (SOEs).’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Currently, of the 96 central SOEs managed by the State-Owned Assets Supervision and Administration Commission (SASAC) of the State Council, three are headquartered in Hong Kong (namely, China Merchants, China Resources, and China Travel Service) and 50 have at least one subsidiary listed on the Stock Exchange of Hong Kong (SEHK).’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Plus, of the ten largest initial public offering (IPO) funds raised by newly Hong Kong–listed companies since 1986, <a href="https://www.hkex.com.hk/-/media/HKEX-Market/Market-Data/Statistics/Consolidated-Reports/Annual-Market-Statistics/2018-market-statisitcs.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">nine</a> are Chinese—including eight Chinese state-owned financial institutions and enterprises.’</li></ul>‘The SEHK is now home to 250 H-share Chinese companies and another 171 red chip firms that are controlled by the Chinese state.<a name="_ftnref2" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"></a>’[<a href="https://www.piie.com/blogs/china-economic-watch/why-china-still-needs-hong-kong#_ftn2" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">2</a>] <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The combined 421 China-related companies have a <a href="https://www.hkex.com.hk/Market-Data/Statistics/Consolidated-Reports/China-Dimension?sc_lang=en&select=%7b3A4BB661-6EB1-469E-AFBA-1E5664DDCE8D%7d" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">total market capitalization</a> of nearly HK$12 trillion (US$1.54 trillion), more than one-third of SEHK’s total market capitalization of HK$32.73 trillion (US$4.2 trillion) at the end of June 2019, compared with only 16 percent at the time of the 1997 handover.<a name="_ftnref3" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"></a>’[<a href="https://www.piie.com/blogs/china-economic-watch/why-china-still-needs-hong-kong#_ftn3" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">3</a>] </li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Most recently, the Chinese internet conglomerate Alibaba has <a href="https://www.reuters.com/article/us-alibaba-listing-hongkong/alibaba-files-for-hk-listing-that-may-raise-20-billion-as-soon-as-third-quarter-source-idUSKCN1TE0M2" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">filed</a> a listing that could potentially raise nearly US$20 billion for the company as soon as the third quarter of 2019.’</li></ul>‘Why do mainland companies, many of which are state-owned, opt for listings in Hong Kong?’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Hong Kong has multiple advantages that are missing in China itself.’</li></ul><ol style="font-size: 1em;line-height: 1.875em;margin: .625em 0;margin-left: -1.1em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘First, a registration-based IPO system, which enables listing to be relatively faster and easier than in the mainland.<a name="_ftnref4" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"></a>’[<a href="https://www.piie.com/blogs/china-economic-watch/why-china-still-needs-hong-kong#_ftn4" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">4</a>]</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Second, absence of capital controls and greater international exposure, which allows Hong Kong to serve as an anchor point for global expansion.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Third, a sound financial infrastructure, which mitigates operational costs.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Fourth, an effective regulatory framework, which focuses on transparency and prudent minimum standards.<a name="_ftnref5" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"></a>’[<a href="https://www.piie.com/blogs/china-economic-watch/why-china-still-needs-hong-kong#_ftn5" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">5</a>]</li></ol><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Neither Shanghai nor Shenzhen is likely to win this competition with Hong Kong, at least over the short term.’</li></ul>‘Moreover, Hong Kong is also at the forefront of renminbi internationalization.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It is now the “global hub for offshore renminbi business,” <a href="https://www.hkma.gov.hk/media/eng/doc/key-functions/monetary-stability/rmb-business-in-hong-kong/hkma-rmb-booklet_accessible.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">said</a> the Hong Kong Monetary Authority (HKMA), the territory’s de facto central bank.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Hong Kong’s renminbi liquidity pool (a combination of renminbi deposits and renminbi certificates of deposit), the largest outside mainland China, <a href="https://www.hkma.gov.hk/media/eng/publication-and-research/quarterly-bulletin/qb201809/Chapter4.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">reached</a> RMB634 billion (US$92 billion) at the end of June 2018.<a name="_ftnref6" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"></a>’[<a href="https://www.piie.com/blogs/china-economic-watch/why-china-still-needs-hong-kong#_ftn6" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">6</a>] </li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The People’s Bank of China has <a href="http://www.pbc.gov.cn/goutongjiaoliu/113456/113469/3849737/index.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">issued</a> renminbi-denominated central bank bills in Hong Kong through HKMA’s Central Moneymarkets Unit (CMU) four times—totaling RMB90 billion (US$13 billion)—since November 2018 to adjust liquidity and stabilize exchange rates in the offshore renminbi market.’</li></ul>‘Underlying all the advantages Hong Kong possesses over the mainland is the territory’s core strength of rule of law—the very cause that over a million Hong Kongers have taken to the streets to defend since June 2019.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Beijing needs to understand that preserving Hong Kong’s capitalist system distinct from the rest of China is in its own best interests.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It entails adherence to free-market capitalism and, more importantly, an unwavering commitment to the rule of law, which no one should take for granted.’</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">NOTES</h5><a href="https://www.piie.com/blogs/china-economic-watch/why-china-still-needs-hong-kong#_ftnref1" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">1</a>. ‘It is interesting to note that at the same time, Hong Kong’s investment in the mainland is also significant. By the end of 2018, in the mainland, the actually utilized foreign direct investment (FDI) from Hong Kong was US$1.1 trillion in stock, accounting for 54 percent of all FDI China has received from all over the world, according to <a href="http://www.mofcom.gov.cn/article/tongjiziliao/sjtj/ndyuxgjm/201903/20190302844193.shtml" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">the Ministry of Commerce of China</a>.’<a href="https://www.piie.com/blogs/china-economic-watch/why-china-still-needs-hong-kong#_ftnref2" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">2</a>. ‘According to <a href="https://www.hkex.com.hk/-/media/HKEX-Market/Market-Data/Statistics/Consolidated-Reports/Annual-Market-Statistics/2018-market-statisitcs.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">the Hong Kong Exchanges and Clearing Market</a>, H-share companies are enterprises that are incorporated in the mainland and are controlled by either mainland government entities or individuals; red chip companies refer to enterprises that are incorporated outside the mainland but are controlled by mainland government entities.’<a href="https://www.piie.com/blogs/china-economic-watch/why-china-still-needs-hong-kong#_ftnref3" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">3</a>. ‘The Hong Kong dollar is pegged to the US dollar in a narrow band of 7.75 to 7.85 per US dollar. The exchange rate used to convert Hong Kong dollars to US dollars in this post is as of July 9, 2019.’<a href="https://www.piie.com/blogs/china-economic-watch/why-china-still-needs-hong-kong#_ftnref4" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">4</a>. ‘China has been discussing replacing IPO approval with registration for many years, but little has been done. Most recently, the newly launched Nasdaq-like STAR market in Shanghai has begun to <a href="http://www.csrc.gov.cn/pub/zjhpublic/zjh/201903/t20190301_351633.htm" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">test</a> IPO registration, but it still remains unknown when all listings on the Shanghai and Shenzhen stock exchanges will become registration-based.’<a href="https://www.piie.com/blogs/china-economic-watch/why-china-still-needs-hong-kong#_ftnref5" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">5</a>. ‘The Heritage Foundation has <a href="https://www.heritage.org/index/country/hongkong" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">ranked</a> Hong Kong as the world’s freest economy for 25 consecutive years since 1995.’<a href="https://www.piie.com/blogs/china-economic-watch/why-china-still-needs-hong-kong#_ftnref6" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">6</a>. ‘The exchange rate used to convert renminbi to US dollars in this post is as of July 9, 2019.’</td></tr></div></div></div>

7/13/2019

<div id="NLpost" class="nl-post-wrapper" style="padding:0 3.5%;margin:0 auto;"><div id="NLHeader" class="post-card"><div id="Page-header" class="mainheader"><h1 class="t1">‘U.S.-China Positions Have Hardened’</h1><div class="date">July 13, 2019</div><a href="https://www.linkedin.com/in/malcolmriddell/" target="_blank" class="date" style="color: inherit;border-bottom: 0 solid #008dc8;text-decoration: none;">by Malcolm Riddell</a></div><div class="table-block w-condition-invisible w-dyn-bind-empty w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"></div></div><div class="section_title w-condition-invisible">I. THE LAW AND THE PROTESTS</div><div id="article1" class="post-card"><div class="t2-block">1. ‘U.S.-China Positions Have Hardened’</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;position: relative;display: block;padding-bottom: 56.25%;"><iframe class="embed-responsive-item" src="https://www.youtube.com/embed/peVSIWluHt0"></iframe></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘We need a president who basically stands up and says, “China's not perfect. We know China's not perfect, but it's important that we adopt policies that are nuanced, that enable the reformers in China to be able to enact reform within China.”’Steve Orlinsis president of the National Committee on U.S.-China Relations.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Prior to that, he was the managing director of Carlyle Asia, among other earlier investment roles.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">As an attorney, before entering private practice, he was a State Department lawyer and a member of the legal team that helped establish diplomatic relations with the PRC.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">With many decades of Asia experience, especially with Taiwan and China, at the highest levels, Steve is an influential voice in U.S. policy.</li></ul>Steve recently gave his views on several issues in a <a href="https://youtu.be/peVSIWluHt0" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">video interview on Bloomberg.</a><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">‘U.S.-China Positions Have Hardened’</h5>Q: ‘You've been meeting with many political leaders here in Beijing. Have positions hardened or are you more optimistic?’Steve Orlins: ‘Positions since the break off of negotiations - despite what happened in Osaka where there was an agreement between President Trump and President Xi to continue the negotiations - on both sides have hardened.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Each side blames the other for the breakdown in negotiations.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Opposed to the ZTE decision when the United States government banned business with ZTE, a lot of people in China understood that - that ZTE was a bad actor - and they kind of accepted that decision.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Huawei ban is a different kettle of fish - people feel that that is a statement that the United States is trying to decouple from China, is trying to impede Huawei from being a global company.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It’s not a State-Owned Enterprise. People here believe it's a private enterprise, and the United States actions are unfounded.’</li></ul>‘So since then there has been a real hardening in the Chinese position.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘My meetings with officials - both higher and lower level officials - suggest that this hardening is not something that's going to ease in the next few weeks.’</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">‘There is a discrepancy between the data on economic growth and what I'm hearing.’ </h5>Q: ‘You've also been traveling to some half a dozen areas in China speaking with businesses, American and Chinese businesses. Are you concerned about the economic environment?’Orlins: ‘I am concerned that there is a discrepancy between the data on economic growth and what I'm hearing from these businesses.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘We see in the data a slight slowing, but what we see when I talk to these businesses is a slowing in some cases and in other cases an actual contraction.’</li></ul>‘You don't ask is growth slower than last year? The question is: are sales actually lower than last year?’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In a lot of cases in Guangzhou, Shenzhen, Jiangsu Province, I'm seeing businesses that actually have declining sales in specific sectors.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In automotive, light industry, companies who depend on exports - they are not seeing slowing growth but contraction.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘One of the things I noticed was after Spring Festival this year, some workers didn't come back to their factories because they knew there wasn't going to be enough work for them - the owners basically said, “Well, don't all come back because we're not going to be running at capacity. So don't bother.”’</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">The ‘China is not an enemy’ letter</h5>Q: ‘You are one of a hundred experts - business leaders, scholars, diplomats - who signed this letter to Trump saying that treating China as an enemy is the wrong approach, and it's hurting America [<a href="https://www.washingtonpost.com/opinions/making-china-a-us-enemy-is-counterproductive/2019/07/02/647d49d0-9bfa-11e9-b27f-ed2942f73d70_story.html?utm_term=.fd8e7eee02d5" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘China is not an Enemy’</a>]. What's the response you've been hearing from leaders in the U.S.?’Orlins: ‘There's been a mixed response.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"> ‘There are those who fundamentally believe we're wrong, and that we should have this policy of treating China as a potential enemy.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They have written to us and appeared on media stating that we are fundamentally wrong.’</li></ul>‘The good part of this is we're having a debate. It’s important that the United States, the people of the United States, debate what this policy should be.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘If you go back to December of 2017 the national security strategy of the United States said, “We view China as a revisionist power and a strategic competitor,” but there was no discussion of whether that was the right policy or not.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Now, almost two years later, a year and a half later, we're finally having that debate.’</li></ul>‘And it's important because ultimately the American people are going to make the right decision.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The views conveyed in that letter - don't treat China's as an enemy, work with the reformers in China to enable them to enact reforms in China - the right policy.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And the people of the United States are going to make the right decision.’</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">Impact of the 2020 Elections</h5>Q: ‘How do you see the 2020 elections impacting the relationship, and does it substantially change if a Democrat is elected?’Orlins: ‘I think it changes somewhat, but not substantially.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘There seems to be a consensus on both sides of the aisle that we need to be tougher on China.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘What our letter intended was to send a signal to both sides of the aisle that this policy of demonizing China is not in the interest of the American people or the American public - that it's actually damaging to Americans.’</li></ul>‘So hopefully when we have a new administration that has folks who are not as committed to protectionism, we'll see better policies towards China.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘We'll also see an end of the demonization of China.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘We need a president who basically stands up and says, “China's not perfect. We know China's not perfect. But it's important that we adopt policies that are nuanced, that enable the reformers in China to be able to enact reform within China.”’</li></ul></td></tr></div></div><div id="article2" class="post-card"><div class="t2-block">2. Impact of tariffs on business decisions: Richmond Fed President</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;position: relative;display: block;padding-bottom: 56.25%;"><iframe class="embed-responsive-item" src="https://www.youtube.com/embed/W9nTzwsLXE0"></iframe></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘CEOs would like to have the rules of the game made clear.<a href="https://www.richmondfed.org/about_us/our_leadership_governance/president" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Tom Barkin</a> – friend, classmate, former McKinsey partner, and now president of the Richmond Fed – gave wide-ranging <a href="https://youtu.be/W9nTzwsLXE0" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">video interview on Bloomberg</a>.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Here is what he had to say about the impact of tariffs on business decisions.</li></ul>Q: ‘What are CEO's telling you?’Tom Barkin:‘I definitely think the CEOs would like to have the rules of the game made clear.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘If the rules include a tariff regime or a free trade regime, that's fine. If they don't, that's fine.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘When the rules are clear, they'll adjust their supply chains accordingly.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They're challenged by the uncertainty.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They don't know how to adjust their supply chains.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"> ‘That’s why they're really quite interested in is just knowing what's going to happen.’</li></ul>Q: ‘I know that the Fed doesn't target the dollar, but what about companies: do they want to see, as the president suggests, a weaker dollar to become more competitive?’Barkin: ‘It totally depends on where you: folks with more international exposure have one perspective; folks with less international exposure have a different one.’Q: ‘What are they telling you about how they're coping with tariffs these days?’Barkin: ‘Well, in the press there's a lot of talk about tariffs.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In truth, there aren't that many tariffs actually in the economy as a percentage of the size of the economy.’</li></ul>‘The folks who are in tariffed industries first of all have to decide whether it's temporary or permanent? Whether it's industry wide or just hitting them?’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘If they think it is temporary, they're more likely to wait and see.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘If they think it's going to be there for a while - as many people now think it is going to be in places like China - then there they're forcing the question of what to do with their supply chain.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘If a tariff is industry wide, if everyone manufactures in a given country, then you often go to your customers and see if you can't raise price.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But if your supply chain is in China and somebody else's is a Vietnam, you know you've got to move.’</li></ul>Q: ‘Your district represents a lot of the manufacturing that moved out of the south, moved to China, went to other places. How are trade wars playing there?’Barkin: ‘You've got folks who are directly affected and folks who aren't.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘If you're not directly affected, people understand the idea of delivering fair trade packages and are willing to take a little bit of uncertainty for that end.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The folks who are directly affected - they react very much based on what's happening in their particular business.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So if it hits you directly, you're not happy, and if it helps you directly, you are happy.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But they all would like the uncertainty to be over.’</li></ul></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"></tr></div></div><div id="article3" class="post-card"><div class="t2-block">3. ‘China tariffs: We can do better’</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;position: relative;display: block;padding-bottom: 56.25%;"><iframe class="embed-responsive-item" src="https://www.youtube.com/embed/RWqG85lMz3k"></iframe></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘Tariffs are a mistake. They hurt American consumers. They hit Chinese companies that have done nothing wrong - along with the predatory companies.’ <a href="https://www.youtube.com/playlist?list=PLytTJqkSQqtqQfyFZWFQC5BTFjbej0Jep" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘AEI in 60 Seconds’</a> is a great series from the American Enterprise Institute that provides bite-sized – and usually provocative – video analyses from AEI experts on a great range of topics. Highly recommended.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Here is AEI’s Derek Scissors on <a href="https://youtu.be/RWqG85lMz3k" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘China tariffs: We can do better | IN 60 SECONDS.’</a></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">His premise – and it’s an excellent one – if we want Chinese companies to stop stealing or coercing IP, then target those companies. Simple, elegant, and imminently sensible.</li></ul>‘In March, I said U.S. China trade was all talk, no action.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Now it's all yelling, no action.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The yelling stems from American tariffs on up to $450 billion in Chinese imports.’</li></ul>‘Tariffs are a mistake.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They hurt American consumers.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They hit Chinese companies that have done nothing wrong - along with the predatory companies.’ </li></ul>‘China does heavily subsidize its firms, while enjoying open competition practiced by others.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It steals and forces the transfer of American intellectual property.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It promises to improve, but it never does.’</li></ul>‘We should respond to that. Just not with tariffs.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The U.S. should target large enterprises owned by the Chinese government.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Communist Party wants these enterprises to dominate the Chinese and global economies.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Because they are owned by the government, they can be held responsible for policy.’</li></ul>‘The U.S. should start with a small group of bad offenders with regard to IP.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They should not be allowed to do business with American consumers or companies.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They should be hit with global financial sanctions.’</li></ul>‘This maximizes the pressure on bad Chinese actors without taxing Americans.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It's more focused and more justified than tariffs.’</li></ul></td></tr></div></div><div class="section_title w-condition-invisible">II. POTENTIAL BACKLASH FROM THE U.S. </div><div id="article4" class="post-card"><div class="t2-block">4. “Who Knew Trump Would Offer A Truce With Xi?”: The Mystery Of The Wall Street Trump Trades</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://media.vanityfair.com/photos/5d236c961c225a00086f412d/16:9/w_1280%2Cc_limit/donald-trump-xi-trade-deal.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘Traders are talking about big options bets in advance of the president and others making news. Could they be related? “Maybe someone got lucky—or listened in to those private meetings.”’‘IsDonald Trump’s erratic behavior fueling a business model? Some Wall Street options traders are beginning to suspect so,’ writes William D. Cohan in ‘“<a href="https://www.vanityfair.com/news/2019/07/the-mystery-of-the-wall-street-trump-trades" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Who Knew Trump Would Offer A Truce With Xi?”: The Mystery Of The Wall Street Trump Trades</a>.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They’ve taken note, with increasing alarm, of people making strange bets tied to Trump’s actions and then cashing in bigly when the odd bets pay off.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘“If you had the ability to make hundreds of millions of dollars, or billions, and you knew how to hide it and it was impossible to find, wouldn’t you do it?” a longtime Wall Street options trader asks me sarcastically.’</li></ul>‘There is an old saw on Wall Street about how if you could somehow get tomorrow’s Wall Street Journal today, you could make a fortune.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Advance knowledge of presidential actions might provide a similar advantage, and some unusual trading patterns are fueling gossip and suspicion on the Street.’</li></ul>‘Take, for example, what happened in the last 30 minutes of trading on Friday, June 28 at the Chicago Mercantile Exchange.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘By that time Trump was already in Osaka, Japan—which is 14 hours ahead of Chicago—where he would <a href="https://www.nytimes.com/2019/06/29/world/asia/g20-trump-xi-trade-talks.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">meet</a> for more than an hour with China’s President Xi Jinping.’ </li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘According to the trader, who has decades of experience trading options, while they were meeting on Saturday morning, someone, or a group of people, bought 420,000 so-called “e-minis”—electronically traded futures contracts tied to a wide range of stock indexes—in the last 30 minutes of trading in Chicago on Friday afternoon.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The big bet could appear to be that Trump might announce a deal of some sort with Xi about the tariff negotiations, and that on Monday morning, or soon thereafter, the S&P 500 stock index would trade up.’</li></ul>‘The <a href="https://www.cmegroup.com/trading/equity-index/us-index/e-mini-sandp500_quotes_volume_voi.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">total volume</a> Friday of the September e-minis was a little more than one million contracts, so a purchase of 420,000 contracts, or about 40% of the day’s volume, in the last few minutes would likely be noticed by astute market watchers.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Charts of the e-mini trading that day clearly show a spike up in volume in the last 30 minutes of the day.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘“What was going on in the world?” the trader asked rhetorically. “At that time? The G20.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘“What if Putin or Xi or MBS knew something positive would be announced on Sunday?”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘“Heck, just 10% or 40,000 [e-minis] bought would be $120 million today. Maybe someone got lucky—or listened in to those private meetings.”’</li></ul>‘On Saturday in Osaka—after the market had closed in Chicago—Trump emerged from his meeting with Xi and announced that the contentious on-again, off-again trade talks with China were back on.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘“We discussed a lot of things, and we’re right back on track,” Trump said at the news conference following his private meeting with Xi.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘“Who knew Trump would offer a truce with Xi?” the options trader wondered. “Some lucky trader? Are there any hedge fund traders that might have been tipped off? A simple ‘don’t go short this weekend’ might send a signal to load up on the long side.”’</li></ul>‘On Monday morning, the market <a href="https://www.nbcnews.com/business/business-news/trump-xi-trade-announcement-gives-market-breathing-room-now-n1025341" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">reacted positively</a> to the news that the U.S. and China would resume trade talks, and has kept moving up since, as Trump is always happy to note.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘On Thursday, June 27—before the G20 meeting began—the S&P 500 index closed at about 2,915.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Over a week later, the S&P index is at just below 3,000, an increase of around 84 points, $4,200 per e-mini futures contract. (Each half-point increase in the index is worth $50 per option.)’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Whoever bought the 420,000 e-mini options contracts was sitting on about a $1.8 billion profit.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘“Someone got very, very lucky,” the trader told me.’</li></ul></td></tr></div></div><div id="article5" class="post-card"><div class="t2-block">5. ‘Trump’s tariff claims are demonstrably false. Here’s why.’</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://www.washingtonpost.com/resizer/IEo_F0pGkc1VkHj2llLjUOAxG9w=/1484x0/arc-anglerfish-washpost-prod-washpost.s3.amazonaws.com/public/OTZZQRE7LUI6TA7DIX663DUNFY.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘The president’s trade wars are, in fact, proving difficult and costly.’‘“Trade wars are good, and easy to win” — or so <a href="https://twitter.com/realdonaldtrump/status/969525362580484098" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">tweeted</a> President Trump in March 2018,’ write Benn Steil and Benjamin Della Rocca of the Council on Foreign Relations in <a href="https://www.washingtonpost.com/opinions/2019/07/09/debunking-trumps-tariff-claims/?utm_term=.0c06dc6ba565" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Trump’s tariff claims are demonstrably false. Here’s why.’</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But the president’s trade wars are, in fact, proving difficult and costly.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China, India, Canada, Mexico, Turkey and the European Union have all chosen retaliation over capitulation.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So whereas the president has agreed to restart trade talks with <a href="https://www.washingtonpost.com/business/economy/trade-war-hangs-in-balance-as-trump-and-xi-finally-meet/2019/06/28/bb065eb2-9a02-11e9-830a-21b9b36b64ad_story.html?utm_term=.3657eb86f965" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Beijing</a>, he is no longer pledging easy victories.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Instead, he is doubling down on the idea that trade wars are good in and of themselves.’</li></ul>‘“Tariffs will bring in FAR MORE wealth to our Country than even a phenomenal deal of the traditional kind,” he <a href="https://twitter.com/realdonaldtrump/status/1126815715682656256" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">tweeted</a> in May.’China, he <a href="https://www.bloomberg.com/news/articles/2019-05-27/u-s-not-ready-to-make-a-trade-deal-with-china-trump-says" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">said</a>, was paying “hundreds of billions of dollars in tariffs.”’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He even <a href="https://twitter.com/realdonaldtrump/status/1127891815628144640" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">claims </a>that tariffs somehow boosted first-quarter U.S. output growth.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So in trade wars, it’s “heads we win, tails they lose.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Foreigners give us phenomenal deals (of the Trumpian kind), or America feasts on ever-soaring tariffs.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The problem with this logic is that all of the president’s claims are, even if we grant him maximum artistic license, demonstrably false. Here is why.’</li></ul>‘First, foreign countries don’t pay a dime of his tariffs.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Tariffs are taxes on imports — paid by the importers, not by the exporters.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The president’s advisers know this, and therefore try to explain away his “China pays the tariffs” claim the way he explains away his “Mexico pays for the wall” claim.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Mexico does not “<a href="https://www.cnbc.com/2019/01/10/trump-says-mexico-is-not-going-to-write-a-check-for-the-wall-contradicting-campaign-pledge.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">write a check</a>” for the wall, he admitted, but (somehow) pays through changes in trade flows that will (someday) emerge from his NAFTA revisions.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Likewise, China does not actually pay the president’s tariffs, trade adviser Peter Navarro <a href="https://www.realclearpolitics.com/video/2019/06/05/whs_peter_navarro_vs_cnn_host_wrong_to_claim_americans_will_bear_burden_of_chinese_tariffs.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">explained</a>, but “bears most of the burden of the tariffs” by lowering its export prices to offset them.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Fortunately, we can test this claim.’</li></ul>‘Each month, the Bureau of Labor Statistics publishes an aggregate index of the pre-tariff prices of imported Chinese goods.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Any Chinese price cuts would cause this index to fall.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Given that tariffs last year raised the import costs of Chinese goods roughly 6 percent on average, if Chinese firms had cut prices to offset Trump’s tariffs the index would have fallen 6 percent since last June — when the trade war started.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Yet the <a href="https://www.bls.gov/news.release/ximpim.t07.htm" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">index has fallen </a>barely 1 percent, and at least some of that tiny decline can be explained by Chinese currency depreciation — which makes Chinese goods cheaper for U.S. importers.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘There is, therefore, no evidence supporting Navarro’s claim. Americans are, in fact, bearing the burden of Trump’s China tariffs.’</li></ul>‘Trump’s second <a href="https://twitter.com/realdonaldtrump/status/1126106541004873730" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">claim</a> is that tariffs are “filling U.S. coffers.” China tariffs, recall, were allegedly bringing in “hundreds of billions of dollars.”’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Yet this, too, is false.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Government data show that they <a href="https://www.washingtonpost.com/politics/2019/02/22/trumps-repeated-claim-that-china-paying-billions-tariffs-treasury/?utm_term=.e5612dd770e1" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">netted</a>just over $8 billion in 2018. Extrapolating forward through the end of May, total revenue from Trump’s China tariffs has therefore been about $20 billion — a small fraction of what the president asserts.’</li></ul>‘More important, as of May, Trump has <a href="https://newfoodeconomy.org/usda-trump-trade-war-farmer-bailout-tariff-payments-round-two/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">authorized</a> nearly $26 billion in compensation to U.S. farmers for the losses they have suffered to date from Chinese retaliatory actions.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This compensation is $6 billion more than the total estimated China tariff revenue.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Far from “filling U.S. coffers,” then, Trump’s tariffs have been drainingthem at an accelerating pace.’</li></ul>‘Nothing in our analysis has even touched on the harm to U.S. businesses and consumers from the higher prices the president has imposed on intermediate and final goods, nor to American non-farm sectors that have been slammed by foreign retaliatory tariffs.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It is noteworthy that even the industries Trump promised to revive are reeling.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Since the announcement of <a href="https://www.bloomberg.com/news/articles/2019-07-07/the-trump-tariff-twist-that-s-cost-u-s-steel-5-5-billion" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">steel tariffs</a>in March 2018, for example, U.S. Steel has lost 70 percent of its market value.’</li></ul>‘In short, then, Trump’s trade wars have thus far been an unmitigated economic and diplomatic own-goal [def: a goal that a player accidentally scores against his or her own team] for the United States.’</td></tr></div></div><div class="section_title w-condition-invisible">III. CONGRESS & THE PRESIDENT REACT </div><div id="article6" class="post-card"><div class="t2-block">6. 'Is the China model a threat?'</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d2927c2187e93b69abc4c1e_William%20H%20Overholt%2BBook%20cover.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">The China Model: Neither a Worry nor Unique<h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">The China Model: Neither a Worry nor Unique</h5><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Western countries ‘worry about the current Chinese model being spread everywhere.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Chinese thinkers see their country’s model of authoritarian reform and opening-up as unique.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They are both wrong,’ writes Bill Overholt of the Harvard Kennedy School and author of the terrific <a href="https://www.amazon.com/Chinas-Crisis-Success-William-Overholt/dp/1108431992/ref=sr_1_1?gclid=CjwKCAjw36DpBRAYEiwAmVVDMP0BxzHyhMer4WDIG0CzFh_r8RzFzCZYsfxnQsir3XiMi9KIhbtKORoCsQcQAvD_BwE&hvadid=267887558319&hvdev=c&hvlocphy=9012304&hvnetw=g&hvpos=1t1&hvqmt=e&hvrand=16305240418461694225&hvtargid=kwd-443148141283&keywords=china%27s+crisis+of+success&qid=1562954556&s=gateway&sr=8-1" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">China’s Crisis of Success</a>, the latest of his many books in <a href="https://www.eastasiaforum.org/2019/07/07/is-the-china-model-a-threat/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Is the China model a threat.’</a></li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">The China Model is Not Unique</h5>‘China is the latecomer in a group of ‘Asian miracle’ economies — Japan, South Korea, Taiwan and Singapore — that exhibit common characteristics.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They are all socially egalitarian and in their era of spectacular growth were run by single party or dominant party systems.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They all achieved rapid growth through gradual marketisation, gradual opening to foreign trade and investment, and vigorous import of industrial and regulatory best practice from successful Western economies.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They also share a vital common experience of terrible trauma and an overwhelming fear of societal collapse: Japan after losing World War II, South Korea after the Korean War, Taiwan after the Chinese Civil War and Singapore after its shocking separation from Malaya.’</li></ul>‘Fear of collapse inspires leaders to undertake high-risk disruptive policies and suppresses normal public reaction against severely stressful social change.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In China, leaders’ acceptance of risky change began with the dismantling of the communes, which were the Communist Party’s principal lever of power, giving them total control over people’s jobs, incomes, location and family circumstances.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘When peasants in Anhui province began taking back their family farms, this threatened the core of Communist power, but it also generated rapid economic growth.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Led by Deng Xiaoping, top leaders decided to make a bet — seemingly very risky at the time — that such growth would continue and would consolidate government income and increase popular support for the Communist Party.’</li></ul>‘Leaders in normal national situations don’t take such risks.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Likewise, in normal national situations the population doesn’t accept the kind of social stress that occurred when Zhu Rongji eliminated 45 million industrial jobs in a decade.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'Indeed, by the end of that decade popular fear of collapse had dissipated and popular anger at Zhu’s market reforms was intense.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Intense reformism gave way to Hu Jintao’s reassuring promise of a “harmonious society” that would eschew such disruption.’</li></ul>‘Even more dramatically, today’s national economic plans call for further intense market reforms, under the 2013 Third Plenum’s rubric of market allocation of resources, but political resistance is intense and Xi Jinping has instead chosen to emphasise political control over market reforms.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The counterpart today of the trade-off Deng and Zhu made, abandoning some forms of direct political control in favour of socially beneficial marketisation, would be for the Party to step back from direct control of state-owned enterprises and the legal system.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Instead Xi has chosen to strengthen political control of all enterprises and of the judicial system.’</li></ul>‘The China model of today no longer works, even in China.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The long-term negative effect on the economy will likely be severe.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Politically, the long-term consequences may be equally or more severe.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Under Deng Xiaoping and Jiang Zemin, the Chinese Communist Party was a social vanguard, sacrificing its own levers of power to improve the lives of the people.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Now it is an interest group, grasping to acquire and retain every available political lever even at great cost to national economic plans.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Eventually people will regard it as an interest group rather than a vanguard.’</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">The China Model is Not a Threat</h5>‘This model cannot be emulated, in any comprehensive sense, by normal developing countries.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The model is not unique to China, but it is unique to a group of countries that suffered terrible traumas in the 1940s and 1950s and had to risk political control and impose extreme social stress to address those traumas decisively.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Chinese thought leaders have largely recognised that the model is not widely replicable.’</li></ul>‘Western leaders’ fears of a universalising Chinese model are misplaced.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘If Xi Jinping mistakenly tries to export the model, Cold War style, he would not succeed.’</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">Democracy Doesn’t Work Everywhere Either</h5>‘Having said that, the limitations of the Asian miracle model do not validate Western claims that Washington- or Westminster-style democracy will prove optimal everywhere.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The contrast between the Asian miracle economies’ successes in improving the lives of the most deprived sectors of the population, and the failure of the Western democratic model to do so in countries like India and the Philippines, can indeed inspire developing countries to seek alternative paths to growth.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Xi Jinping’s careful insistence that all countries should be allowed to choose their own path attracts an enthusiastic audience.’</li></ul></td></tr></div></div></div>

7/10/2019

<div id="NLpost" class="nl-post-wrapper" style="padding:0 3.5%;margin:0 auto;"><div id="NLHeader" class="post-card"><div id="Page-header" class="mainheader"><h1 class="t1">‘How China Failed to Fail’</h1><div class="date">July 10, 2019</div><a href="https://www.linkedin.com/in/malcolmriddell/" target="_blank" class="date" style="color: inherit;border-bottom: 0 solid #008dc8;text-decoration: none;">by Malcolm Riddell</a></div><div class="table-block w-condition-invisible w-dyn-bind-empty w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"></div></div><div class="section_title w-condition-invisible">I. THE LAW AND THE PROTESTS</div><div id="article1" class="post-card"><div class="t2-block">1. ‘Graphic Truth: China Since Tiananmen’</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://assets.rbl.ms/19574918/origin.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">GZEROMEDIA‘By cracking down on the Tiananmen Square protesters 30 years ago, China's leadership bet that the country could successfully marry strict one-party rule with economic liberalization,’ writes GZero’s Alex Klimit in <a href="https://www.gzeromedia.com/graphic-truth-china-since-tiananmen" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Graphic Truth: China Since Tiananmen.’</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That gamble appears to have paid off – in the years since, China has gone from bit player to driving force in the global economy, while lifting hundreds of millions of people out of poverty.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Here's a look at China's economy then and now.’</li></ul></td></tr></div></div><div id="article2" class="post-card"><div class="t2-block">2. Secretary Pompeo’s two-prong China strategy</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://www.washingtonpost.com/resizer/i1AQToB7Eedh2gYk6zGEY1H55g0=/1484x0/arc-anglerfish-washpost-prod-washpost.s3.amazonaws.com/public/RMML6MUTRQI6TFLKRDBJDK24HA.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">The Washington Post<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘As secretary of state, Pompeo must balance confronting China with maintaining Beijing’s cooperation on issues such as North Korea and Iran.’‘Mike Pompeo’s first year as the nation’s top diplomat focused largely on North Korea and Iran, but he is now spending more time and attention on dealing with China,’ writes the NYT’s Josh Rogin in <a href="https://www.washingtonpost.com/opinions/global-opinions/how-mike-pompeo-became-trumps-china-hawk/2019/06/27/a166361e-991a-11e9-916d-9c61607d8190_story.html?utm_term=.e64ebb16d384" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘How Mike Pompeo became Trump’s China hawk.’</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Increasingly, Pompeo has been speaking out about China’s malign activities, while privately asking his staff to produce an overarching analysis of the motivations behind the Chinese Communist Party’s conduct and strategies to respond.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Their challenge is to take the Trump administration’s various actions on China and weave them into a broader strategy that can gain bipartisan support and outlive the current administration.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘“We are trying to create an intellectually persuasive argument about China being the number one challenge to the United States,” a senior State Department official told me.’</li></ul>‘Pompeo’s State Department has concluded that decades of engagement-focused U.S. policy have failed, and now the United States and its partners must change course and respond to the Chinese government’s strategy and behavior.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘“We fundamentally erred by underestimating and misunderstanding China’s true intention, which is to create a Chinese Communist Party-dominated world order to replace the world order created by the U.S. and its allies,” the official said.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">“It’s not a clash of civilizations, it’s a clash of political systems.”</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘“In China, we face a new kind of challenge. It’s an authoritarian regime that’s integrated economically into the West in ways the Soviet Union never was,” he said.’</li></ul>‘Critics like to say Trump’s China approach represents a Cold War mentality or a zero-sum game. That misunderstands what the U.S. government is trying to do.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Pompeo’s approach is to separate the areas of the U.S.-China relationship where confrontation is needed from those where cooperation is mutually beneficial.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘As secretary of state, Pompeo must balance confronting China with maintaining Beijing’s cooperation on issues such as North Korea and Iran.’</li></ul>‘There’s a sense that Pompeo’s argument is directed internally, as well.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Some officials, such as Treasury Secretary Steven Mnuchin, are resisting a more confrontational China policy.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Trump wants to be tough on China on trade and economic aggression but shows little interest in China’s human rights violations or its coercion of Taiwan, for example.’</li></ul>‘State Policy Planning Director Kiron Skinner compared the State Department’s effort to <a href="https://digitalarchive.wilsoncenter.org/document/116178.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">George Kennan’s Long Telegram</a>, which formed the basis for the Cold War containment approach.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But she was not saying China is like the Soviet Union; she was saying the China challenge is more complex and, in a way, more daunting.’</li></ul>‘Kennan, in fact, was <a href="https://www.washingtonpost.com/archive/opinions/1989/04/14/kennan-cold-realist/e33db986-1623-429f-9b73-3abd0c3f0080/?utm_term=.692e51caa163" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">a realist</a> who believed in accommodating the Soviet Union.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Pompeo is no Kennan; he’s much more hawkish.’</li></ul>‘The truth is, nobody knows where Trump will end up on China on any specific point.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But Pompeo’s twin approach of confronting China now while planning for longer-term resilience against Beijing’s strategy is meant to ensure that the ongoing shift in Washington over China is not dependent on any one administration.’</li></ul></td></tr></div></div><div id="article3" class="post-card"><div class="t2-block">3. ‘The Fed Is Trump’s Secret Ally in the Trade War’</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://foreignpolicy.com/wp-content/uploads/2019/06/GettyImages-79158566.jpg?resize=800,525&quality=90" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">Foreign Policy<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘By lowering interest rates, the body is cushioning the blow of tariffs and convincing the president that they are working.’‘In his various trade wars, U.S. President Donald Trump seems to have fewer and fewer allies,’ writes Chris Miller of The Fletcher School of Law and Diplomacy in <a href="https://foreignpolicy.com/2019/06/10/the-fed-is-trumps-secret-ally-in-the-trade-war/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘The Fed Is Trump’s Secret Ally in the Trade War.’</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But Trump has kept one key ally in his trade battles: the U.S. Federal Reserve.’</li></ul>Mind the gap– it’s good news for President Trump.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">One end of the gap.‘Textbook economics teaches that tariffs make countries poorer by driving up prices, thereby reducing business competitiveness and cutting consumer purchasing power.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The president and his advisors do not take that that idea seriously.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Trump is, as he has tweeted, a “Tariff Man.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And many of his aides, including Peter Navarro and U.S. Trade Representative Robert Lighthizer, are long-time proponents of the idea that tariffs should play a major role in trade policy.’</li></ul></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">The other end.‘Economists at the Fed, however, do read economics textbooks.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And whereas Trump may think that “trade wars are good, and easy to win,” as he famously tweeted, the Fed believes the opposite—that they will drag down economic growth.’</li></ul></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This gap is excellent news for the president.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Fed believes that it should keep interest rates low to boost growth when the economy is slowing (so long as inflation is under control).’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So it has refrained from raising rates over the past six months, in part to cushion the blow from the trade war.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In doing so, it has helped sustain the economic growth that Trump points to as evidence that his tariffs are working.’</li></ul></li></ul>‘The Fed has two mandates, established by law: to keep inflation and unemployment low.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘A year ago, on both these metrics, all signs pointed to a need to raise interest rates.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The economy was in a decade-long expansion.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Unemployment was touching historic lows.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And the massive deficit-funded 2017 tax cut had stimulated the economy at a time when many economic models suggested that policymakers should be reducing stimulus to prevent inflation.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Indeed, in 2018, inflation hit the highest level in more than five years.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Surely, experts and investors assumed, the Fed would keep increasing interest rates to slow the economy and keep inflation contained.’</li></ul></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘One year and several tariff hikes later, things look rather different.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It is understandable that the Fed believed it had to act.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘U.S. businesses and consumers alike are substantially exposed to trade.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Consumers buy many things—from avocados to iPhones to cars—that are partially or wholly produced abroad.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Businesses produce many goods using inputs from abroad.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And they also sell abroad, making profits that help fund consumption in the United States.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘All these activities are made more difficult by tariffs.’</li></ul></li></ul>‘But rate cuts—a form of economic stimulus—can slow the bleeding.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They also support the stock market, which is as afraid of Trump’s tariffs as the Fed.’</li></ul>‘Yet this dynamic is dangerous.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The more tariffs Trump threatens and imposes, the more the Fed cuts rates.’  </li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And that, in turn, encourages him to threaten yet more duties.’</li></ul></td></tr></div></div><div class="section_title w-condition-invisible">II. POTENTIAL BACKLASH FROM THE U.S. </div><div id="article4" class="post-card"><div class="t2-block">4. ‘Should China help secure the Strait of Hormuz?’</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d255df9852a398fdb995f70_Why%20This%20Narrow%20Strait%20Next%20to%20Iran%20Is%20So%20Critical%20to%20the%20World%E2%80%99s%20Oil%20Supply.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">New York Times<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘A regular deployment of People’s Liberation Army Navy (PLAN) frigates to the Strait of Hormuz is easy to argue for from the standpoint of China’s national interest, given its dependence on seaborne oil imports from the Gulf. Yet that’s unlikely to happen for the foreseeable future,’Note: The map above shows the routes that tankers travel out of the Strait of Hormuz.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">China’s friend Iran can prevent interference of tankers headed for China through the Strait of Hormuz.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">But the relatively narrow Malacca Strait shows why China pays special attention to that chokepoint.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">And, the path through the South China Sea illustrates one of the reasons why China is bent on securing and maintaining control.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">BTW the above map from the NYT is animated. It’s great. Have a look at the flow of tankers <a href="https://www.nytimes.com/interactive/2019/07/07/business/economy/iran-strait-of-hormuz-tankers.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">here</a>.</li></ul>‘Twenty percent of the <a href="https://www.nytimes.com/2019/06/13/business/oil-tanker-attacks-strait-hormuz.html?module=inline" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">global oil supply flows through the Strait of Hormuz</a>.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘After the attack on six tankers there, President Trump thinks China and the countries that benefit from that trade should protect the Strait.’</li></ul><twitter-widget class="twitter-tweet twitter-tweet-rendered" id="twitter-widget-0" style="position: static;visibility: visible;display: block;transform: rotate(0deg);max-width: 738px;width: 500px;min-width: 220px;margin-top: 10px;margin-bottom: 10px;margin: 0 auto;" data-tweet-id="1143128646162493441"></twitter-widget><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>‘China is the largest importer through the bottleneck strait in absolute terms.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But its dependence on oil imports through the Gulf is nothing like the 91% Trump claimed.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China’s overall dependence on Gulf oil is closer to  <a href="https://www.ft.com/content/fd01b21a-81f9-11e9-b592-5fe435b57a3b" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">44%</a>,’ writes Euan Graham in <a href="https://www.aspistrategist.org.au/should-china-help-secure-the-strait-of-hormuz/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Should China help secure the Strait of Hormuz?’</a></li></ul>‘A regular deployment of People’s Liberation Army Navy (PLAN) frigates to the Strait of Hormuz is easy to argue for from the standpoint of China’s national interest, given its dependence on seaborne oil imports from the Gulf.’ <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Yet that’s unlikely to happen for the foreseeable future, for three reasons.’</li></ul>‘First, China is likely to perceive any threat to its own shipping as a red herring in a strategic spat between Iran and the US, and by extension US allies.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Beijing will focus instead on maintaining close political relations with Tehran, seeking private assurances that Chinese tankers will not be targeted.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It has no desire to be drawn directly into a Gulf maritime security role that bears the additional risks of being pulled into proxy conflicts between Saudi Arabia and Iran. And who could blame it?’</li></ul>‘Second, apart from diplomatic ship visits, there’s little evidence to suggest that the PLAN has much operational interest in the Gulf.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Its focus has been firmly on the Red Sea.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Beijing will seek to continue free riding off other security providers in the Gulf for as long as possible.’</li></ul>‘Third, China’s Gulf oil dependence is not only proportionally much lower than that of Japan, Korea and India.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China has also made conscious efforts to reduce its exposure to supply disruptions in the Gulf.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It has already <a href="https://www.bloomberg.com/news/articles/2019-05-08/chinese-oil-imports-surge-to-record-as-iranian-crude-stockpiled" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">surged</a> oil imports from Iran, before the expiry of US sanctions waivers.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘More purposefully, China has built up a strategic oil reserve, which may already <a href="https://www.tradewindsnews.com/tankers/china-may-need-to-double-spr-to-meet-90-day-goal/2-1-567353" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">exceed</a> 500 million barrels.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It has further maximised land-based sources, from Central Asia and Russia, currently China’s  <a href="https://www.reuters.com/article/us-china-economy-trade-crude/russia-seals-position-as-top-crude-oil-supplier-to-china-holds-off-saudi-arabia-idUSKCN1PJ05W" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">primary</a> supplier (accounting for around  <a href="https://www.hellenicshippingnews.com/russia-remains-chinas-largest-crude-oil-source-for-3rd-year/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">16% </a> of its oil imports).’</li></ul>‘Finally, if push really came to shove, China has the option to invest in coal-to-oil technology, ensuring that the PLA would never go short of fuel even under blockade conditions.’‘As that familiar gurgling sound of the Gulf sucking in naval assets reverberates in Delhi, Seoul, Tokyo and Canberra, my bet is Beijing will be content to sit this one out.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Ironically, strategic competitors have the advantage on allies and partners when it comes to free riding.’</li></ul><img width="100%" max-width="600px" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d256427b18bb0ca7a2c65ae_consumption%20by%20asian%20countries%20surged%20as%20the%20global%20economy%20improved%20US%20energy%20information%20administartion%20top%20oli%20consumers.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr></div></div><div id="article5" class="post-card"><div class="t2-block">5. ‘Why I’ve Lost Faith in China’s Private Sector’: Shuli Ren, Bloomberg</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d256f7146c1e366f79e55dd_Shuli%20Ren.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">The Washington Post<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘Directors of corporations have not felt any inhibition upon their borrowing corporate funds for the purpose of speculation, in stocks or in exchange, for their personal profit.’ J. V. A. MacMurray, 1925Call it an axiom or a cliché, but one of best ways to understand a country today is understand its history.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">And with China - where its history is ingrained in its people’s thinking - that’s especially true.</li></ul>One of the best sources on the American view of China (and of other countries and issues) from the mid-1920s onward is Foreign Affairs magazine.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Foreign Affairs is the flagship publication of the Council on Foreign Relations (founded in 1921), which itself has played on outsized role in U.S. foreign policy.</li></ul>So, when I read Shuli Ren in <a href="https://www.washingtonpost.com/business/why-ive-lost-faith-in-chinas-private-sector/2019/07/04/ac140712-9e1f-11e9-83e3-45fded8e8d2e_story.html?utm_term=.52f31925580f" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Why I’ve Lost Faith in China’s Private Sector’</a> in Bloomberg, I immediately thought of an article written 95 years earlier in Foreign Affairs, <a href="https://www.foreignaffairs.com/search?qs=china" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Problems of Foreign Capital in China,’</a> by <a href="https://www.foreignaffairs.com/authors/j-v-macmurray" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">J. V. A. MacMurray</a>, Assistant Secretary of State from November 1924 to May 1925, appointed Minister to China in 1925, and one of the leading <a href="https://en.wikipedia.org/wiki/Republic_of_China_(1912%E2%80%931949)" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">China</a> experts in the U.S. government.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Which brings us to another cliché: The more things change – as you will see here -the more they stay the same.</li></ul><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;">‘China’s private enterprises under President Xi Jinping appear to be holding the short end of the stick,’ writes Shuli Ren in <a href="https://www.washingtonpost.com/business/why-ive-lost-faith-in-chinas-private-sector/2019/07/04/ac140712-9e1f-11e9-83e3-45fded8e8d2e_story.html?utm_term=.52f31925580f" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Why I’ve Lost Faith in China’s Private Sector.’</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The government’s earnest deleveraging campaign has hit the sector disproportionately hard, and a never-ending trade war with the U.S. has hurt manufacturing, the core of China’s entrepreneurial spirit.’ </li></ul>‘That’s only part of the story.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Private businesses aren’t merely innocent lambs waiting on Beijing’s chopping board for slaughter.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Waves of corporate scandals this year – escalating in their unsavory nature – are scaring investors.’ </li></ul>‘We’ve been smacked by roaring trains of nonsense this year.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In April, drugmaker Kangmei Pharmaceutical Co. said that it overstated cash holdings by $4.4 billion, due to an accounting “error.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Kangde Xin Composite Material Group Co. didn’t skip a beat, telling us its auditor could find no trace of a 12.2 billion yuan ($1.8 billion) bank deposit.’  </li></ul>‘“Qualitative factors are playing an increasing when assessing Chinese enterprises,” S&P Global Ratings wrote in June.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Put more bluntly: Firms may look great on paper, but the cash you see on their balance sheets may not even be there.’ </li></ul></td></tr></tbody></table><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;">Hitting these same issues - 95 years earlier – is <a href="https://www.foreignaffairs.com/search?qs=china" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Problems of Foreign Capital in China,’</a> by <a href="https://www.foreignaffairs.com/authors/j-v-macmurray" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">J. V. A. MacMurray</a>, U.S. Minister to China in 1925.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">MacMurray writes mostly here about the financing of railroads in China – and that’s pretty fascinating in itself and worth a look.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">But, the excerpt below hit the same issues Shuli does 95 or so years later.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">It’s a useful reminder that foreign played a role – for good and bad – in China’s development long before Deng’s opening to the West.</li></ul>MacMurray writes:‘The building of railways was a task for which neither the Chinese Government nor the Chinese people were competent by training or tradition.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They lacked the necessary technical education and experience, and were not familiar with the kind of coöperation on a considerable scale which is necessary for public works or corporate undertakings.’</li></ul>‘Without undue reflection upon the Chinese people, it may be recalled that their standards of public or corporate responsibilities as trustees have never been developed, as in the case of Western nations.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘For reasons peculiar to their social and political fabric, the Chinese have developed standards different from our own - in some respects more punctilious than those of Western peoples, but involving none of that regard for the sacredness of a trust which is so conspicuous in the legal and moral concepts of the Occident.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘To risk a generalization so broad that it must necessarily be at least partly faulty, one might say that the Chinese are singularly conscientious about the obligations of a debt, but equally unresponsive to the obligations of a trust.’</li></ul>‘This has been evident in such corporate activities as the Chinese have undertaken during the past generation.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Directors of corporations have not felt any inhibition upon their borrowing corporate funds for the purpose of speculation, in stocks or in exchange, for their personal profit.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It has resulted that Chinese corporations have frequently ended in bankruptcy through some fluctuation in shares with which the corporation itself was in no wise concerned.’</li></ul></td></tr></tbody></table>Editor’s Note: I was once teaching a class at Harvard on real estate capital markets to a group of wealthy and successful Chinese real estate professionals.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">One asked me why western fund managers take so long to decide whether or not to invest in a Chinese real estate project.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">I replied that foreign fund managers have a fiduciary duty to those who invest in their funds – an obligation of trust in the handling of other people’s money that means special care and lengthy due diligence before a fund’s investment committee can make a decision.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">After giving my explanation, I looked out at 25 or so students who had expressions ranging from incredulous to blank incomprehension.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">By luck Harvard Business School had a Case Note on the responsibilities of a fiduciary in Chinese (indicating to me that I wasn’t the first to encounter this question).</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Using the Note, I taught a special class.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">And, while the group got the concept and the difference between the Western and Chinese ways, I don’t think it changed any attitudes about obligations of trust.</li></ul>I used to get the same question from the Chinese side about slow Western investors – often meaning me - when I was negotiating real estate deals in China.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">I would tell them, after my explanation of fiduciary responsibilities, that if it were my money, I would invest. But it’s not.</li></ul></td></tr></div></div><div class="section_title w-condition-invisible">III. CONGRESS & THE PRESIDENT REACT </div><div id="article6" class="post-card"><div class="t2-block">6. ‘How China Failed to Fail: Can China’s Glass Remain Both Half Full and Half Empty?’</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="pdf-container" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;padding: 0 2%;background-color: #ccc;"><iframe src="https://docs.google.com/viewer?url=https://assets.website-files.com/5c864c33af62620dca1373ac/5d241cd31a002315be799c8f_19.04%20Failed%20to%20Fail.pdf&embedded=true" style="width:100%; height:500px;border:none;"></iframe></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">IIF | Institute of International FinanceMy friend, Gene Ma, is Head of China Research at the Institute for International Finance (IIF) and one of top China economic experts.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">He sent me the summary of the ‘IIF’s 2019 China Roundtable, which brings together IIF’s global member-ship with thought leaders and policymakers who closely watch China.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Distribution of IIF analyses is usually limited to IIF members – members that include every major financial services firm in the world and institutions such as the World Bank.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">So my thanks to Gene for allowing me to share this report with you.</li></ul>The report, <a href="https://assets.website-files.com/5c864c33af62620dca1373ac/5d241cd31a002315be799c8f_19.04%20Failed%20to%20Fail.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘How China Failed to Fail,’</a> has 20 one-page summaries + great charts that cover every aspect of China’s economy.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">I have included two of the summaries below – real estate and debt. But be sure to <a href="https://assets.website-files.com/5c864c33af62620dca1373ac/5d241cd31a002315be799c8f_19.04%20Failed%20to%20Fail.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">read the entire report</a>.</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">‘REAL ESTATE: Sweet homes driving growth’ </h5>‘It is hard to overstate the importance of China’s real estate investment, which affects 40 industrial sectors and was equivalent to 13% of China's GDP in 2018.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Moreover, more than 60% of household assets are tied to properties, and land sales account for about half of local government revenues.’</li></ul>‘The recovery of the real estate sector was instrumental in stabilizing growth after 2015.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Besides relaxing certain housing policies, the PBoC also provided pledged supplemental loans (PSL) earmarked for shantytown redevelopment projects (SRPs).’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘As a result, fixed asset investments (FAI) in residential housing, which accounted for over 70% of total real estate FAI, picked up from its trough in 2015 to 18% in Jan-Feb this year.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘While FAI in office buildings improved, the investments in commercial properties such as shopping malls remain depressed (Exhibit 1).’</li></ul><img width="100%" max-width="600px" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d2568eead8c0cf94f5fc2cb_Exhibit%201%20Haver-IIF.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;">‘Since 2015, China’s housing policy has avoided being “one-size-fits-all” and was customized for different cities.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The housing subsidies were mainly aimed at small towns, which suffered from large inventory overhang, while the housing policy in large cities remained relatively tight.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Thus, unlike the previous price cycles when large cities witnessed much faster price increases, home prices in small towns outpaced those in large cities since 2018.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In February, home prices in-creased by 3.4% in the four largest cities, but by 11%~13% in smaller ones (Exhibit 2).’</li></ul><img width="100%" max-width="600px" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d2568eead8c0c208c5fc2ca_Exhibit%202%20Haver-IIF.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;">‘This housing cycle seems to be in its late stage.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘After peaking in 2017, home sales slowed to 5% in value and -4% in volume in Jan-February (Exhibit 3).’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Land sales also slowed to 6% in the past half year.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Moreover, since the latest round of housing stimulus, households are more leveraged.’</li></ul>‘However, we do not see any imminent danger in the housing market.’<ul style="margin-bottom: 0;margin-top: .625em;"><img width="100%" max-width="600px" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d2568ee46c1e326ec9e48fd_Exhibit%201-debt%20boom%20Haver-IIF.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The unsold inventory dropped from its peak of almost five months of sales in 2015 to only two months at end-2018.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The inventory overhang in small cities has been dramatically reduced.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Additionally, housing prices have increased at a reasonable level, which reduced the chance of panic buying or selling in the housing market.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Finally, certain actions taken by the PBoC such as easing RRR cuts and lowering interest rates should also help the housing market.’</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">‘DEBT: “Precautionary Pause” in China’s Deleveraging’ </h5>‘China is one of the world’s most indebted countries, with total debt across all sectors (household, government, financial and non-financial corporate) approaching 300% of GDP.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Following a breathtaking accumulation of debt between 2008 and 2016, the last two years have witnessed some moderation in the pace of debt buildup in the private non-financial sector (Exhibit 1).’</li></ul><img width="100%" max-width="600px" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d2568eee31f0552addcba88_Exhibit%203%20Haver-IIF.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;">‘Against the backdrop of strong political commitment to de-risking/deleveraging, this long-awaited slowdown has been mainly driven by a sharp contraction in loans provided by the shadow banking sector— down over 10% since end-2017.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This sharp and steep reduction in non-banks’ bank-like activities has contributed to a modest deleveraging in the non-financial corporate sector.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘At present, non-financial firms’ debt hovers at around 150- 155% of GDP, over 5-7 percentage points less than its peak in early 2016—but this is still one of the highest levels in the world.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘With SOEs accounting for more than 55% of out-standing non-financial corporate debt, the continued decline in FX-denominated debt (from 9% of GDP in 2014 to 7% of GDP at present) leaves corporates less exposed to swings in the RMB.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Moreover, firm level data suggest that Chinese corporates’ large cash holdings continue to provide an important cushion against downside risks.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘However, a significant share of Chinese firms still finds it challenging to cover interest expenses on outstanding debt despite some improvement in 2018 (Exhibit 2).’</li></ul><img width="100%" max-width="600px" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d256bb6e31f0525d5dcc345_Exhibit%202-Firms%20in%20many%20countries%20are.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;">‘While the corporate sector may be cutting back, Chinese households continue to accumulate more debt.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Indeed, household debt-to-GDP ratio hit an all-time high of over 52% in early 2019—well above the EM average (37%).’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘While this secular rise in part reflects increasing importance of China’s growing middle class, the striking rise in household debt-to-disposable income ratio from 25% in 2006 to over 117% in 2018 poses a significant risk to the economy.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Indeed, the pace of debt accumulation has been much higher than the underlying economic activity, leaving many households more exposed to business cycle swings.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘A sharp rise in interest rates or an increase in unemployment levels amidst a slowdown in growth could add further pressure on house-hold finances, leading to lower house prices and private consumption, which in turn would disrupt economic growth further.’</li></ul>‘Looking ahead, China’s debt trajectory will depend in large part on the evolution of policy priorities while the credit policy continues to ease amid persistent external and internal headwinds.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘While Chinese authorities’ pledge to keeping credit expansion in line with nominal GDP growth suggests a pause in deleveraging, the ongoing slowdown in producer price inflation could feed into weaker nominal growth, meaning that already-high debt levels could rise again this year (Exhibit 3).’</li></ul><img width="100%" max-width="600px" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d256bb5ad8c0cf7a15fc74f_Exhibit%203-Softer%20growth%20could%20constrain%20Chinas%20deleveraging%20efforts.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr></div></div></div>

7/6/2019

<div id="NLpost" class="nl-post-wrapper" style="padding:0 3.5%; margin:0 auto;"><div id="NLHeader" class="post-card"><div id="Page-header" class="mainheader"><h1 class="t1">'China Is Not An Enemy'</h1><div class="date">July 6, 2019</div><a href="https://www.linkedin.com/in/malcolmriddell/" target="_blank" class="date" style="color: inherit;border-bottom: 0 solid #008dc8;text-decoration: none;">by Malcolm Riddell</a></div><div class="table-block w-condition-invisible w-dyn-bind-empty w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"></div></div><div class="section_title w-condition-invisible">I. THE LAW AND THE PROTESTS</div><div id="article1" class="post-card"><div class="t2-block">1. ‘China is not an enemy’</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://www.washingtonpost.com/resizer/2vDcAxa4LLR6QVySUIV2AVut6ng=/1484x0/arc-anglerfish-washpost-prod-washpost.s3.amazonaws.com/public/QREWWMU4GAI6TBOWKIIXGP4SY4.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">The Washington Post<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">On July 3, 2019, the Washington Post published an op-ed, '<a href="https://www.washingtonpost.com/opinions/making-china-a-us-enemy-is-counterproductive/2019/07/02/647d49d0-9bfa-11e9-b27f-ed2942f73d70_story.html?utm_term=.997d1427c2b0" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">China is not an enemy</a>.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">The op-ed was in the form of an open letter to President Trump and members of Congress.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">The letter was written by five prominent China experts wrote and more than 100 influential business, foreign policy, and military leaders.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">The full text is below.</li></ul><hr style="border: 0;border-top: 3px solid #f5f5f5;height: 5px;margin: 10px auto;text-align: center;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="quotation" style="border-collapse: collapse;width: 70px;color: #001544;letter-spacing: 0;display: block;height: 0;margin-left: 40px;"><img src="https://www.freeiconspng.com/uploads/quotation-icon-20.png" style="display: block;width: 70px;margin: 0 auto;" alt="CHINADebate"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;"><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">Dear President Trump and members of Congress:</h5>We are members of the scholarly, foreign policy, military and business communities, overwhelmingly from the United States, including many who have focused on Asia throughout our professional careers.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">We are deeply concerned about the growing deterioration in U.S. relations with China, which we believe does not serve American or global interests. Although we are very troubled by Beijing’s recent behavior, which requires a strong response, we also believe that many U.S. actions are contributing directly to the downward spiral in relations.</li></ul>The following seven propositions represent our collective views on China, the problems in the U.S. approach to China and the basic elements of a more effective U.S. policy. Our institutional affiliations are provided for identification purposes only.<ol style="font-size: 1em;line-height: 1.875em;margin: .625em 0;margin-left: -1.1em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">China’s troubling behavior in recent years— including its turn toward greater domestic repression, increased state control over private firms, failure to live up to several of its trade commitments, greater efforts to control foreign opinion and more aggressive foreign policy — raises serious challenges for the rest of the world. These challenges require a firm and effective U.S. response, but the current approach to China is fundamentally counterproductive.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">We do not believe Beijing is an economic enemy or an existential national security threat that must be confronted in every sphere; nor is China a monolith, or the views of its leaders set in stone.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Although its rapid economic and military growth has led Beijing toward a more assertive international role, many Chinese officials and other elites know that a moderate, pragmatic and genuinely cooperative approach with the West serves China’s interests.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Washington’s adversarial stance toward Beijing weakens the influence of those voices in favor of assertive nationalists.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">With the right balance of competition and cooperation, U.S. actions can strengthen those Chinese leaders who want China to play a constructive role in world affairs.</li></ul></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">U.S. efforts to treat China as an enemy and decouple it from the global economy will damage the United States’ international role and reputation and undermine the economic interests of all nations.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">U.S. opposition will not prevent the continued expansion of the Chinese economy, a greater global market share for Chinese companies and an increase in China’s role in world affairs.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Moreover, the United States cannot significantly slow China’s rise without damaging itself.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">If the United States presses its allies to treat China as an economic and political enemy, it will weaken its relations with those allies and could end up isolating itself rather than Beijing.</li></ul></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">The fear that Beijing will replace the United States as the global leader is exaggerated.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Most other countries have no interest in such an outcome, and it is not clear that Beijing itself sees this goal as necessary or feasible.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Moreover, a government intent on limiting the information and opportunities available to its own citizens and harshly repressing its ethnic minorities will not garner meaningful international support nor succeed in attracting global talent.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">The best American response to these practices is to work with our allies and partners to create a more open and prosperous world in which China is offered the opportunity to participate.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Efforts to isolate China will simply weaken those Chinese intent on developing a more humane and tolerant society.</li></ul></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Although China has set a goal of becoming a world-class military by midcentury, it faces immense hurdles to operating as a globally dominant military power.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">However, Beijing’s growing military capabilities have already eroded the United States’ long-standing military preeminence in the Western Pacific.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">The best way to respond to this is not to engage in an open-ended arms race centered on offensive, deep-strike weapons and the virtually impossible goal of reasserting full-spectrum U.S. dominance up to China’s borders.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">A wiser policy is to work with allies to maintain deterrence, emphasizing defensive-oriented, area denial capabilities, resiliency and the ability to frustrate attacks on U.S. or allied territory, while strengthening crisis-management efforts with Beijing.</li></ul></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Beijing is seeking to weaken the role of Western democratic norms within the global order.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">But it is not seeking to overturn vital economic and other components of that order from which China itself has benefited for decades.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Indeed, China’s engagement in the international system is essential to the system’s survival and to effective action on common problems such as climate change.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">The United States should encourage Chinese participation in new or modified global regimes in which rising powers have a greater voice.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">A zero-sum approach to China’s role would only encourage Beijing to either disengage from the system or sponsor a divided global order that would be damaging to Western interests.</li></ul></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">In conclusion, a successful U.S. approach to China must focus on creating enduring coalitions with other countries in support of economic and security objectives.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">It must be based on a realistic appraisal of Chinese perceptions, interests, goals and behavior; an accurate match of U.S. and allied resources with policy goals and interests; and a rededication of U.S. efforts to strengthen its own capacity to serve as a model for others.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Ultimately, the United States’ interests are best served by restoring its ability to compete effectively in a changing world and by working alongside other nations and international organizations rather than by promoting a counterproductive effort to undermine and contain China’s engagement with the world.</li></ul></li></ol>We believe that the large number of signers of this open letter clearly indicates that there is no single Washington consensus endorsing an overall adversarial stance toward China, as some believe exists.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"> Taylor Fravel is a professor of political science at MIT.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"> Stapleton Roy is a distinguished scholar at the Wilson Center and a former U.S. ambassador to China.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Michael D. Swaine is a senior fellow at the Carnegie Endowment for International Peace.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Susan A. Thornton is a senior fellow at Yale Law School’s Paul Tsai China Center and a former acting assistant secretary of state for East Asian and Pacific affairs.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Ezra Vogel is a professor emeritus at Harvard University.</li></ul>The above individuals circulated the letter, which was signed by the following: [all influential business, foreign policy, and military leaders.]</td></tr></tbody></table></td></tr></div></div><div id="article2" class="post-card"><div class="t2-block">2. Alipay & WeChat: China’s retail payment revolution</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d2003814c55f35fcc9ca9b5_Aaron%20Klein.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;"><a href="https://www.brookings.edu/experts/aaron-klein/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Aaron Klein</a>, Brookings Fellow and former deputy assistant secretary for economic policy at the Treasury Department, has produced an excellent study of China’s revolutionary payment system.<iframe src="https://docs.google.com/viewer?url=https://www.brookings.edu/wp-content/uploads/2019/06/ES_20190620_Klein_ChinaPayments.pdf&embedded=true" style="width:100%; height:500px;border:none;"></iframe><a href="https://www.brookings.edu/wp-content/uploads/2019/06/ES_20190620_Klein_ChinaPayments.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">open in a new window</a>‘While America spent the past decade upgrading its bank based magnetic striped cards with chips, China experienced a retail payment revolution,’ write Aaron Klein of Brookings.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'In the past decade China has experienced an internal payments revolution, leapfrogging magnetic cards, moving to a system based on smartphones and QR codes.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'But the changes from this system go far beyond just a new technological form. The Chinese payment system has done something far more revolutionary: it has largely disintermediated the banking system.'</li></ul>'Leapfrogging the card-based system, two new payment systems have come to dominate person-to-person, retail, and many business transactions.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'China’s new system is built on digital wallets, QR codes, and runs through their own big tech firms':<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'Alipay running through Alibaba (China’s version of Amazon)'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'and WeChat Pay running through Tencent (China’s version of Facebook).'</li></ul></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'The number of users and growth on both platforms has been substantial and reached near ubiquity in under a decade.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'Starting from zero at the beginning of the decade, these two payment platforms are now the largest system in China and among the largest in the world.'</li></ul><img width="100%" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d200195fce0e3a6f68b1b59_brookings.2019_06_ES_20190620_Klein.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;">'Mobile payments in China have reached over $41 trillion (277 trillion yuan) annually.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'More than 92 percent of the mobile payments are made over the two dominant platforms: Alipay (53%) and WeChat Pay (39%).'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'This rise is even more stunning when considering its rapidity.'</li></ul><img width="100%" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d2001954c55f3e6b09ca3ce_brookings2019_06_ES_20190620_Klein.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;">'China’s system largely disintermediates banks from payment transactions robbing banks of an important and long-standing source of revenue.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'It creates an alternative payment ecosystem with different incentives between merchants, consumers, and payment system providers.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'It challenges the long-standing placement of payments on the side of banking as opposed to commerce.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'In doing so, this system creates new incentives that could realign existing business models and relationships between merchants, banks, and technology providers.'</li></ul>'China’s new payment system exploded in under a decade, growing from inception to dominance.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'With over a billion users on each platform, the power of network incentives has been unleashed.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'The new payment system has replaced cards and cash at registers, how families give gifts, and even how beggars ask for money, with QR codes replacing tin cups.'</li></ul></td></tr></div></div><div id="article3" class="post-card"><div class="t2-block">3. Can Facebook’s Libra replicate WeChat Pay’s digital payment dominance?</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://i0.wp.com/technode.com/wp-content/uploads/2019/06/calibraapp_earlylook_en402x.png?w=1680&ssl=1" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘Facebook, the world’s most popular social network platform, <a href="https://newsroom.fb.com/news/2019/06/coming-in-2020-calibra/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">announced</a> a new project—to launch a cryptocurrency named Libra on WhatsApp, Messenger and a dedicated standalone app in 2020,’ write Nicole Jau in <a href="https://technode.com/2019/06/28/facebook-libra-replicate-wechat-pay/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Can Facebook’s Libra replicate WeChat Pay’s digital payment dominance?’</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'The announcement grabbed headline attention around the world, including in China, where mobile-based digital payments have become ubiquitous thanks to the rise of Tencent’s WeChat Pay and Alibaba’s payment arm Alipay.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'However, regulations remain tight on cryptocurrency activities in the country and Facebook products are practically outlawed.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'Facebook’s brave move into digital payments can be construed as an effort to emulate WeChat’s successes in the sector.'</li></ul>'There are both similarities and differences between Calibra, Facebook’s planned e-wallet for Libra, and WeChat Pay.'<img width="100%" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d2004522e58b72759c4b820_Can%20Facebook%E2%80%99s%20Libra%20replicate%20WeChat_%20-%20https___technode.com_2019_06_28_f.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;">'The two share the same vision of using digital payments as a means to broaden financial access.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'For a long time, WeChat Pay and Alipay were flag-bearers in terms of providing financial services to the masses via digital platforms.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'Facebook will likely leverage social media and digital currency to drive traffic to apps within its ecosystem, just like WeChat did.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'However, Libra will be able to call on Facebook’s massive userbase of 2.7 billion people, larger than that of China’s mobile payment duopoly combined.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'WeChat <a href="https://technode.com/2018/11/19/wechat-1-minute-statistics-report/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">reported</a> more than 1 billion monthly active users (MAUs) worldwide as of the third quarter end last year while Alipay <a href="https://technode.com/2018/11/19/wechat-1-minute-statistics-report/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">posted</a> over 700 million MAUs.'</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">'Calibra, the WeChat Pay of everywhere but China'</h5>'“WeChat has China, Facebook wants the rest of the world,” Bob O’Donnell, president and chief analyst of California-based market research and consulting firm Technalysis Research, told TechNode.''WeChat Pay and Alipay have focused on expanding services overseas by catering to Chinese tourists.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'Calibra can steal a march on Chinese digital wallets because, unlike WeChat Pay and Alipay which are tied to the yuan, it is pegged to a basket of currencies.'</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">'China misses out'</h5>'China has maintained a firm stance against most cryptocurrency activities.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'In 2017, authorities issued a ban on initial coin offerings (ICOs) and existing cryptocurrency exchanges, which has remained in place ever since. '</li></ul>'“If China cannot participate in this new phase of the digital economic revolution, then it may find itself in a passive position within currency competition, not to mention it could lose its advantages within the internet and financial technology sectors,” stated an <a href="http://www.globaltimes.cn/content/1155562.shtml" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">article</a> published on state-run Global Times, the country’s main foreign-policy publication.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'“Unfortunately, we are increasingly seeing this gap between China and the rest of the world when it comes to anything digital,” said O’Donnell from TechAnalysis Research. “This is just another example of China isolating itself, trying to create a more controlled digital environment, he added.'</li></ul></td></tr></div></div><div class="section_title w-condition-invisible">II. POTENTIAL BACKLASH FROM THE U.S. </div><div id="article4" class="post-card"><div class="t2-block">4. 'Hong Kong Has Nothing Left to Lose'</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://static01.nyt.com/images/2019/07/03/opinion/03eswar-prasad/merlin_157332486_e1eeb32f-43f8-456d-867a-e224e6695416-jumbo.jpg?quality=90&auto=webp" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">NYT<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;"><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">1. 'Why China No Longer Needs Hong Kong'</h5><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">'The mainland Chinese economy now dwarfs the city’s, and rivals are usurping its status as a hub of global finance.'‘For many years after regaining control of Hong Kong from Britain in 1997, China mostly respected the territory’s institution.’ Writes Eswar Prasad, professor at Cornell University and senior fellow at the Brookings Institution, '<a href="https://www.nytimes.com/2019/07/03/opinion/hong-kong-protest.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Why China No Longer Needs Hong Kong</a>.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'That is no longer the case, as <a href="https://www.nytimes.com/2019/07/02/world/asia/hong-kong-protestors.html?module=inline" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Beijing’s heavy hand during the recent protests</a> in the city has made obvious.'</li></ul>'So what changed?''In 1997, China needed Hong Kong. China had not yet been allowed to join the World Trade Organization.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'Chinese exporters had limited access to the global market. Hong Kong was the solution: It served as a channel for entrepôt trade — goods from China could enter the territory’s ports and then be sent as exports from Hong Kong to the rest of the world, thus evading the trade restrictions imposed by member nations on nations outside the organization.'</li></ul>'<a href="https://www.nytimes.com/2001/11/11/world/world-trade-organization-admits-china-amid-doubts.html?module=inline" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"> When China became part of the trade organization in 2001</a>, entrepôt trade through Hong Kong lost its importance.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'By some estimates, nearly half of China’s trade went through Hong Kong in 1997, today that figure is less than 12 percent.'</li></ul>'In terms of total size and wealth, Hong Kong has also shrunk relative to China, which has experienced more than three decades of <a href="https://www.nytimes.com/interactive/2018/11/18/world/asia/china-rules.html?module=inline" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"> astoundingly high economic growth</a>.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'In 1997, Hong Kong’s economy was one-fifth the size of China’s, and its per capita income was 35 times higher.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'By 2018, Hong Kong’s economy was barely one-thirtieth the size of China’s. Hong Kong is still richer, but the gap is narrowing, with its per capita income now five times higher than China’s.'</li></ul>'In the period right after 1997, China wanted to strengthen Hong Kong’s reputation as an open and market-oriented economy governed by the rule of law.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'This was a large part of its appeal as a major international financial center, a status that benefited the mainland economy.'</li></ul>'Hong Kong was also used as a controlled testing ground where China’s currency, the renminbi, could find its feet as an international currency.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'Hong Kong had the trust of international investors, and the renminbi could trade more freely there than in China, where capital controls restricted the movement of financial capital across China’s borders.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'China’s dependence on Hong Kong is a thing of the past. The size of China’s financial markets now dwarfs that of Hong Kong’s.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'China’s four largest banks have become the four largest in the world in terms of their assets. In 1997, China’s stock markets were barely half the size of Hong Kong’s stock markets.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'Today, the capitalization of China’s stock markets stands at nearly $8 trillion, among the largest stock markets in the world, and about double that of Hong Kong’s.'</li></ul>'It is not that Hong Kong’s markets have shrunk — the value of new public listings in Hong Kong was higher than any other exchange worldwide last year.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'Rather, it is simply that China’s financial markets, like its economy, have expanded so fast they have left Hong Kong in the dust.'</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">2. Hong Kong: ‘People here know that time is not on their side.’</h5><img width="100%" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d200e6f4c55f33be89cba41_3.%20%27Hong%20Kong%20Has%20Nothing%20Left%20to%20Lose%27%20.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;">‘During British colonial times, many Hong Kong people identified with mainland China, the motherland, and were deeply interested in developments there,’ writes Lewis Lau Yiu-man, a political commentator based in Hong Kong, in <a href="https://www.nytimes.com/2019/06/28/opinion/hong-kong-protests-extradition-china.html?action=click&module=RelatedLinks&pgtype=Article" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Hong Kong’s Protesters Are Resisting China With Anarchy and Principle.’</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'But colonialism also acted as a shield. The British authorities quashed <a href="https://www.nytimes.com/2017/05/05/opinion/ching-cheong-hong-kong-revolution.html?module=inline" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Communist-led riots in 1967</a>.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'And Hong Kongers could support the student protesters in Tiananmen Square in 1989 without risking any reprisals.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'They were patriotic from a safe distance.'</li></ul>'But after the British handed formal control of Hong Kong to China in 1997, and as political and economic pressure from China intensified, more and more people in the city have identified as Hong Kongers rather than as Chinese, Chinese living in Hong Kong or Hong Kong-Chinese. '<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'They have also increasingly borne the brunt of the Chinese government’s growing authoritarianism.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'Hong Kongers are finally beginning to emancipate themselves from their old views.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'But the process is still at an early stage.'</li></ul>'People here know that time is not on their side.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'This is a moment of desperate hope.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'One-quarter of Hong Kong’s population has marched against Mr. Xi’s attempt to extend the Chinese Communist Party’s absolute rule to the city.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'After that, how could things go back to normal?'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'China is likely to seek revenge for our recent audacity.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'But punishing Hong Kongers would only unite us further.'</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">3. 'Hong Kong Has Nothing Left to Lose'</h5><img width="100%" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d200e702e58b745fbc4c76f_2.%20%27Hong%20Kong%3A%20%E2%80%98People%20here%20know%20that%20time%20is%20not%20on%20their%20side.%E2%80%99%27%20.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">'Inside the protests, I heard a collective roar of rage against a government that has failed, by design, to represent its people.'‘After breaking into Hong Kong’s legislature, protesters left a message for Carrie Lam, the city’s top government official, spray-painted on a pillar: “It was you who taught me that peaceful protests are futile,” writes Lousia Lim, formerly a journalist with NPR and the BBC, now Senior Lecturer in Audio Visual Journalism at the University of Melbourne, in <a href="https://www.nytimes.com/2019/07/02/opinion/hong-kong-protest.html?action=click&module=RelatedLinks&pgtype=Article" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Hong Kong Has Nothing Left to Lose.’</a>'To the young activists, the storming of the Legislative Council was an act of desperation.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'Three times in the past month, tremendous numbers of Hong Kongers — at one point estimated to be <a href="https://www.nytimes.com/2019/07/01/world/asia/china-hong-kong-protest.html?module=inline" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">more than two million</a>— marched peacefully to protest against a controversial extradition bill with China, which they fear would undermine Hong Kong’s judiciary and its freedom.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'The government suspended but did not withdraw the law.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'It did not even meet representatives of those who marched.'</li></ul>'I was among the journalists covering the break-in of the building, and I watched as protesters ripped metal bars from the side of the building to smash their way through the windows.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'Their actions seemed like a breathtaking act of defilement of one of Hong Kong’s institutions.'</li></ul>'Yet on closer inspection, I saw that they had zeroed in on certain totems of power.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'Inside the legislative chamber, someone had blacked out Hong Kong’s emblem — a white bauhinia flower on a red background.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'They had torn up the Basic Law, effectively Hong Kong’s constitution, on the rostrum.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'Above it, someone had spray-painted over the words “The People’s Republic of China” in black.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'There were other graffiti messages on the walls, including, “There are no rioters, only tyranny,” a reference to the government’s announcement that an earlier demonstration, broken up by police firing rounds of tear gas and rubber bullets, constituted “a riot.”'</li></ul>'But certain parts of the building, like the library, were left untouched.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'Notes reminded protesters not to damage fragile items such as vases on display.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'Protesters even left money in the fridge to pay for the soda they drank.'</li></ul>'Ms. Lam, Hong Kong’s chief executive, has vowed to pursue the offenders and condemned their “extreme use of violence.”'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'Beijing criticized their “atrocities.”'</li></ul>'But this break-in had a clear purpose: It is a collective roar of rage against a government that has failed, by design, to represent the people.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'The Legislative Assembly’s composition apportions half its seats to business-friendly “functional constituencies,” ensuring that pro-government, pro-Beijing forces are in the majority, regardless of the results of legislative elections.'</li></ul>'When those polls don’t produce the representatives Beijing wants, it has used the tools at its disposal to create a more pliant legislature.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'This happened after the 2016 elections, when a new crop of radical pro-democracy politicians was elected.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'Beijing then intervened to reinterpret Hong Kong’s Basic Law, <a href="https://www.nytimes.com/2019/06/07/world/asia/hong-kong-china-extradition-protest.html?module=inline" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"> retroactively disqualifying six popularly elected politicians</a> over the way in which they took their oaths.'</li></ul>'When it comes to Hong Kong politics, it isn’t just that the playing field is tilted.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'The rules of the game, even the point of the game, are constantly being redrawn.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'By vandalizing the legislature, protesters have aimed their anger not just at one law but at an entire system that has disenfranchised them.'</li></ul></td></tr></div></div></div>

7/3/2019

<div id="NLpost" class="nl-post-wrapper" style="margin:0 auto;"><div id="NLHeader" class="post-card" style="padding: 0 3.5%;"><div id="Page-header" class="mainheader"><h1 class="t1">Trade war: 'Wet US-China firecracker at G20’</h1><div class="date">July 3, 2019</div><a href="https://www.linkedin.com/in/malcolmriddell/" target="_blank" class="date" style="color: inherit;border-bottom: 0 solid #008dc8;text-decoration: none;">by Malcolm Riddell</a></div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">The range of views about the cease fire in the trade war goes from:<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Wet US-China firecracker at G20’ by AEI’s Derek Scissors</li></ul>to<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Trump's “brilliant stroke” with China's Xi a win for US’ by Michael Pillsbury of the Hudson Institute.</li></ul>Both are here, along with commentaries by:<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Kevin Rudd, president of the Asia Society Policy Institute, former Australian Prime Minister</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Peter Navarro, Assistant to the President and Director of Trade and Manufacturing Policy</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Michael Hirson, Practice Head for the China and North East Asia Regions for the Eurasia Group.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Tim Stratford, Chairman of the American Chamber of Commerce in China and a partner at Covington & Burlington in Beijing</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Yi Xiaozhun, Deputy Director General of the WTO</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Charles Li, Chief Executive of the Hong Kong Stock Exchange.</li></ul>And to frame their comments, this issue begins with a summary:‘What the US and China each got out of the Trump-Xi meeting in Japan,’ by Brookings’ Ryan Haas.The only thing that we really know is that – as President Trump often says - ‘We’ll see what happens.’</td></tr></div></div><div class="section_title w-condition-invisible">I. THE LAW AND THE PROTESTS</div><div id="article1" class="post-card"><div class="t2-block">1. ‘What the US and China each got out of the Trump-Xi meeting in Japan.’</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://i2.wp.com/www.brookings.edu/wp-content/uploads/2019/07/trump_xi_osaka001.jpg?crop=0px%2C309px%2C3038px%2C1011px&w=1920&ssl=1" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">Brookings<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘Presidents Trump and Xi met on June 29, on the margins of the G-20 summit in Osaka, Japan, continuing the practice of holding leader-level meetings at multilateral events whenever both the U.S. and Chinese leaders are present,’ writes Ryan Haas of Brookings in <a href="https://www.brookings.edu/blog/order-from-chaos/2019/07/01/what-the-us-and-china-each-got-out-of-the-trump-xi-meeting-in-japan/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘What the US and China each got out of the Trump-Xi meeting in Japan.</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Authoritative Chinese readouts of the meeting from official media have been tonally positive but vague about the outcomes.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">The same holds for President Trump’s public characterizations.’</li></ul>‘This generally positive but non-specific characterization likely reflects that both leaders covered a range of issues in a short period of time.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And they did so without the benefit of detailed preparatory negotiations to define outcomes that both leaders could affirm.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Even so, a few early takeaways from the meeting are visible.’</li></ul>‘For Beijing, key outcomes include’:<ol style="font-size: 1em;line-height: 1.875em;margin: .625em 0;margin-left: -1.1em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘No new tariffs.’ <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘President Trump earlier had threatened to impose tariffs on the roughly $300 billion of Chinese imports that currently fall outside of existing taxes on imports.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This list includes popular consumer items such as smart phones, tablets, laptops, and cameras.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Trump pledged to withhold tariff escalation to enable an opportunity for negotiators to reach a trade deal.’</li></ul></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Reduced pressure on Huawei.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘President Trump indicated that American companies could sell to telecom giant Huawei “where there is no great national emergency problem with it.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Irrespective of how many products the Trump administration exempts for sale to Huawei, the broader impact is that Trump effectively gutted the U.S. global campaign to compel other countries to sever ties with the company.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘If President Trump sees Huawei as an object of leverage in negotiations, but not a national security threat, it is likely that many other countries similarly will discount the national security risk posed by Huawei.’</li></ul></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Resumption of open-ended trade negotiations.’ <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Since one of China’s goals is to play for time, many in Beijing likely will be relieved that Trump chose not to set a deadline for negotiations.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Beijing sees value in prolonging negotiations both because it judges that Trump will grow more desirous of a deal the closer he gets to the U.S. election, and also because it calculates Trump will have more incentive to quash policy initiatives that could cloud the atmosphere for negotiations (e.g., new actions on Taiwan, additional technology export controls, sanctions on officials handling Xinjiang affairs, etc.) when talks are ongoing.’</li></ul></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Better treatment for Chinese students.’ <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Intensifying American law enforcement and media scrutiny of Chinese students’ activities in the United States has become a raw topic in China, where many families have aspired to send their children to the United States for academic training, but have been growing more reluctant due to concerns about racial profiling.’</li></ul></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Strategic direction.’ <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Amidst a growing cacophony of calls in the United States for treating China as a rival, Trump departed from his top advisors to predict that “we’re going to be strategic partners.”’</li></ul></li></ol></td></tr></div></div><div id="article2" class="post-card"><div class="t2-block">2. ‘Wet US-China firecracker at G20’: Derek Scissors</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d1676d4f6e4ce131b2b640e_Derek%20Scissors-%20China%20trade%20deal%20looked%20close%2C%20but%20we%20were%20nowhere%20near%2090%25%20.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">AEI<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘American policy toward China did not regress at Osaka. But it remained stuck, stuck with a president who seems to only care about exports and stuck with critics whose alternatives rely either on clichés or on pleas to cooperate more with a predatory trade partner run by a cult of personality dictator.’‘Nothing of consequence came out of the weekend Trump-Xi meeting in Osaka,’ write AEI’s Derek Scissors in <a href="http://www.aei.org/publication/wet-us-china-firecracker-at-g-20/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Wet US-China firecracker at G20.’</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘(So feel free to switch to a piece about North Korea.)’</li></ul>‘The president’s desire to restart talks has made been clear for weeks by, among other things, the vanishing vice-presidential speech on Chinese human rights.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘A restart required suspending tariffs on $300 billion in imports.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China will buy an unspecified amount of American farm goods.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And the symbolic sanction on Huawei will be eased in some vague way.’ </li></ul>‘The Huawei component might seem consequential — it’s not.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Trump administration speaks loudly and carries a small stick with regard to Chinese companies.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘A year ago, a White House report on intellectual propertyput the low end of the PRC’s theft at $180 billion annually.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Yet the US has punished only a handful of firms, even including the steps taken 10 days ago.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Tariffs are often labeled as the true retaliation for IP theft and coercion.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘‘But the president instead treats tariffs as tools to raise revenue and pressure Beijing to import.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Tariffs apply to all China-based exporters equally and thus provide no incentive to stop stealing.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Beyond IP, sanctions against Chinese firms involved in human rights violations have been rumored for months, but they haven’t materialized either.’</li></ul>‘Huawei fits this pattern perfectly.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The initial action was not a blanket denial order but addition to a list which allows sales to Huawei from third countries.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘A temporary license was granted until August, supposedly to allow time to adjust but actually to buy time for talks.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘President Trump then repeatedly said Huawei was negotiable.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘There was no change at Osaka— Huawei has been discussed as a genuine threat but never treated like one.’</li></ul>‘Negotiations are back close to where they were in late April, when Secretary Mnuchin thought they were 90% done, only to find Beijing insisting the US should just trust China’s IP commitments to be meaningful.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The US faces the same problem now as then: we want guarantees the Communist Party will act against its state-owned enterprises when we won’t even do so.’</li></ul>‘Compounding matters, there was a second China non-event last week: the Democratic debates.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘President Trump’s would-be rivals put him under no serious pressure to improve policy.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘His continued praise of China as a “very good”partner if only it buys a lot more American products has holes Democratic candidates could have driven a truck through.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Apparently, none of them own trucks.’</li></ul>‘The popular mantra of “work with our allies” says nothing about US priorities and what price attaining our priorities is worth.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘By itself, it’s vacuous.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And it’s still better than the occasional claim that “China really wants to reform,” though reformers haven’t won a major policy battlesince 2003 and General Secretary Xi has actively undermined competitive markets.’</li></ul>‘American policy toward China did not regress at Osaka.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But it remained stuck, stuck with a president who seems to only care about exports and stuck with critics whose alternatives rely either on clichés or on pleas to cooperate more with a predatory trade partnerrun by a cult of personality dictator.’</li></ul>‘UPDATE’:‘This morning brings to light a Federal Registry notice walking back one of the few American efforts to target Chinese companies.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The notice removes from the “Unverified List,” eight entities added less than three months ago, because they were then deemed untrustworthy counterparties for American firms.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The notice was published Thursday, before Osaka, but not mentioned by either the US trade delegation or the Department of Commerce.’</li></ul>‘So the US suspended the tariffs on $300 billion, postponed or canceled a major speech on human rights coincident with the 30th anniversary of Tiananmen, and lifted sanctions on Chinese firms without even trying to offer justification.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The president insists China is more eager for a deal than we are — his administration’s (in)actions say otherwise.’</li></ul></td></tr></div></div><div id="article3" class="post-card"><div class="t2-block">3. ‘Trump's “brilliant stroke” with China's Xi a win for US’: Michael Pillsbury</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://a57.foxnews.com/static.foxbusiness.com/foxbusiness.com/content/uploads/2019/06/0/0/AP19180110197713.jpg?ve=1&tl=1" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">Fox Business<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">A lot of people don't understand that Trump is dealing with an equal power here. He can't just spit in their face and say, “You know, you sign this agreement or else go to hell.” He's got to be very clever and nuanced - and that's what he's doing. Michael Pillsbury is Senior Fellow and Director for Chinese Strategy at the Hudson Institute.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">He advised President Trump and Trade and Manufacturing Policy Director Peter Navarro ahead of the Osaka summit.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">He made his comments during <a href="https://www.foxbusiness.com/politics/trump-china-xi-trade-war-michael-pillsbury" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">a video interview on Fox Business</a>.</li></ul>Q: ‘First, can you go through what the strategy is with China at this point? What just took place at in Osaka?’Pillsbury: The most important thing was to get a president Xi to return his delegation to the talks.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘There was a major breakdown six weeks ago.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The talks really faced extinction at that point.’</li></ul>‘China was taking back a lot of major points.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They were refusing to go further on the enforcement mechanism.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It was a pretty bleak situation.’</li></ul>‘I think what had to happen, President Xi's team made clear in their media, is that he needs something on Huawei at this meeting.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He also needed to have the tariffs at least not imposed at this meeting.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Otherwise he would be saying no to any further talks.’</li></ul>‘That's what president Trump did. It's a brilliant stroke.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The president deserves a lot of credit.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He hasn’t it spelled out the details of the Huawei a matter. He hasn't said, you know, Huawei could be in 5G now around the world.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But he has focused on American technology suppliers of parts to Huawei.’</li></ul>‘This gives President Xi the face he needs to face down his hawks in China and restart the talks.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So it's a huge success for the president.’’</li></ul>Q: ‘Okay. We've been talking about and hearing from this president about the massive national security threat that Huawei is to America.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘To lift that embargo - does that fly right into the face of what the president has been telling us for so long?’</li></ul>Pillsbury: ‘Well, this goes back to what the president did on the ZTE matter.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He hasn't said Huawei should be put out of business.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He's talked about the national security threat from Huawei eavesdropping, back doors, surveillance, a series of things that are just not acceptable.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So he doesn't want Huawei to get into sensitive sectors around the world.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Our government is still banned from buying Huawei products.’</li></ul>‘But it's something different to say we want to bankrupt and destroy Huawei.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That's what the president has not done.’</li></ul>‘I had a meeting in London last month with the Huawei leadership.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They make a distinction between keeping alive like ZTE did with 70,000 jobs for China, versus being put out of business entirely.’</li></ul>‘I think that's the needle that the president has threaded.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He's not given up in any way.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This fake news that this is a catastrophe and that he surrendered on Huawei – it’s just not true.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He has not lifted the ban.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The effort to keep Huawei out of 5G in Germany, England, India, around the world - that's going to continue - but not to destroy the company.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That's why President Trump has allowed American parts to continue being supplied.’</li></ul>Q: ‘In terms of a potential deal with China, why would the Chinese give in to not stealing intellectual property and forcing the transfer of technology when we know they just reneged in May on, on those two issues?’Pillsbury: ‘That's a great question. There are two reasons.’‘One is they say they want to cut this out themselves.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They're generating enough intellectual property themselves - they don't want other countries to steal it.’</li></ul>‘The other thing is China is a very strong economy.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘If you look at the IMF, the World Bank, and even the CIA Fact Book, China surpassed our economy three years ago in purchase power parity.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They’re bigger than we are.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘A lot of people don't understand that Trump is dealing with an equal power here.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He can't just spit in their face and say, “You know, you sign this agreement or else go to hell.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He's got to be very clever and nuanced - and that's what he's doing.’</li></ul></td></tr></div></div><div id="article4" class="post-card"><div class="t2-block">4. ‘The Chinese move only to the extent that it suits their domestic economic agenda.’: Kevin Rudd</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;position: relative;display: block;padding-bottom: 56.25%;"><iframe class="embed-responsive-item" src="https://www.youtube.com/embed/CAkMSiLYmGU" width="100%" height="100%"></iframe></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">CNBC Television<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘So in terms of the Osaka outcome, if you sitting and in Beijing this morning, we're sitting around the politburo table - they did meet up on Monday over there - they'd saying, “Hey, high five.”’Kevin Rudd is president of the Asia Society Policy Institute, former Australian Prime Minister, and a well-regarded China expert.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">He gave his views in a <a href="https://www.youtube.com/watch?v=CAkMSiLYmGU" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">CNBC video interview</a>.</li></ul>Q: ‘Are we making progress, and is it possible that to come to some settlement with China in the next year?’Rudd: ‘The underlying economic logic in Xi Jinping’s and, I think, in President Trump's mind is this thing has to be put to bed.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Otherwise it wrecks markets completely.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The President's got to reelect, and Xi Jinping has got a softening economy domestically.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Those two fundamentals haven't changed.’</li></ul>‘And there's a lot of political theater surrounding this in terms of who is seen to back down and or not back down.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘I'm making a bold prediction here: between now and certainly probably thanksgiving, we'll have some form of deal.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘There'll be a critique about how substantial it is and all the rest of it.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But I think the underlying interests are there.’</li></ul>Q: ‘The Wall Street Journal points out today that both President Trump and President Xi have hard liners that are putting pressure on them and that could make things more complicated.’Rudd: ‘The hard liners in both capitals should get together and have a group hug because they have the same sort of attitude to life, which is’:<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It's far easier for organized enmity between the two countries than any form of economic engagement.’</li></ul>‘From a Chinese perspective, however - and I've just come from China back to New York - they're pretty happy with the outcome.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘What they expected was that there'd be a reboot for the negotiations – tick, that was done.’</li></ul>‘What they didn't expect with the other two gifts, if you like, which the President delivered.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘One was the announcement that there would be no new tariffs for the duration of the negotiations. And that had been a big factor in Chinese domestic market sentiment.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But the second one that really caught them by surprise was a statement on Huawei.’</li></ul>Q: ‘But explain this to me. Secretary of State Pompeo was sitting where you were sitting maybe a month ago and said this is a national security threat.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He went to Australia, he went to all different countries in Europe and said to officials there, do not do business with Huawei. This is a danger to all the western allies.’</li></ul>Rudd: ‘Excellent question,Andrew. My successor as Prime Minister of Australia was the good loyal ally.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He put his hand up first and said, “Okay, the United States has said we shouldn't do business with Huawei. We won’t.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He’s been one of the few allies to have actually taken a clear position.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘If you were him this morning you’d be feeling a bit like a mug.’</li></ul>‘But if you go to the details, if I look carefully at what Larry Kudlow has tried to do in explaining the president's fairly bold language in Osaka, which was: what we're looking at are just elements of componentry, which are sold by US firms, which Huawei can access by other firms around the world.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The devil will lie on the detail on this.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But from a Chinese macro perspective, they see a big crack of light here.’</li></ul>‘So in terms of the Osaka outcome, if you sitting and in Beijing this morning, we're sitting around the politburo table - they did meet up on Monday over there - they'd saying, “Hey, high five.”’Q: ‘What are the chances that that you can get concessions from China that are real and lasting?’Rudd: ‘I think the Chinese move only to the extent that it suits their domestic economic agenda.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And what's really interesting is take some of the liberalizations recently by the Chinese on capital markets.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘For example, the issuing of new licenses to people like JP Morgan and others to be able to operate more freely within Chinese capital markets.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘You might say, well that's a good move.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But you need to understand that the background of that: China faces, in the next several years the possibility of a current account deficit.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They actually need net import of foreign capital in the future.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So they moved to the extent that it meshes with their domestic interests.’</li></ul>Q: ‘In terms of what happened this weekend, you said there were two things the Chinese didn't expect. One was the Huawei situation. The other no additional tariffs while we continue these talks. Does that help or hinder things in the long-term in terms of what type of deal gets put in?’Rudd: ‘Look, if I was being blunt about it, I think the Chinese will see United States as having blinked a bit in these discussions in Osaka.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Chinese will take some comfort that the bottom line is that a deal can be had, which won’t fundamentally undermine their interest.’</li></ul>‘The Chinese have already published three big red lines, which they won't move on.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And they won’t because it's been a front page of the Chinese newspapers and it'd be political suicide for the Communist Party to now backtrack on those.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And these are big-ticket items in terms of what the United States’ negotiating position has been so far.’</li></ul>‘But I think the take out message from Osaka will be we can get there. ‘<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And the president, that is, President Trump really wants a deal.’</li></ul></td></tr></div></div><div id="article5" class="post-card"><div class="t2-block">5. Peter Navarro on the trade war cease fire and Huawei</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;position: relative;display: block;padding-bottom: 56.25%;"><iframe class="embed-responsive-item" src="https://www.youtube.com/embed/-YbOfzxjWzQ"></iframe></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">CNBC Television<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘5G is huge. Selling a few chips to Huawei is not’Peter Narvarro is Assistant to the President, and Director of Trade and Manufacturing Policy – and was at the table in Osaka.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">He gave his views in a <a href="https://www.youtube.com/watch?v=-YbOfzxjWzQ" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">CNBC video interview.</a></li></ul>Q: ‘Mr. Navarro, there were those who say we've got talks back on track, but we actually gave some things up, namely Huawei, and got nothing in return for actually getting those talks back on track. What do you say to those critics who sort of wonder about that negotiating leverage that we potentially did not use?’Navarro: ‘Well, there’re a couple of things there.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘What's important about this negotiation is the close personal chemistry between President Xi and President Trump.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘President Xi requested some relief on Huawei.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Here's the important thing: US policy on Huawei with respect to 5G in this country has not changed - that will not happen.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘All we've done basically is to allow the sale of chips to Huawei. And these are lower tech items, which do not impact national security whatsoever.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Huawei remains on the entity list.’</li></ul>‘But more importantly, I think China gave us some things too.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They promised immediate and significant agricultural purchases and we hope to see immediate, immediate progress on that.’</li></ul>‘We will be selling a small amount of chips, less than a billion dollars worth of chips a year, to Huawei.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In the short run this is small in the scheme of things.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In the fight for 5G President Trump is very committed to having the U.S. take the lead and to building up companies like Nokia and Erickson in Europe.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘5G is huge. Selling a few chips to Huawei is not.’</li></ul>Q: ‘I guess people and some of the companies are still trying to understand exactly where we stand with Huawei because we have characterized them as a national security concern. So that continues. Then I should not take this as sort of a green light for Huawei in any real way. Just sort of a Huawei olive branch to some extent to help the Chinese at least think that we're going to help keep them in business.'Navarro: ‘Yeah. I think you probably said it better than I could. There're two things going on.’’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘One is Huawei trying to dominate 5G using the usual Chinese playbook, which is to dump product below cost, steal the technology from their rivals, and push everybody out.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The problem, of course, is the software issues - one patch and you can open somebody's a system to Huawei. You got hardware problems - there can be Trojans lurking.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So we have to be very clear about that, and we're going to work closely with our allies around the world to make sure Huawei 5G is not in those countries.’</li></ul>‘But in the meantime a small amount of low level chips are going to be sold to keep systems going.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That's not a bad thing when it gets us back to the bargaining table with China.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And with China committing just immediate and significant purchases of agricultural goods - let's see if they deliver on that.’</li></ul></td></tr></div></div><div id="article6" class="post-card"><div class="t2-block">6. ‘The big takeaway from this meeting is that you have a ceasefire.’: Michael Hirson, Eurasia Group</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d1c40224cf9cbb41559e3fe_michael%20hirson.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">Bloomberg<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘I think that both sides may be comfortable with the status quo. In other words, keeping current tariffs in place, avoiding the risks of further escalation, but not making the kind of hard political decisions to actually arrive at a trade deal.’Michael Hirson is Practice Head for the China and North East Asia Regions for the Eurasia Group.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">He gave his comments during a <a href="https://www.bloomberg.com/news/audio/2019-07-01/tough-china-trade-issues-still-loom-ahead-hirson-radio" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Bloomberg audio interview</a>.</li></ul><table style="background-image: url(https://assets.bwbx.io/s3/bbiz/images/top-noimage-ph-244b55b40c.jpeg);margin-top: 20px;margin-bottom: 40px;border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="audio-bg" style="border-collapse: collapse;width: 100%;color: #fff;letter-spacing: 0;display: flex;flex-direction: column;padding: 0 20px;margin: 20px auto;background-color: rgb(255,255,255,0.0);font-family: 'Lato',sans-serif;font-size: 1.25em;font-weight: 400;line-height: 1.2;position: relative;z-index: 9999999999;background-position: center;background-repeat: no-repeat;background-size: cover;"><audio-from style="display: inline-block;width: fit-content;padding: 5px;margin-bottom: 20px;background-color: #fff;font-family: 'Lato',sans-serif;font-size: 1.5em;font-weight: 900;line-height: 1;color: #000;">Bloomberg</audio-from><t5>Tough China Trade Issues Still Loom Ahead: Hirson (Radio)</t5><audio id="audio-embed" width="100%" height="100%" controls style="width: 100%;height: 40px;background-color: #edf0f1;border-radius: 2px;margin-top: 30px;"><source src="https://assets.bwbx.io/av/users/iqjWHBFdfxIU/v.azJwCII2Uk/v4.mp3" type="audio/mpeg"><source src="https://assets.bwbx.io/av/users/iqjWHBFdfxIU/v.azJwCII2Uk/v4.mp3" type="audio/ogg">Your browser does not support HTML5 video.</audio></td></tr></tbody></table>Hirson: ‘The big takeaway from this meeting is the fact that you have a ceasefire.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘A ceasefire that was really driven by the desire both by president Trump and president Xi to avoid the risks of further escalation.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But it wasn't driven by a sense that the two sides have bridged the gap on the key issues remaining on the trade dispute and the path for for Huawei going forward.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It's a pause. It's positive, but the tough questions still lay ahead.’</li></ul>‘Another big takeaway is that China agreed to resume purchases of US agricultural goods.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘I don't think that those are necessarily going to be large in magnitude.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But it's a clear sign that President Trump is trying to reduce one of the political vulnerabilities that he has faced with the standoff, which is the pain that U.S. farmers are experiencing.’</li></ul>Q: ‘Michael, are you surprised at all that President Trump seems to backtrack somewhat on the restrictions placed on Huawei?’Hirson: ‘We expected there to be some nod towards finding an off ramp to Huawei because otherwise I think it would've been very difficult for China to come back to the negotiating table.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘I was a little surprised at how forward leaning the president was.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Overall we felt that there was going to have to be some indication for Beijing that Trump and the U.S. are willing to explore a way to modify treatment of Huawei.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But really major questions are unanswered in terms of how the U.S. expects to do that.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And there's been quite the blowback already in Congress - on a bipartisan basis - from senators who view this as capitulation and want to see the knives still out on Huawei.’</li></ul>Q: ‘Michael, do you think that the U.S. has a coherent and understandable desire for these trade discussions in terms of what they would like the end goal to be?'Hirson: ‘It's a great question. There are different factions within the administration that have different goals in mind for China.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Some officials, I would say Treasury Secretary Mnuchin, clearly want to deal and are worried about the impact that a continued standoff or even escalation would have on U.S. economy and U.S. markets.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Then on the other side of the spectrum, we've got officials like Peter Navarro who have very maximalist demands for a deal.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They would be perfectly happy with just keeping tariffs up on China, viewing that as something that throws sand in the gears of China's economy.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They would like to see Huawei go down.’</li></ul></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And then you've got officials who are sort of in the middle.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘I would put Robert Lighthizer, the U.S. Trade Representative - who's really the key figure – there in the middle.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He's somebody who has a tough views on China, will insist on a very strong deal, but all things equal, is a pragmatist and somebody who eventually does want to arrive at a deal.’</li></ul></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But there are more - there's the national security and law enforcement types as well.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘These different factions do not necessarily come together in a coherent strategy.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And that's why we've seen pivots and reversals and moves back and forth within the Trump administration.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘I don't think this is going to be the last one.’</li></ul></li></ul>Q: ‘When do you expect, if at all, that the US and China really get together and really get a real trade deal? What is the timing on that?’Hirson: ‘I think that both sides may be comfortable with the status quo.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In other words, keeping current tariffs in place, avoiding the risks of further escalation, but not making the kind of hard political decisions to actually arrive at a trade deal.’</li></ul>‘So we could very well see this status quo continue through the remainder of the year and through the remainder of this presidential term.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Because as President Trump gets closer to election day, he's going to be more and more reluctant to have to defend a complicated trade deal on the campaign trail.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘We just may see this current situation, this status quo, continue for the next year plus.’</li></ul></td></tr></div></div><div id="article7" class="post-card"><div class="t2-block">7. ‘Trump hasn’t reversed his position on Huawei’: Michael Pillsbury</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d1c41231ded34d74d3659c4_Michael%20Pillsbury-Trump%20hasn%E2%80%99t%20reversed%20his%20position%20%20foxbusiness.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">Fox Business<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘Unfortunately, that what I call the Super Hawks who want to bring down the Chinese Communist Party or confront China in every possible way. The Super Hawks are now attacking the president for concessions and for reversing himself. This is just fake news.’ Michael Pillsbury is Senior Fellow and Director for Chinese Strategy at the Hudson Institute.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">He advised President Trump and Trade and Manufacturing Policy Director Peter Navarro ahead of the Osaka summit.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">He made his comments during a <a href="https://video.foxbusiness.com/v/6054408021001/#sp=show-clips" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">video interview on Fox Business.</a></li></ul>Q: ‘Michael, your initial thoughts on at least what we've heard so far coming out of this meeting?’Pillsbury: ‘Well, a lot of president Trump's critics the last couple of days are mischaracterizing what he's done.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He has not reversed himself on way at all on Huawei.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This is quite a brilliant idea - that he can adjust.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Commerce Department can adjust to which licenses they give and which they don't give.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Huawei stays on the entity list, the black list.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The licenses could be granted quite quickly, let's say this week as the one for Google to provide Android apps for Huawei phones.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But they can also be turned off.’</li></ul>‘Again, it's the same thing with the not putting the tariffs on.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The president hasn’t promised he'll never put tariffs on China.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He's just not mentioned it at the meeting and both cases, these are carrots to try to get Xi Jinping to send his team back to the talks.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That's the huge success. That's the breakthrough of what happened.’</li></ul>‘Unfortunately, that what I call the Super Hawks who want to bring down the Chinese Communist Party or confront China in every possible way.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Super Hawks are now attacking the president for concessions and for reversing himself.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This is just fake news.’</li></ul>Q: ‘Well, Michael, do you find an interesting that you would have a Marco Rubio and a Chuck Schumer leveling the same sort of criticism?’Pillsbury: ‘I read Marco Rubio's tweet. I have great respect for him.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He said if such and such, then it would be a catastrophic mistake.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So he's obviously open to clarification of what actually has been done on Huawei. Obviously a total endorsement of Huawei would be a catastrophic mistake, but that isn't what the president's done at all.’</li></ul>‘Chuck Schumer is setting himself up very cleverly that he's tougher than Trump rhetorically in terms of words.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He keeps jabbing President Trump.“Don't go soft in Osaka” was one.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Back on March 2nd he said, “Oh, you're betraying the working man.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But when Chuck Schumer was involved in this, in the Senate for 20 years, he never did anything, never passed any legislation, never got talks.’</li></ul>Q: ‘The media - and we know Trump’s relationship there - suggest that president Trump blinked, that we got nothing for it.’Pillsbury: ‘That’s false.’ ‘I think it's important to underline what the real issue is here.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Super Hawks have written books and articles that China is about to collapse. They see China as weak.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They look at statistical indicators, and go, “Oh my God, look at that - China is going to be on its knees now begging for a deal.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That is just false.’</li></ul>‘China has a strong economy.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They've grown 3% to 4% faster than us for 30 years. They're almost overtaking us.’</li></ul>‘President Trump has now said, by my count five times, if Hillary had been elected president, China would surpass America during her terms in office.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘“That's not going to happen on my watch.”’</li></ul>‘He says he's not a believer in the China collapse theory.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He thinks Xi comes from a strong country and a strong economy.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That's why he's been so clever. Trump has been so clever with mixing carrots and sticks.’</li></ul>‘Xi did not have to come back to these talks.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He couldn't have just told us, “Go to hell. I don't care what you do. Tariffs?’ 25% tariffs don’t bother China.”’</li></ul>‘Where Trump's had his huge success at Osaka: He got Xi to come back.’</td></tr></div></div><div id="article8" class="post-card"><div class="t2-block">8. From the World Economic Forum in Dalian China</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;position: relative;display: block;padding-bottom: 56.25%;"><iframe width="720" height="405" src="https://www.youtube.com/embed/iaJHvGYiCJg" frameborder="0" allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">World Economic Forum<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">The WEF is currently meeting at Dalian.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">On sesssion covered the trade war and the Osaka summit.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Here are three views from the panel.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">You can <a href="https://www.youtube.com/watch?v=iaJHvGYiCJg&t=868s" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">watch the entire session here</a>.</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;"> Tim Stratford, Chairman of the American Chamber of Commerce in China and a partner at Covington & Burlington in Beijing</h5>Q: ‘Is there still hope that we can actually move beyond this current trade war?’Stratford: ‘The fact that they're going to go back to the negotiating table and that additional tariffs are going to be postponed for the time being, it's really the best case scenario.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘What we're most concerned about is all the remaining uncertainty.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘National security issues are being discussed at the same time the trade issues are being discussed. This makes things quite complicated.’</li></ul>Q: ‘The security issue and the trade issue appears to have been merged through the process of these discussions over the last year or so.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Given your background as a trade representative for the U.S. government, do you think that has been a mistake?’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Would it be better to have separated this into two different issues and then we could have moved forward on trade whilst resolving the security question in another theater?’</li></ul>Stratford: ‘Well, national security and trade policy are different fields.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They have different rationales and goals that you're trying to achieve, different rules that you try to follow to achieve them.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Different government agencies that are involved in trying to enforce them.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Together they can really complicate things.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘I think they both need to be addressed in parallel because they impact one another, but you have to keep them separate.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘You can't use one as leverage for the other and come out with policy that's either coherent from an economic point of view or coherent from a national security point of view.’</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;"> Yi Xiaozhun, Deputy Director General of the WTO </h5>Yi: ‘We are very happy to hear that both the U.S. and China have agreed to come back to the negotiating table.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But meanwhile many of our members hope the U.S. and China will come back to the multilateral trading system to resolve their own disputes.’</li></ul>‘We hope they can reach a deal is WTO-consistent.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Otherwise the whole system will be jeopardized.’</li></ul>‘And then WTO members will make their judgment as to whether the deal is consistent with multilateral rules or not.’<h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;"> Charles Li, Chief Executive of the Hong Kong Stock Exchange</h5>Li: ‘What I don’t see is what America wants – or which America wants what.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Wall Street wants something. Hollywood wants something. Silicon Valley wants something, the Bible belt wants something, the rustbelt wants something, even agriculture states want something.’</li></ul>‘I think in terms of three levels.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The first level is trade - this is all money issue.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Anything that can be settled in money, for the Chinese, it’s not a big deal, we can sort it out. Right?’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So from a trade perspective, we will strike a deal.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The second level is behavior change. America wants China to change this and that, like intellectual property infringement.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘You know, sometimes it's like a China needs to stop drinking and smoking.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That's harder because you’ve been smoking for a while and drinking for a while.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In the long term, the Chinese could rationalize that smoking and drinking is not great for your health, and it’s probably is a good idea to stop at some point - but you don't give me time, I can't quit overnight.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And also you have do it in a way that is respectful - you can't put a smoke detector in my house and insist on coming in and checking to see whether I smoked after dinner or not.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So if America wants behavior change, I think there is the possibility of a deal.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But it's going to be painful, it’s going to be negotiated, it’s going to need patience.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Ultimately, probably something will work out.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But if America wants a number three - that you have to go to church, your children have to be educated in a particular way, you have to stop eating Chinese food - it will never happen.’</li></ul>‘So if China reforms and opens eventually everybody will just focuses on number one, maybe a little bit number two, nobody would talk about number three.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But the problem is if China does not accelerate and continue to open and reform that will unite all the different factions of the United States.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And then number two is always going to be on the table and number three is always going to be on the table. It will make things a lot harder.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But either way, this is going to be a long, long process before it's over.’</li></ul>Q: ‘Now I know democracies can be messy, and you've talked about many constituencies that have different opinions and want different things from China, but the fact that this is now a bipartisan issue in the United States means the reality is it's not going away. And issues of IP and market access and a market dumping will continue to come up as long as this is not resolved.’Li: ‘Yeah, I agree. But I think at the end of the day China would like to continue the way it is and set the time and pace to fix his own issues.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That's not going to happen - America is going to press a lot harder.’ America will want everything. Hopefully you go to church too. Right?’</li></ul>‘But I think, in the end, the real question is what sorts of pains are you willing to take in order to achieve what?’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So that’s really two factors: what pain, what gain?’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And each group is going to want some different level of pain and some different level of gain.’</li></ul></td></tr></div></div></div>

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