China Comment

Energy, Environment, and Economy

What is Happening With China’s Economy?

Nuances and questions abound in discussion of China’s economy and where it is headed. Is it due for a fall? Will exports decline? What about currency reevaluation? What about inflation?

Here, I collect and comment on some recent numbers and articles dealing with China’s economic situation: 

Useful Numbers

Budget Surplus
“China’s budget surplus for 2008, to July 31, was more than $200 billion, up by 33 per cent year on year in the first half” (Callick, The Australian).

Consumer Spending / Domestic Consumption
“Retail sales, the main measure of Chinese consumer spending, grew by 23.2% year on year in August, slightly less than July’s 23.3% but substantially better than last August’s 17.1%” (Pettis).

Retail sales rose to $128.1 billion in August (Oliver). Interestingly, the Olympics did not appear to provide much of a “bump” in August retail sales.

This leads me to conclude that although industrial construction might rise post-Olympics, consumer spending will likely actually decrease for September as “belts tighten” and reasons for splurging diminish. Although more employees will be “back on the job,” they will not necessarily have extra discretionary income to spend. By October or November, the “Olympic bump” of disruption should cease affecting China’s consumer spending numbers, and it is wholly possible that they will trend downward.

Economic Growth
In its Asian Development Outlook 2008 Update, the Asian Development Bank “anticipated China’s gross domestic product (GDP) would grow 10 percent this year, consistent with its April forecast. However, it lowered China’s 2009 predicted growth rate from 9.8 to 9.5 percent… In the first half of this year, the nation’s GDP expanded 10.4 percent, 1.8 percentage points slower than the same period last year” (China Daily).

“Official loan growth, if adjusted to strip out the effects of inflation, expanded a modest 4% in August, according to Standard Chartered estimates” (Oliver).

“Effective Tuesday [September 16], the People’s Bank of China lowered by 0.27 percent, to 7.2 percent, the regulated benchmark rate that commercial banks may charge for one-year loans to business borrowers with strong credit histories… The central bank also lowered by a full percentage point the share of assets that small and medium-size banks must deposit as reserves with the central bank, effective Sept. 25. The so-called reserve requirement ratio is an important tool in China for limiting how much money can be lent by commercial banks” (New York Times).

Export Growth
“Export growth also slowed, to 21.1% year on year in August from 26.9% in July. That left the trade surplus for August at a record $28.7 billion – a number which will help ensure that China’s money supply will continue expanding sharply in August” (Pettis).

“If the “Chinese content” of China’s goods export sector is around 50% (Vox), goods exports account for between 17 and 18% of China’s GDP. Exports of goods and services account for about 12% of US GDP” (Setser.)

Setser’s numbers imply China is susceptible to a global downturn and decline in its export sector. To offset a decline in national growth, domestic spending will need to rise significantly if export demand suddenly drops off. Between rising oil prices, costs of doing business in China, and a developing worldwide economic malaise, it appears China will see some significant declines in export growth from September through October.

FDI Into China
“Foreign direct investment into China rose 41.6 percent in the first eight months of the year compared with the same period last year, Beijing said.

“Overseas companies invested 67.7 billion dollars in the period from January to August, the commerce ministry said in a brief statement on its website” (AFP).

This is an intriguing trend, when contrasted against a couple of alarmist mainstream media articles discussing business flight from China to elsewhere. (At the time of those discussions, China Law Blog, myself, and Business Week among others, notably demurred.)

Import Growth
“Imports grew last month at a 23.1% in August, down sharply from 33.7% in July” (Pettis).

Post-Olympics, Import growth is likely to resume as demand for internationally-acquired resources used in construction will increase.

Industrial Growth
“Industrial output grew by 12.8% year on year in August, versus 14.7% in July, and 17.5% last August. There was weakness in almost every sector, with iron and automobile production actually contracting versus one year ago” (Pettis).

“China’s industrial production expanded at its weakest pace in six years in August, reflecting factory shutdowns for the Olympics and cooling overseas demand for consumer goods … Merrill Lynch estimates the factory shutdowns, combined weaker demand for steel, cement other materials resulting from the construction freeze, knocked 2.5 percentage points off headline growth. [They] expect a post-Olympic rebound in industrial production growth [based] on both pent-up demand and the post-quake reconstruction.” (Oliver, MarketWatch).

Inflation
“CPI inflation for August, was surprisingly good, coming in at 4.9% year on year, which is well below July’s 6.3% and also well below market expectations of around 5.5%. The decline in CPI inflation was driven mostly by declining prices in pork and vegetable oil… All the decline in CPI occurred in the food sector – non food inflation was steady at 2.1%.” (Pettis).

“The [Asian Development Bank] bank also lifts its inflation projection for next year to 5.5 percent from [an April estimate of] 5 percent… citing possible price hikes of fuel and electricity, which may lead to higher production costs being passed onto consumers” (China Daily).

Monetary Policy
“Commenting on the moves, Zhuang Jian, senior economist at the ADB, said the rate cuts indicate the government’s tightening monetary policy is beginning to relax. He also expected more loosening policies to come either later this year or in 2009 in order to ensure the sustainable growth of the economy” (China Daily).

RMB Reevaluation and China’s Foreign Investments
“From June 2007 to June 2008, the foreign assets of China’s central bank increased by $681b” (Setser).

“If China’s total foreign holdings rise to $3 trillion by the end of 2009—an increase that is consistent with China’s current pace of foreign asset accumulation—a 33 percent RMB appreciation against the dollar and euro would produce a $1 trillion financial loss” (Setser, 30).

Value-Added To Exports & Results for Currency Reevaluation
According to a new way of evaluating value-added to products; “the share of foreign value added in Chinese manufactured exports is at about 50%… which is much lower than most other countries. This implies that a given exchange rate appreciation is likely to have a smaller effect on China’s trade surplus than for other countries. The domestic content share is particularly low in sectors that are likely to be labelled as sophisticated, such as electronic devices and telecommunication equipments. This means the competitive pressure China’s exports place on skilled workers in high-income countries is smaller than suggested by a simple-minded look at the raw trade data.” (Vox) (These assertions are well worth a detailed examination at a later time.)

Useful Information

Are Asian Central Banks Still Behind the Inflation Curve?
Arpitha Bykere and Mikka Pineda, Asia EconoMonitor
An Overview of Asian Monetary Policy, with tables, charts, and analysis.

CPI inflation was unexpectedly low, the trade surplus unexpectedly high
Michael Pettis, China Financial Marekts
Something is odd regarding China’s recent inflation numbers, Professor Michael Pettis (of Beida) argues.

How much of Chinese exports is really made in China?
Robert B. Koopman, Zhi Wang, Shang-Jin Wei
A new formula calculates the value-added content of China’s export-manufacturing. It finds the domestic value-added content to be 50%.

Fire and Ice
Michael Pettis, China Financial Markets
China’s falling stock market, declining increases in industrial production, and future economic challenges.

As Economy Slows, China Eases Monetary Policy
Keith Bradsher, The New York Times
An overview of China’s latest monetary policy developments.

22 September, 2008 Posted by | China Economy, China Future | , , , , | 1 Comment

“Rule by Law” Reform

Stability, modernization, and success as a globalized 21st Century state are goals for which the Chinese government is reaching.

However, a culture of weak intellectual property rights and “Rule by Law” rather than the “Rule of Law” present unique challenges. In China, modernization means more choices for the common people. As choices become attainable, common people often clash with established authority.

Inspired by the Shanghai police officer stabbing case, I examine approaches China might take to deal with lawlessness and to craft “pressure valves” to permit its system to adapt and to address emerging challenges. (Note: The NYT had an excellent series on “Rule by Law.”)

The Pressure Builds

When people feel powerless, they can take out their aggression against public authority figures. In Shanghai, one man sought “revenge after officers from the station interrogated him last year for riding an unlicensed bicycle.” He “sued the officers who had interrogated him for psychological damage, but the claim was rejected,” and ultimately he attacked a police station and stabbed six officers to death.  

What drove Mr. Yang to such an act? People wonder if “injustices carried out by the Shanghai police” led to his brazen action. Some postulated that his genitals had been damaged by the police (AP), others assumed less or more vicious forms of punishment. Others argue Yang was just insane.

Option 1: Ignoring the Situation

What is important, however, is not the status of Yang’s guilt or innocence, but the reaction of Southern Weekend, a Chinese newspaper, and those of a number of Chinese. When the trial was held behind closed doors, some people clamoured for it to be heard in the light of day so people could know the trial was conducted fairly. The case concluded behind closed doors despite their protests, and Yang was sentenced to death. He is currently appealing the decision.

Closed-door trials can work, but if people believe the government is abusing power, then support for the government can decrease. For a system to work “above the heads” of the common people, the common people must either trust the government is morally superior, intellectually superior, or both. And with rising education and wealth spreading across China, more and more people are beginning to doubt whether or not the Communist Party really has all of China’s “best and brightest.” Still, in a 2008 Pew Global Attitudes Survey, 89% of Chinese were polled as satisfied with their government. Interestingly, only 34% were satisfied with their own life. There is possibility that as more Chinese become middle class, they will begin to demand the government “help” them more so they can achieve happiness. Comparatively, the US numbers were 51% and 65% [h/t Mei-Zhong Guanxi]).

This article by Prof. Carl Minzer suggests an attempted governmental cover-up of social unrest.

Option 2: Expanding Rights

Discontent directed against closed trials, presumed abuse-of-authority and lack of disclosure is bubbling stronger and stronger with nearly 87,000 “mass incident” protests in 2006, even though by all measures, Chinese citizens’ legal rights are expanding. “[T]his summer, criminal defense lawyers got the right to meet with their clients without official permission, request evidence from prosecutors and call witnesses in court” (AP). And that is in addition to China’s Labor Contract Law (June 2008) (Also see HERE), and its Property Law (2007), both of which expanded citizens’ rights and remedies.

These laws have spurred citizens to litigate. China Law Blog noted that in the wake of the Labor Contract Law; “[s]ince last year, labor disputes have increased in Beijing’s Chaoyang District People’s Court by 106%, by 231% in Nanjing’s Qinhuai District People’s Court, 126% in Shenzhen, 132% in Dongguan and 92% in Guangzhou.”

Option 3: Stop-Gap Patches

Weng’an County’s riots, proximately precipitated by a girl’s drowning, provide another example of China struggling to deal with accountability in the midst of a system that regrettably allows a good deal of opportunity for corruption and abuse-of-power.

Often, China’s central authorities deal with injustices and abuse-of-power by applying stop-gap fixes, like dismissing the Weng’an Party commissar and police chief. But finding ringleaders or scapegoats will only succeed in quashing corruption and abuse if the Chinese system is not plagued by systemic problems.

It appears, based on the NYT articles and prior unrest, that China’s “rule by law” may result in significant systemic problems. Still, the Chinese could prove Western analysts incorrect; their problem may not be systemic- even though 87,000 mass incidents in 2006 seem to imply the problem is widespread and beyond possibility of being addressed by stop-gap fixes.

Conclusion

Societies in socioeconomic and legal flux are presented with unique problems. In the 18th Century, the French system exploded into rioting and unrest. Louis XVI and his regime were overthrown, and in their wake, there was chaos. In 20th Century Russia, the Tsar was brought down, likewise in flames, even though he, like Louis XVI, was by some measures “liberalizing” the country in steps. In contrast, China’s path to modernity could be more like that taken by the United States in the early 20th Century.

In the United States, the late 19th and early 20th Century saw the expansion of rights for millions of previously oppressed groups that culminated with the 1960s Civil Rights Movement. A system of “rule of law” and an understanding by citizens, judges, lawyers, and juries of what that means took nearly 200 years to develop (and is still developing) in the United States.

Over the course of a century, America confronted turmoil with first the Progressive Movement, and later the Civil Rights Movement. In China, it can be argued that a “rights reform” movement is already underway. China often likes to describe how it is “different” and “unique” (Fool’s Mountain has an opinion on this phenomena.), so perhaps it will not suffer the social upheaval of 1960s-America or Industrial Age Europe.

Regardless of any perceived differences, China will still need to confront problems similar to those suffered by these countries as the Chinese people gain wealth, leisure time, become more involved in the market, gain greater mobility, and discover political power.

Hukou registration saw reform in 2003 after public outcry reacted to an embarassing situation where a legal city resident was beaten to death by police officers during questioning. At least lip-service to further reform continues (March 4, 2008). [The Chinese Law and Politics Blog, by Prof. Carl Minzer has a discussion on difficulties surrounding hukou reform.]

To respond to people’s demands for more attention and more autonomy, the government will choose whether to expand rule of law; encourage people to accept the status quo (which appears to be increasingly less likely an option); or close off influences that encourage the common Chinese 老百姓 to demand greater power.

Lawlessness might result from a society that fails to create a pressure-release valve for pent-up emotions. Rule of Law would allow China to follow the path taken by Europe and the United States. It will be interesting to see which choice China takes.

Appendix

* Or is this really a dualistic “either/or” choice of increasing lawlessness/tension or ultimate reform toward “rule of law” in China? Will China turn insular again if it must confront chaos? I welcome your opinions on the subject in the Comments.

* EastSouthNorthWest almost always has the most in-depth stories regarding mass incidents in China, if you’re interested in doing further research on that issue.

* Previously, in Rule of Law, I discussed why establishing a legal culture in China is key to ensuring “human rights” and to empowering individuals.

17 September, 2008 Posted by | China Law | , , , , | 3 Comments

China in Space

China recently announced it would launch its third manned spaceflight later this month.

With the US Shuttle’s planned retirement, and the Orion’s delayed development, the United States’ space presence could theoretically in the future be threatened in prestige by the Chinese. Below, I examine the Chinese space program, and possible implications for America’s space program.

China’s Plans for Space

* Space Station China plans to build a space station and a space laboratory before 2020.

* The Moon China has vague plans for putting a person on the moon by 2020, but plans are not yet official. The Economist cites Jiao Weixin of Peking University who “says China would not have the technical ability to put a man on the moon for another 20 years.” If China develops the capacity, that would put China’s moon arrival date around 2027. It appears somewhat odd to state it could take China so long to put someone on the moon, considering how they have rapidly accelerated their space program in the past five years.

Comparatively, NASA was founded in the US in 1958, conducted ASAT tests by 1959, had astronauts in space by 1962, landed “men on the moon” in 1969, and launched Skylab in 1973.

Today, China has access to superior technology than what the US possessed in the 1960s. If funding and bureaucratic will exists, I do not think it would be foolish to suggest the Chinese could feasibly reach their spaceflight goals ahead of schedule.

Assuming China’s progress tracks America’s historical progress (and it will by no means necessarily track similar milestones, for various reasons), China would be able to reach the moon eight years after China first launched manned spaceflight. That is, they could arrive by 2011-2012. No sources indicate the Chinese are attempting to achieve those dates. Still, a moon landing would be a dramatic accomplishment to highlight President Hu’s passing the baton of leadership at the 2012 Party Congress.

* Lunar Exploration

In 2007, as an intermediate step toward eventual human exploration of the moon, China sent a lunar probe. In 2009, China will send its second lunar probe, the Chang’e II. In 2012, China intends to land a moon rover vehicle. In 2017, China hopes to send a second moon rover that will land, collect soil samples, and then return to Earth (Xinhua).

Chinese Space Flight Timeline

October 2003, with the Shenzhou V’s successful journey, China became the third country to send a person into space with its own equipment.

October 2005, China sent two people into space for a five-day period on the Shenzhou VI.

January 2007, China conducted an Anti-Satellite ASAT test, becoming the third country to have successfully performed such a test (PINR).

October 24, 2007, China sent a lunar probe to the moon (Chang’e I).

Late September 2008, China will send three people into space on the Shenzhou VII. They will perform China’s first spacewalk (IHT).

How Much are the Chinese Spending?

 Estimates of Chinese space expenditures vary, but the World Security Institute posted an overview of amounts. Official statements indicate the Chinese spent about $120 million on the Shenzhou V program, and claimed space program  spending of $240 million a year; but those sums are almost certainly significantly underreported. More recently Chinese-government reported estimates appear to be closer to reality. China Daily, for example, claims $630 million will be invested in a new project to design a carrier rocket, the Long March V. Western reports suggest China’s annual space expenditures as between $1.2 to $3 billion, which would make Chinese space program spending comparable to Japan (~$2.1 billion) and Russia’s yearly expenditures (~$1.4 billion).

In 2005, the United States spent over $16 billion on government-sponsored space exploration, with $6 billion going toward space flight, $4 billion to the shuttle, and $500 million for flight support. (In 2007, NASA spent $16.8 billion, and in 2006 the European Space Administration spent over $4 billion.) NASA estimates the cost for “landing a crew on the Moon in 2020: [will be] $64 billion in FY2003 dollars. The $64 billion consists of $24 billion to build and operate the Crew Exploration Vehicle from FY2004-2020; plus $40 billion for the years 2011-2020 to build the lunar lander portion of that vehicle, a new launch vehicle, and operations. The $64 billion does not include the cost of robotic missions” (NASA, 4).

China is spending a good amount on space exploration, but it appears to be embarking on small practical steps rather than grandiose displays in development. China intends to perfect technology designed to traverse the lunar surface before it makes concrete plans to send human beings to the moon.

China probably could, through concerted funding and engineering, send a shuttle with humans to the moon by 2014-2017, since by then it should have a moon rover that can land and then return to Earth. However, plans appear directed toward developing technology to permit human landing on the moon for extended periods. Without development of a practical exploration vehicle, exploration of the moon might be too limited to justify significant expenditures.

For now, most of China’s space spending appears focused on satellites and spacecraft. China’s narrow focus might allow it to develop new programs much quicker. Still, without significant further investment, it is unlikely the Chinese will travel to the moon until after 2014 when resources can be refocused on exploration vehicles.

Consequences

* Chinese success in space flight, coming at a time when America is drawing back space exploration programs and entering into an antagonistic cycle vis-a-vis Russia might lead to postulations that America might buy astronaut flight time from the Chinese in order to fulfill American obligations toward the International Space Station. However, this probably will not happen.

Although the following is speculation of a space-wise layman, it appears that China’s space program will develop too slowly to present a complement or competitor to NASA in the crucial period, 2010 to 2014, when NASA might benefit from a strong Chinese space-partner.

* NASA’s current Shuttle will be retired by 2010 if current policies are continued. US cargo to the International Space Station (ISS) is expected to be transported by private companies after that date. These companies include Orbital Science and SpaceX (run by the founder of PayPa1). NASA also plans to close the gap of ISS supply by “buy[ing] roughly $700 million worth of [cargo] services from Russia through 2011″ (MSNBC). 

American astronauts could be transported to the ISS by the Russians. But, considering recent tensions, continued cooperation with a Russian space program might be unlikely.  And after 2011 when an agreement to purchase cargo from the Russians expires, NASA will likely be pressured to reach a politically safe solution to solve its cargo and astronaut supply problem.

Assuming that cargo ships are ready by delivery-date, which is by no means necessarily going to be achieved, cargo ships will be available in late 2010, early 2011. However, if the Shuttle is retired on schedule, astronauts will be unable to reach the ISS with American ships. As a stop-gap measure, astronauts might  be transported on SpaceX’s cargo ships, which are being designed to be “man-rated,” but which are as yet unproven.

* Although some hoped to have NASA’s new Orion class shuttles ready for service by late 2013; the project deadline is more likely to creep toward March 2015. That makes it even more imperative for NASA to close the shuttleless gap between 2010 and 2015.

* NASA is studying feasibility of extending the current shuttles’ lives until 2015. Extension of useful lives presents problems both practical as to the shuttle maintenance, and economic since NASA hopes to divert flight money to development of its Orion-class shuttles.

* Assuming private options fail to produce, NASA might be tempted to look to China to help it fly astronauts to the ISS. However, there are problems with this scenario. China is not a partner involved with the ISS. Indeed, that appears to be a reason for Chinese plans to create a uniquely Chinese satellite. And politically, the deal could be touchy. A China-partnership might be marginally more politically acceptable than a Russia-partnership, but still, China is occasionally lambasted by Congress over human rights issues, most recently for its treatment of the T1b33tan unrest. Thus, such a partnership with China would be wrought with uncertainty. More important, China currently lacks capacity to rent or sell passage on its ships. China has its spaceflight resources quite busy putting even one space flight up each year.

Chinese Future in Space

China’s current space funding is not significant enough to pull off a near-future manned trip to the moon, or launch of a space station any time soon. Still, if funds are discovered in China’s budget for exploration and development, China could probably beat the United States back to the moon. However, China seems dedicated to a slow but steady vision of gradually increasing funds and development of space exploration. After 2015, the US will have its new Orion craft, and the Chinese will be send a land and return rover to the moon. In 2019, the US will return to the moon. In 2021 or 2022, a Chinese taikonaut might follow soon thereafter.

Appendix

China National Space Administration (Click Here for English)

China’s Space Activities in 2006 (China government white paper) contains plans for the next 5-15 years and indepth discussion of China’s space achievements in fields such as satellites, and multilateral space-exploration agreements.

A powerpoint report by CRS (Congressional Research Services) on China’s Space Program.

NASA’s plan to get back to space and the moon (Popular Mechanics).

(added Sept. 26) TIME Magazine’s Sept 24th article on the Shenzhou VII.

12 September, 2008 Posted by | China Future, China Technology | , , , , , , | 1 Comment

China’s Free Trade

The Capitalistic country controlled by a Communist Party has free trade agreements with at least nine countries. Below, I give an updated view on current and potential trade agreements.

A more in-depth analysis of cost-benefits of said agreements will have to wait until a later post. If you can’t wait, check out W. McKibbin and Tingsong Jiang and the Brooking’s Institution who did a good study of the impact of current and future trade agreements. Their article was a basis for this one.

ASEAN
* Agreement on goods signed on 29 November 2004 for implementation in Jan 2005;
* Agreement on services signed in 14 January 2007 for implementation in July 2007;
* Agreement on investment under negotiation (McKibbin and Jiang believe this may be concluded by 2010. 10.) However, a more recent article (August 27, 2008) postulates the agreement may be signed as early as December 2008. 
* Phase-Out period for normal items ends for China and original ASEAN countries by 2010.
* Phase-Out period for sensitive items ends for China and original ASEAN countries by 2013.
* Phase-Out period for normal items ends for the newer ASEAN members (Cambodia, Laos, Myanmar, Vietnam.) by 2015.
* Phase-Out period for sensitive items ends for the newer ASEAN members (CLMV) by 2020.

* “According to ASEAN statistics, the trade value between the ASEAN and China increased from 59.6 billion U.S. dollars in 2003 to 171.1 billion U.S. dollars in 2007, growing at an annual rate of 30 percent” (Source).

Australia Under Negotiation
* The tenth round of negotiations was held on 22-26 October 2007.

Chile
* Agreement on goods was signed on 18 November 2005 “immediately removing all tariffs on 92 percent of Chile’s exports.”
* Agreement on services signed on April 13, 2008.
* Agreement on services goes into effect on January 1, 2009.
* “[B]ilateral trade soared 65 percent year on year to 14.7 billion U.S. dollars in 2007, up from the 23.9 annual growth of 2006. Last year, Chilean exports to China surged 79 percent to 10.3 billion U.S. dollars, boosted by copper and grape wine trade. Meanwhile, Chinese exports to Chile jumped 42 percent to 4.4 billion U.S. dollars with strong growth in computers and communications technology, electronic products and automobiles” (Xinhua).

East Asian Free Trade Area (of ASEAN+China, Japan, Korea) Under Negotiation
* The Brookings report believes this may be concluded for goods by 2015. 11.
* A services agreement may follow in 2017.
* An investments agreement may follow in 2020.

FTAAP (Free Trade Area of the Asia Pacific) Under Negotiation
* The Brookings Report (11) believes that this may happen for goods by 2025.
* Services by 2027
* Investments by 2030.

Gulf Cooperation Council Under Negotiation
* The third round of negotiations was held on 17-18 January 2006.
* A fourth negotiation meeting was held on 19-22 July 2006.

Iceland Under Negotiation
* A third round of negotiations was held on 17-18 October 2007.
* Fourth round: March 2008

New Zealand
* Agreement was signed on 7 April 2008. [Two-way trade between China and New Zealand currently is worth more than $6.1 billion a year, with Chinese exports making up about 75 percent. (IHT)]
* On October 1st, 2008 “tariffs on New Zealand’s exports to China that are currently set at 5 percent or less will be cut to zero” (IHT).
* “31 percent of New Zealand’s exports to China slated for tariff-free status by 2013″ (IHT).
* Dairy and almost all (96%) of NZ’s exports should be tariff-free by 2019.

Pakistan
* Agreement on goods signed on 24 November 2006;
* Went into effect on July 1, 2007 (People’s Daily).
* 36 percent of products will be tariff free by 2010.
* 85 percent of products will be tariff free by 2013, and Phase II begins, with a goal to reduce tariffs on 90 percent of goods.
* Agreement on services under negotiation (Brookings).
* The current agreement already covers investments (People’s Daily).
* “China-Pakistan trade volume exceeded 4.3 billion dollars in 2005, representing a year-on-year increase of 39 percent. The officials said the trade deal could triple bilateral trade to 15 billion dollars within five years” (People’s Daily).

Peru Under Negotiation
* The 2007 Joint-Feasibility Study.
* The second round of negotiations held on 3-7 March 2008.
* A third round was held in May 2008.
* The fifth round was held at the end of August 2008.
* On August 26th, Peru’s foreign minister of trade and tourism stated a belief that negotiations could conclude by November, 2008.

Singapore
* The first round negotiation was held on 26 October 2006. There were a total of eight rounds.
* On September 4, 2008, negotiations for a full free trade agreement including goods, services, and investments were concluded. The agreement should be signed by October 2008 (International Herald Tribune). [Bilateral trade between Singapore and China  was $63.83 billion, in 2007.]

Southern African Customs Union Under Negotiation
* Negotiation started on 29 June 2004

Feasibility Study
Costa Rica
* The 1st Joint Meeting was held on 9-11 January 2008

India
* The feasibility study on Regional Trade Agreement (RTA) concluded at the sixth meeting on 21-22 October 2007

Norway
* A feasibility study concluded on 13 December 2007

South Korea
* The 4th Joint Meeting was held on 18-20 Febuary 2008.
* December 2007 China Daily article.

Switzerland
* In July 2007, the countries agreed to study the feasibility of a free trade agreement.

From: Page 7 of Brookings report; originally People’s Republic of China Ministry of Commerce news releases; also edited and updated with data inter alia from the Brookings report and from various news sources from around the Internet.

Potential Free Trade Timeline
October 2008 – “[T]ariffs on New Zealand’s exports to China that are currently set at 5 percent or less will be cut to zero” (IHT).
October 2008 – Singapore-China Free Trade Agreement signed.
November 2008 – Peru-China Free Trade Agreement signed.
December 2008 – Agreement on investment with ASEAN signed.
January 2009 – Agreement on services with Chile goes into effect.
2010 – Phase-Out period for normal items ends for China and original ASEAN countries.
2010 – Pakistan: 36 percent of products will be tariff free.
2013 – Pakistan: 85 percent of products will be tariff free.
2013 – Phase-Out period for sensitive items ends for China and original ASEAN countries.
2013 – “31 percent of New Zealand’s exports to China slated for tariff-free status″ (IHT).
2015 – Phase-Out period for normal items ends for the newer ASEAN members (Cambodia, Laos, Myanmar, Vietnam.)
2015 – ASEAN single-market finally established.
2015 – East Asian Free Trade Area (ASEAN, Korea, China, Japan) for goods.
2017 – East Asian Free Trade Area (ASEAN, Korea, China, Japan) for services.
2019 – Dairy and almost all (96%) of New Zealand’s exports should be tariff-free by 2019.
2020 – East Asian Free Trade Area (ASEAN, Korea, China, Japan) for investments.
2020 – Phase-Out period for sensitive items ends for the newer ASEAN members (CLMV).
2025 – FTAAP for goods.
2027 – FTAAP for services.
2030 – FTAAP for investments.

8 September, 2008 Posted by | China Economy, China Future | , , , , | 4 Comments

China and Georgia

On 08/08/08, as the Olympics began, Russian tanks moved into Georgia’s breakaway provinces of Abkhazia and Southern Ossetia. China’s position on the Georgian situation is interesting to consider since China has several provinces that suffer ethnic unrest (re: T###bet and Xinjiang.) Even more important, China has a breakaway province it would like to recover- Taiwan. The aftermath of the Georgian situation could have harsh consequences for international law. China has a vested interest in opposing breakaway provinces, but it also has diplomatic interests with Russia. Below, I analyze why and how the Georgia situation may significantly affect Sino-Russian relations and China’s future foreign policy.

China’s Territorial Philosophy

Due to China’s territorial worries about T$$$bet, Xinjiang, Taiwan, and other minority-zones, it might be suspected, by a casual observer, that China would reflexively support Georgia taking a hard stance against Georgia’s breakaway provinces. However, the situation in Georgia is more complicated.

China could take the “obvious” route, and side with Georgia that the breakaway provinces should hold fast to the country. Since China has significant interest in a good relationship with Russia, perhaps the “obvious” route is to side with Russia? Or maybe China’s best decision is to try to maintain neutrality and let the problem resolve itself?

China’s Direct Foreign Policy

Prof. Robert Ross, who has written significantly about Chinese security, thinks the Chinese could support Russia if Russia’s plans are for eventual subsumation of Abkhazia and Southern Ossetia. China could base their support on old USSR claims of influence (Bloomberg).  If the provinces eventually join Russia, China’s claims on Taiwan could still be justified.

What if the provinces ultimately want real independence? Beijing might tacitly support Moscow if a back-door deal details a plan for the provinces to ultimately reunite with Russia (as S. Ossetia appears to be planning). But what if Russia’s recognition of Abkhazia and S. Ossetia’s independence is genuine? That sets a dangerous precedent for would-be breakaway provinces in China.

China has remained silent on the matter at the UN and on its Foreign Ministry website, merely calling for a “peaceful resolution.”

Hu Jintao and Putin met on August 9. The leaders could have discussed the developing Georgian situation, but press releases make no mention of that topic being discussed.

When the China-led Shanghai Cooperation Organization (SCO) met, Russia would have liked for SCO member-states to endorse the breakaway provinces. Instead, the SCO “called for respect for the concept of “territorial integrity,” which implies that the SCO opposes the provinces’ independence. However, the SCO may support the provinces’ eventual subsumation into Russia… Which may very well happen

China And Georgia- What You May Not Have Known

China and Georgia have a relatively “long” and apparently relatively stable history. On April 9, 1991, Georgia declared independence.  From 1992-1995, Civil War wreaked havoc in Georgia. China was one of the first countries to recognize Georgia’s independence. On “December 27, 1991, State Councilor and Foreign Minister Qian Qichen sent a message to Georgian Foreign Minister, informing him that the Chinese Government formally recognized the independence of the Republic of Georgia” (China Foreign Ministry).  In June 1992, diplomatic relations began between the nations.

Comparatively, Australia did not recognize Georgia as a country until March 29, 1992. Recognition by the United States came only in April 1992, despite Georgia sending delegations to the United States from as early as 1991.

China and Georgia Trade, Compared to China and Russia Trade

China has little economic interest in supporting the tiny Caucasus country. Although ties between China and Russia might strain over the Georgian situation, China is likely to ultimately bend toward support of Russia.

The volume of China-Georgia trade has been relatively inconsequential. “In 2001, bilateral trade volume between China and Georgia stood at US$7 million, of which China’s export was US$3.71 million and import US$3.29 million” (China Foreign Ministry).

“The trade volume between China and Georgia in 2002 amounted to US$11.51 million, of which China’s export was US$8 million and import US$3.51 million” (China Foreign Ministry).

Comparatively, Sino-Russia trade was $48 billion in 2007, up 44% from 2006 (HERE).

Alternatively: Additional information is in the following articles: A short (2 page) and balanced overview of strategic possibilities of the China-Russia relationship, given by a CSIS/Peterson Institute sponsored project; China and Russia: Partners with Tensions, by Nicklas Norling for the Silk Road Studies Program which gives a more indepth (16-page) view. Jamestown’s Russell Hsiao briefly discusses China and Russia’s military relationship (Interestingly, Hsiao notes a “62 percent drop in Russian arms sale to China last year”.) And finally, Xinhua’s take on the Sino-Russian relations (In May).

Norling’s piece had a provocative statement; “To put it bluntly, Russia needs China more than China needs Russia and Russia’s main problem in maneuvering the relation is its weakness not China’s strength. The only lever that Russia possesses over China is energy but it is reluctant in playing this card prematurely. This is why Russia delays pipelines, does not fulfill reached agreements, and is obstructive in its energy engagements with China” (Norling, 43).

 China’s Lessons

* China has an opportunity to flex its soft power, stepping in as a peacemaker and a deal maker, according to Huang Jing, a senior research fellow at the National University of Singapore’s East Asian Institute (HERE). Russia, however, seems to have blown China’s opportunity by recognizing the breakaway provinces. Will negotiations continue behind-the-scenes as China might encourage South Ossetia to be subsumed into Russia. Abkhazia, however, is a thornier issue. The Abkhazians seem to be enjoying their independence.

* China’s soft power may already be in full force. Russia’s ally Kazakhstan didn’t automatically recognize the breakaway regions and is instead calling for a multilateral solution. An article by Farkhad Sharip of the Jamestown Foundation wonders; “But would or would not Nazarbayev have bowed to pressure from Medvedev if it had not been for Chinese leader Hu Jintao who rejected outright Russian attempts to impose recognition of the separatist regions as independent territories?”

* China may be best served by neutrality. China stands to lose potential trade and access to energy resources if it opposes Russia. And China would gain relatively little from helping tiny US-ally Georgia, so it is unlikely China will push for the provinces to return to Georgia. But, by waiting, China can gain influence (IHT) in Central Asia (Financial Times) and elsewhere as planned foreign investments are diverted (WSJ) from Russia to a China that is willing to engage the world instead of to belligerently confront it.

* The situation is dangerous for China’s territorial ambitions. China may take Georgia’s ethnic unrest and splittism as a justification for acting even harsher to quell ethnic separatist dissent. This could lead to frentic pushes to bring Taiwan back and increase restrictions in T$$$bet and Xinjiang. According to Professor Robert Ross, “`the lesson for China in this is that we must be all-the-more sure that we control our ethnic groups’”  since the separatist conflict “‘is all the result of the inability of Russian leaders to control their country, and allowing ethnic divisions to dominate” (Bloomberg). 

Others believe the US’ lackluster defense of Georgia’s provinces could embolden China to push more against Taiwan, if China believes the military risks of intervention and “punishment” would be minimal.

* China must be watching Russia’s stock market, which took a tumble in the wake of Russia’s invasion of Georgia (Also). China values its economy and an unstable economy could lead to internal chaos. How Russian stocks rebound in coming months will certainly determine, to some degree, China’s risk-calculus in pushing against Taiwan. The less Russia is “punished” for its invasion, the less risk China will see in placing military pressure on Taiwan.

Conclusion

It is a little early to say which of “China’s Lessons” will become the most prevalent. I would like to review this situation again in a month. Preliminarily, I would postulate that China will try to leverage this situation into a soft-power net bonus, working behind-the-scenes to promote Russia subsuming the provinces and promoting themselves as a stable destination for investment. Please feel free to discuss what you think in the comments section.

Miscellania

* Foreign Policy wrote the MOST authoritative article explaining how the Georgia situation could backfire against Russia. Not all of its assertions may happen, but Foreign Policy compiles many thoughtful ideas. (Jamestown further examines the mystery of Belarus’ limited support for Russia’s actions, and the Financial Times discusses more.)

* An interesting article on Bloomberg about China’s reaction to the Georgia situation. Prof. Robert Ross is a prime source.

* The Jamestown Foundation has their own take on the lessons to be learned from the Georgia situation (Link added September 6th).

* Georgia’s lessons for Taiwan. (Link from Brookings added September 6th).

* US Dept. of State background notes on Georgia.

4 September, 2008 Posted by | China Diplomacy, China Future | , , , , | 3 Comments

China and the American Election

Previously, I’ve presented both John McCain and Barack Obama’s statements on China. However, with recent vice-presidential picks and developments, there is new information to be considered.

While both Presidential candidates have at times “talked tough” on China, it’s important to remember that traditionally much inflammatory campaign rhetoric has been just that, rhetoric. The China Backpedal of talking tough in the election campaign, then pursuing a conciliatory relationship once in office, is well-documented.

Ultimately, however, since you (the reader) also possess interest in China, I think it’s also useful to hear some of your responses on which president you think would be

(1) best for continuing peaceful relations, and/or (2) best for long-term strategy (from America’s point of view).

As you read the analysis, feel free to retort with your own opinions.

It appears John McCain’s past interest in free trade implies he would encourage a positive relationship between heavy trading partners America and China whilst preserving American economic strength and military investments in the Asian region.

McCain appears to have a balanced opinion in regards to China. He counseled Bush to “avoid confrontations” on his Beijing Olympics trip to China, saying that some of China’s actions are “also regrettable, but I don’t think China is regressing the way that Russia is. We have a greater opportunity to work in a cooperative way with China.” McCain “hopes Bush will tell the Chinese leadership that “we understand, as the [DL] does, that T$3b$t is part of China but we hope Tibetans are not repressed or oppressed.” Importantly, McCain met relatively recently with the D$$ai L$$a in Colorado (Washington Post).

McCain’s main foreign policy focus will be on Iraq and Iran. Being a military man, McCain doubtless realizes there is little to be gained by forcing America to further overextend forces to posture against China over issues that present relatively minor relationships to immediate American interests. On the negative side, it is possible the McCain presidency will continue the dubious Bush policy of benign neglect of ASEAN and South-East Asian relations, which would allow China to increase its influence in that region.

Running-mate Palin’s foreign policy experience is slighly less than Obama’s (she hasn’t yet visited Iraq or Europe on state-trips), and regrettably there are few easily located documents on any statements tied to her positions on China.

Ultimately, a McCain presidency appears to offer continued peaceful relations with China.

Barack Obama would be pressured by both his party [Nancy Pelosi is a noted China-basher] and his own conscience and campaign rhetoric to “get tough on China.” Obama has made several tough statements on how America is “shipping jobs overseas.” If he carries through with campaign promises, Obama might work to roll back certain aspects of China-trade, perhaps creating more jobs in the United States. If he succeeds, that would certainly harm US-China relations and raise prices of goods that were formerly cheaply made-in-China, or assembled therein. At a minimum, Obama might seek to set up administrative hurdles to US-China trade, as Experience Not Logic implies in its analysis of Obama’s acceptance speech and the Democratic primary debate.

Obama’s running-mate, Joe Biden, is even more negative on China trade, saying; “If I were president, I’d shut down any imports from China, period, in terms of their toys — flat shut it down. Imagine if this was Morocco selling us these toys, we would have shut it down a year ago.”

Despite Obama’s anti-trade rhetoric, one Chinese journalist believes that because much of Obama’s expert team consists of Clinton-era officials, his relationship will be pragmatic. Still, that same journalist believes “an Obama administration would put more pressure on China, even to the point of being more likely than the Bush administration to use the WTO to confront China in court on related issues.”

On the positive side with Obama, he will probably talk to Hu Jintao, and not overtly pressure China beyond token expressions of dissatisfaction. At least, talks will happen if Obama isn’t forced to burnish an image of diplomatic weakness, like former US President Kennedy needed to do in order to establish credibility. If Obama is perceived as “weak” after having unsuccessful talks with Iran or Syria or Hamas, then he will need to regain his political capital somehow– and that somehow could be through bashing Russia or China- traditional bugaboos.

It is a little uncertain to say what Obama’s ultimate China policy relationship will be, but it is promising to note his advisory staff contains several people who possess deep knowledge concerning China. (See Below)

Other Views on Obama’s China Policy:

http://www.mei-zhong.com/2008/06/what-china-thinks-of-obama-part-ii/

http://www.mei-zhong.com/2008/06/what-china-thinks-of-obama-part-iii/

http://www.barackobama.com/issues/foreignpolicy/

Joe Biden’s China Stances – at China Esquire.

Other Information on McCain’s Foreign Policy

McCain’s essay in Foreign Affairs.

McCain’s China positions at OnTheIssues.

Foreign Policy and China Teams:

The Foreign Policy Research Institute analyzed what a Democratic or a Republican majority in Congress and the White House might mean for US-China relations.

(added 10/5/08) Shen Dingli of Fudan University weighed in with his views on the candidates and China.

http://www.chinalawandbusiness.com/2008/06/24/mccain-and-obamas-china-and-asia-teams/ and HERE.

Obama certainly has the big names on his team, from Brooking’s Jeffery Bader to Richard Bush of Brookings; Ken Lieberthal, former NSC; Mike Lampton, SAIS; Evan Medeiros, RAND; Bob Kapp, former president of the US-China Business Council; Kevin Nealer, The Scowcroft Group; and Bob Suettinger, former NSC and CIA now consultant. Elizabeth Economy is also involved in Environmental issues.

McCain has former Deputy Secretary of State Rich Armitage, former Bush Administration defense, NSC and foreign policy officials Peter Rodman, Rick Williamson, Mike Green, the former NSC Senior Director for Asia, now at CSIS, and Dan Blumenthal, former DOD, now at AEI.

1 September, 2008 Posted by | China Future | , , , , , , , , | 4 Comments

   

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