China Direct

China's response to the U.S. Trade War - CLM

 

China’s leadership has managed well in adjusting to the trade and technology restrictions imposed by successive U.S. administrations. Trump’s tariffs did not achieve the objective of reducing the bilateral trade deficit, but they did lower China’s share of U.S. trade. If the intention was to weaken China economically, however, this has not yet happened.

The combination of pandemic-related global demand for China’s manufactured goods and China’s success in developing alternative markets minimized the negative consequences of the trade war. Any reduction in China’s “direct” exports to the United States has been offset by increased “indirect” exports from other countries.

Meanwhile, China’s share of global exports hit record highs and its imports as a share of GDP declined steadily. The world has become more dependent on China, while China has become less dependent on the world. If Biden’s intention is to focus more on security concerns by limiting China’s technological progress and diversifying supply options, the cost is likely to be substantial in the form of inflationary pressures, production inefficiencies, and damaged global growth prospects. U.S. politicians, however, have strongly supported these punitive measures since the benefits from appearing to be tough on China resonate well with voters. For Beijing, the major challenge now is to develop alternative export markets and to become more technologically self-sufficient.

To read the full article please click here. Our thanks to the China Leadership Monitor and the authors, Yukon Huang and Genevieve Slosberg, for kindly sharing these insights.

Nanometres over GDP - Can China's technocrat leaders improve industrial policy?

Space is the final frontier, it is also a revolving door in Chinese politics these days. Of the 205 full members of the Chinese Communist Party (CCP) 20th Central Committee (CC), ten are aerospace industry veterans, some of whom ran major projects like the Chang’e Lunar Program.

Pride over China’s successful space program is effusive in official media. With intensifying technology competition between China and the United States, Beijing can easily tout tangible products like trains, rockets, commercial jets, and its space station as “wins” for technological self-sufficiency.

Such emphasis on technology self-sufficiency is not only manifest in the rise of this “aerospace cabal.” It is also reflected in the broader resurgence of technocrats in the top echelon of Chinese politics, as our previous analysis highlighted.

The numbers make clear that technocrats did quite well in getting promoted or retaining their seats in the 20th Party Congress political transition. Of the 205 full members of the 20th CC, more than a third (69) are STEM technocrats, a 35% increase from the 19th CC. Even at the Politburo level, 8 of the 24 members are technocrats, a doubling from the 19th Politburo.

Among this cohort of technocrats is a notable provincial bias: the majority are running provinces instead of central ministries. In fact, 36 technocrats in the 20th CC are leading provinces, compared to just 20 in the 19th CC (see Figure 1). The logic here seems to be that placing leaders with technical expertise, instead of your average politician, in provincial roles will improve the odds of ameliorating technological deficiencies vital to China’s national security.

To read the full analysis please click here.

Our thanks to the team at Macro Polo for sharing these insights.

Dates for Diaries: 01 June - US-China & S Korea CSIS

Join the CSIS for an in-depth conversation on U.S.-China competition and what that means for Korea with Robert D. Atkinson, president of the Information Technology and Innovation Foundation, recognized as the world’s top think tank for science and technology policy.

Dr. Atkinson is an internationally recognized scholar and a widely published author whom The New Republic has named one of the “three most important thinkers about innovation,” Washingtonian Magazine has called a “tech titan,” Government Technology Magazine has judged to be one of the 25 top “doers, dreamers and drivers of information technology,” and the Wharton Business School has given the “Wharton Infosys Business Transformation Award.”

To find out timings on 01 June in your time zone and to join please click on the link here.

Our sincere thanks to the CSIS for kindly sharing this information.

Frozen Frontiers - China & The Polar Regions

China’s Great Power Ambitions in the Polar Regions

 

China’s pursuit of great power status is drawing it to the frozen reaches of the world’s polar regions. In both the Arctic and Antarctic, China has undertaken ambitious expeditions and developed world-class research facilities. These investments have elevated China’s voice in polar affairs and afforded it an opportunity to shape the emerging geopolitical landscape.

Its growing physical footprint in the world’s most remote frontiers also serves to advance China’s broader strategic and military interests. To access the Report please click here. Our sincere thanks to the CSIS for kindly sharing this digital report.

 

Date for diaries: Enjoying jet lag: Resuming In-person travel & US-China Relations - 17 April 2023 CSIS

Please join the Trustee Chair in Chinese Business & Economics for a discussion on the role of in-person travel and direct communication in increasing mutual understanding and stabilizing U.S.-China relations.

Trustee Chair Scott Kennedy and Peking University Professor Wang Jisi, Founding President of Peking University's Institute of International and Strategic Studies (IISS) and one of China’s leading authorities on U.S.-China relations, will first summarize their new report, Breaking the Ice: The Role of Scholarly Exchange in Stabilizing U.S.-China Relations. The report summarizes their trips to the U.S. and China during the pandemic and offers policy recommendations on how t to revitalize ties between the two societies. 

John L. Holden, Trustee Chair Senior Associate (Non-resident) and Managing Director and head of China practice at McLarty Associates, will serve as host and moderate a discussion about these issues with the co-authors as well as three veteran experts with deep experience on U.S.-China relations: Susan Shirk of the 21st Century China Center at UC San Diego, Jia Qingguo of Peking University, and Paul Triolo of Albright Stonebridge Group.  

This report is made possible by generous support from the Henry Luce Foundation. 

To join this event live from 0800-0930 (Washington DC) on 17th April please click on the link here.

Our thanks to the CSIS for sharing this event.

Battery Battles - US EV strategy - Macro Polo

US favours securing EV supply chains over subsidizing consumers

Given the blowback from US allies on the Inflation Reduction Act’s (IRA) Clean Vehicle Credit, the US Treasury Department has responded by amending some sourcing requirements. If these changes are implemented as planned in March, they will modestly ameliorate allies’ concerns by allowing “friend-shoring” of certain parts of the electric vehicle (EV) battery supply chain. But the changes won’t make it much easier for EV manufacturers to qualify for the full $7,500 EV tax credits.

So when it comes to the competing goals of securing a domestic EV supply chain versus consumer subsidies to accelerate EV adoption, as highlighted in our previous analysis, the US administration appears to have made its choice in prioritizing supply chains over faster adoption.

In fact, the IRA’s subsidy scheme is similar to China’s that once excluded those EVs with foreign batteries from qualifying for subsidies. The main difference, of course, was that China already had its own domestic battery manufacturers.

Full analysis can be accessed here.

Our thanks to Macro Polo for kindly making this insight available.

China's political-economy, foreign and security policy 2023 - Asia Society

Introduction

It has now been three months since the 20th Party Congress convened in Beijing on October 15. While the Congress set Xi Jinping’s ideological, strategic, and economic direction for the next five years, much has happened since then that the Chinese leadership did not anticipate.

Principal among these surprises was the spontaneous eruption in late November of public protests across multiple Chinese cities against the economic and social impact of the Chinese Communist Party’s “dynamic zero-COVID” policy. These protests resulted in an unprecedented U-turn on December 8 from China’s relentless pursuit of its three-year-long national pandemic containment strategy to the Party now seeking desperately to restore economic growth and social calm. This shift has in turn generated major public pressures on the Chinese health system as hospitals struggle to cope with surging caseloads and mortalities.

All of these developments stand in stark contrast to the political, ideological, and nationalist self-confidence on display at the 20th Party Congress.

In October, Xi Jinping swept the board by removing any would-be opponents from the Politburo and replacing them with long-standing personal loyalists. Xi also proclaimed China’s total victory over COVID-19, contrasting the Party’s success with the disarray its propaganda apparatus had depicted across the United States and the collective West.

Despite faltering economic growth, Xi had doubled down in his embrace of a new, more Marxist approach to economic policy which prioritized planning over the market, national self-sufficiency over global economic integration, the centrality of the public sector over private enterprise, and a new approach to wealth distribution under the rubric of the Common Prosperity doctrine. At the same time, Xi’s 2022 Work Report, delivered at the Congress, abandoned Deng Xiaoping’s long-standing foreign policy framework that “peace and development are the principal themes of the time” and instead warned of growing strategic threats and the need for the military to be prepared for war.

As part of a continuing series on China’s evolving political economy and foreign policy, this paper’s purpose is threefold: to examine the political and economic implications of this dramatic change in China’s COVID-19 strategy; to analyze what, if any, impact it may have on China’s current international posture; and to assess whether this represents a significant departure from the Party’s strategic direction set at the 20th Party Congress last October.

The paper concludes that the Party changed course on COVID-19 for two reasons: (1) it feared that not doing so would threaten its unofficial social contract with the Chinese people based on long-term improvements in jobs and living standards; and (2) that a structural slowdown in growth could also undermine China’s long-term strategic competition against the United States.

This paper also concludes that the stark nature of the December 8 policy backflip, together with the Chinese health system’s lack of preparedness for it, has dented Xi Jinping’s political armour for the medium term. This setback comes on top of internal criticism of Xi’s broader ideological assault on the Deng-Jiang-Hu historical economic growth formula that Xi has prosecuted since 2017, as well as Xi’s departure from Deng’s less confrontational foreign policy posture that characterized previous decades.

Nonetheless, these policy errors remain manageable within Chinese elite politics, where Xi still controls the hard levers of power. Furthermore, many of these changes on both the economy and external policy are more likely to be short-to-medium term and therefore tactical in nature, rather than representing a strategic departure from the deep ideological direction laid out for the long-term in Xi’s October 2022 Work Report. While these changes to current economic and foreign policy settings are significant in their own right, there is no evidence to date that Xi Jinping’s ideological fundamentals have changed.

To read the full policy paper please click here.

Our thanks to the Asia Society Policy Institute for sharing the paper.

A roadmap for US-China Relations in 2023 - Ryan Hass

China’s leaders confront mounting domestic social, economic, and public health-related stresses in 2023. If past is prologue, it is reasonable to expect China’s leaders will respond by seeking to calm their external environment to concentrate on challenges at home.

To help counter scrutiny of their domestic governance record, they will want to present an image to their people of being afforded dignity and respect abroad. Nowhere will such symbolism matter more than in the U.S.-China context. How China’s leaders are seen to be managing relations with the United States often is a factor in how their performance is perceived at home.

Even as the broadly competitive framework of the U.S.-China relationship is unlikely to change, opportunities may emerge for the United States to advance discrete affirmative priorities with China in the year ahead.

To read all of Ryan Hass's commentary 'Order from Chaos' kindly click on this link at the Brookings Institute.

Our sincere thanks to the Brookings Institute and Ryan Hass for kindly making this commentary available.

 

US economic strategy towards China takes shape - CSIS commentary

In a new commentary, Matthew P. Goodman writes that the Biden administration's China economic strategy is broadly sound but requires a few changes to persuade domestic stakeholders, foreign partners, and Beijing itself that the administration is serious about balancing competition and engagement and advancing shared interests.

With our sincere thanks to the Centre for Strategic and International Studies for kindly sharing this commentary.

US-China Tech War - implications for Industry, allies & partners - MERICS

Industry, allies and partners face tough choices as US-China tech war escalates

New US controls on high-tech exports to China could be the beginning of two entirely separate semiconductor ecosystems, say Rebecca Arcesati and Antonia Hmaidi.

The US has launched the most sweeping restrictions on technology flows to China since the Cold War. New export controls are meant to stop companies American and foreign from supplying Chinese entities with high-end chips and the tools, technology and software to design and produce them. The measures take aim at graphic processing units (GPU) and other chips for supercomputing and artificial intelligence (AI). They are meant to cripple China’s ability not only to obtain modern semiconductors, but also the machines and talent to make its own. As US National Security Advisor Jake Sullivan said, Washington now aims to “maintain as large of a lead as possible” in foundational technologies like AI. The ramifications will be profound.

Please access the full article here.

Our sincere thanks to Rebecca Arcesati and Antonia Hmaidi at the MERICS/Mercator Institute for China Studies for kindly sharing this analysis.