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Security concerns are weakening China’s place in the world



Security concerns are weakening China’s place in the world


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Hello from Italy, where I am in quarantine for five days before visiting family. Rome is trying to keep in check the Delta variant of coronavirus that is threatening the economic recovery of many countries around Europe.

We’re not the only ones suffering from a lack of freedom as a result of the pandemic. Today’s main story looks at how Chinese outward investment has rapidly weakened, limited by increased scrutiny both at home and investment destinations. The trend is in stark contrast with expectations of a spending spree, with Chinese groups feasting on distressed companies in advanced economies. It bucks the strong rebound in global mergers and acquisitions too.

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The foreign, and homegrown, fears behind FDI’s fall

China’s role in global investment has diminished dramatically.

Its greenfield foreign projects in the 12 months to May almost halved compared with the previous 12 months.

Bar chart of 12 months to May, annual % change showing the number of China’s greenfield foreign investment projects plunged

This is much worse than the almost 30 per cent drop across the globe over the same time, with falls of about 25 per cent for the UK, the US and Europe’s leading economies.

The scale of the decline means Chinese companies dropped from being the sixth-biggest investors in greenfield projects to ninth place in the most recent 12 months, overtaken by Switzerland, the Netherlands and Spain.

Outbound Chinese mergers and acquisitions fell too. In the year to date, the number plunged 37 per cent compared with the same period in 2019, while the value of the deals stagnated.

Column chart of year to date, deal value ($bn) showing Chinese companies lag behind in the foreign M&A rebound

This is against a backdrop in which M&A activity has surprised many by picking up, pushing the value of deals to a multiyear high.

China was the only major global economy to expand last year. So what exactly is going on?

One part of the story is foreign governments’ security concerns.

The UK government, for instance, recently intervened on the acquisition of the country’s UK’s largest silicon wafer manufacturer. Canada and Australia blocked the takeover of two construction companies. And Italy and Germany vetoed a Chinese acquisition of a national semiconductor company and a satellite group respectively.

Tougher investment screening frameworks are already having an impact — including the UK National Security and Investment Act, which is set to officially become law later this year. “The UK Government is reserving the ability to call in for review, once the rules are operational, any deals that have completed since November 2020, when the bill was published by the UK government,” said Sunny Mann, partner at Baker McKenzie. “This has prompted a number of acquirers to already start filing their proposed investments voluntarily with the newly formed investment screening unit.”

The UK’s step follows similar laws in the EU and Australia. Earlier in the year, US president Joe Biden signed an executive order to prohibit investments in 59 Chinese companies on security grounds, including Huawei, the telecoms equipment manufacturer, and Semiconductor Manufacturing International Corporation, China’s largest chipmaker.

The trend is well recorded by the recent annual report by Unctad, which tracks global investment and counted 50 restrictive measures in 2020, against 21 in the previous year, largely “driven by national security concerns over FDI in sensitive industries”. Many were introduced by developed economies.

Column chart showing the number of global restrictive investment measures have jumped in 2020

But this is far from the only cause. There are factors closer to home too.

Thilo Hanemann, partner at Rhodium Group, a think-tank, said that while greater regulatory and political scrutiny abroad was a factor, “the fall of Chinese outbound investment since 2017 is largely a Chinese story”.

“Beijing reimposed capital controls as outflows grew too large for its comfort,” he said. The crackdown on large private conglomerates, such as Alibaba, tighter liquidity in the market, and concerns about access to sensitive personal data have become additional drivers in the past two years.

The US-China Investment Project, a think-tank, noted in a recent report that “throughout the pandemic, Beijing prioritized stability, refusing to loosen restrictions on outbound investment by private companies despite a massive trade surplus and upward pressure on its currency”.

“In China, the balance that leaders strike between domestic financial stability and openness to the outside world will shape the investment landscape,” the report said.

Deals so far this year are down more than four-fifths on the level seen in 2016. Hanemann said that a return to those high levels was “unlikely in the near future”.

Max J Zenglein, chief economist at Mercator Institute for China Studies, a think-tank, agreed that a pick-up was unlikely in the coming months. While the general interest in gaining access to foreign technology and securing market access had not changed, “the changing political circumstances require some adjustments”. As a result, he expected the structure of Chinese FDI would change, for example with more venture capital investments.

China could also see “more onshoring of critical technology and R&D” as “absorbing global value chains into China can be seen as a direct response to increased economic defence measures complicating Chinese investments abroad”, said Zenglein.

The trend towards shifting investment back home has been catalysed by the pandemic. In China, at least, we’re increasingly sure it will outlive it.

Trade links

Brussels has, somewhat unsurprisingly, said it will not renegotiate the Brexit deal. That refusal came after the UK’s Brexit minister Lord David Frost issued a paper calling for the so-called Northern Ireland protocol agreed with the EU in 2019 to be renegotiated. Philip Stephens thinks the Johnson government has acted in bad faith, taking a stance it knows the EU cannot accept.

Tesla has agreed to buy nickel for its batteries from BHP, the world’s largest miner, as it looks to lock up supplies of the metal not controlled by China.

Reuters reports that the meat industry is warning that UK supply chains are now at risk of failing due to pandemic-related labour shortages.

As Beijing and Moscow bolster diplomatic ties, the city of Blagoveshchensk on the Chinese-Russian border is pursuing a trade and tourism boost (Nikkei, $, subscription required). Taiwan Semiconductor Manufacturing Company, the world’s biggest made-to-order chipmaker, may put its first chip plant in Japan into operation as early as 2023 (Nikkei, $). The aim is for it to supply electronics group Sony.

The Peterson Institute for International Economics has an interesting critique of the International Trade Commission’s assessment of some of the agreements negotiated under the now expired Trade Promotion Authority. The assessment claims the US economy is 0.5 per cent bigger as a result of the deals. Claire Jones

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Wall St. Journal Columnist Too Easily Dismisses an Eastern-Led World Order



Wall St. Journal Columnist Too Easily Dismisses an Eastern-Led World Order
Chinese President Xi Jinping and Foreign Minister Wang Yi at the Great Hall of the People on November 1, 2018 in Beijing, China. Thomas Peter/Pool/Getty Images

In his latest broadside in the Wall Street Journal, Walter Russell Meade takes aim at a body that most Americans have never heard of – the Shanghai Cooperation Organization [SCO] — and its annual summit in Samarkand, Uzbekistan.

Mead’s core message seems to be twofold: first, “the Eurasian power balance is shifting,” he argues— that is to say, China’s support for its friend and fellow charter SCO member, Russia is waning. To illustrate this he draws a head-scratching comparison between Presidents XI and Putin on the one hand and Hitler and Mussolini on the other.  Second, he damns the SCO with faint praise, noting that with the addition of India and Pakistan “the organization has become more significant”; but proceeding then to suggest why the opposite is the case: “Russia, China and Iran seek a new global system but propose no positive agenda.”

There follows a checklist of current crises across the extended SCO region that, for Mead, illustrate the SCO’s relevance vacuum: the “humanitarian nightmare” of Afghanistan (and at whose feet do we lay that?); the disastrous floods in Pakistan; food and energy deprivation “from Turkey to Kazakhstan,” collateral victims of US and EU-imposed sanctions on Russia.  This incongruous balance of natural disaster and Russian culpability  as somehow the fault of SCO is followed by a swipe at China, whose “saber rattling over Taiwan has galvanized a stronger alliance against it.” Does he mean NATO? On a recent trip to northern Europe I heard rumblings of intra-alliance discord over future conflict with China.

Mead’s central argument is that SCO’s agenda is clumsy and insubstantial: in a rather weak final paragraph he sums up the Samarkand summit thus: “If SCO nations seriously want a new international system, they will have to do better than this.”   This makes one wonder if Mead actually read, for instance, President  Xi’s keynote address to the summit.  In addition to some broad general principles: “consultation and cooperation for shared benefit”; “consensus-based decision making”; “commitment to the purposes and principles of the UN charter” and the like, the Chinese leader outlined specific SCO measures, ongoing or planned: joint anti-terrorism exercises; China’s commitment to train 2000 law-enforcement personnel in fellow SCO countries on counter-terrorism, drug and human trafficking; an SCO-Afghan contact group to address humanitarian needs, and pledging 1.5 billion remnimbi ($215 million) in emergency assistance; a regional development initiative and a five-year Treaty of Cooperation on trade and investment, infrastructure building and scientific/technical innovation; and a series of SCO forums on poverty reduction and sustainable development.  Finally, he proposed a series of “people to people and cultural exchanges on education, health, and science and technology.”

Lest all this be dismissed as cavalierly as Mead intends, let us remember that: SCO is the world’s largest regional organization, whose eight permanent members, including Russia, China and India, with Iran and Turkey in the wings, represent 40% of the world’s population over an area 60% of global geography and with 30% of global GDP.  While there are intra-group tensions, it is a forum for historic rival members such as Armenia and Uzbekistan, India and Pakistan, Iran and Saudi Arabia.  To quote Churchill: better to jaw-jaw than war-war.

In February 2010 I wrote an article on the SCO. I cautioned against dismissing the organization: “The conclusion is that the SCO, far from an empty vessel, is a regional force to be reckoned with … a neighborhood watch over some of the world’s most insecure places.”  Twelve years and several influential new members on, this seems all the more obvious.  One wonders if the reference in Walter Russell Mead’s title to “disrupting the world order” stems from an indignation over an institution that reflects a new world order and operates independently of the West?


David C. Speedie, a board member of ACURA, was the former chair on International Peace and Security at Carnegie Corporation.

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What Xi Jinping’s Travel Plans Say About China’s Strategic Priorities



What Xi Jinping’s Travel Plans Say About China’s Strategic Priorities
Chinese President Xi Jinping and Foreign Minister Wang Yi at the Great Hall of the People on November 1, 2018 in Beijing, China. Thomas Peter/Pool/Getty Images

Predicting the overseas travel plans of Chinese President Xi Jinping has become something of a parlor game for journalists and foreign policy observers. Xi has not left China since the COVID-19 pandemic began, and the destination of his first post-pandemic trip – and who he meets – will speak volumes about China’s strategic priorities.  

In the Middle East, anticipation was high after The Guardian reported on August 11 that Xi was going to visit Saudi Arabia during the week of August 15. The week came and went, and no trip happened. And while close observers of China’s political cycle were skeptical of the Saudi visit claim, the Middle East remains high on Xi’s overseas agenda. 

For people who understand China’s political cycle, a foreign trip by the Chinese leader in the middle of August was usually unthinkable. The rumored Saudi visit would have  collided with the annual August retreat to Beidaihe, where major Party policy decisions and key appointments are made. Missing that would not have been politically viable.  

And this year is particularly special. The 20th Party Congress of the Chinese Communist Party is scheduled for October 16 , where Xi is expected to break from tradition and secure a third five-year-term in office. In China, domestic politics trumps all and securing political support at home remains Xi’s top priority. 

None of this suggests that Xi isn’t planning to board the plane soon and rejoin the in-person summit circuit. At least two trips are apparently in the works. First, Xi will likely visit Central Asia in mid-September for the Shanghai Cooperation Organization (SCO) summit. Second, Xi is almost certain to travel to Indonesia in mid-November for the G-20, where he could meet with US President Joe Biden (details are currently being negotiated). 

Assuming these two trips do happen, each will carry strategic significance for China. The SCO summit, and an expected sit-down with Russian President Vladimir Putin, would signal stronger alignment with and greater support from Russia for  the upcoming Party Congress. Meanwhile, the G-20 summit, and a face-to-face meeting with Biden, would be used by Beijing to underline Washington’s acceptance of Xi’s third term.

The Middle East, and Saudi Arabia in particular, remain important to China in terms of energy security and for furthering the displacement of American influence in the region. But at this moment in China’s domestic political cycle, the Middle East doesn’t carry the same weight as Russia or the US. That’s why most of the Xi travel speculation is centered on potential talks with Biden and Putin

So, when will the Middle East roll out the red carpet for Xi? The most likely occasion will be the planned Arab-China summit, scheduled to be held in Saudi Arabia late this year or early next. Officials have been foreshadowing this trip for months, and given the buildup, it’s unlikely Xi would change course and cancel the event. Beijing could still make the summit virtual, but that would not be satisfying for the region, or for China. As such, a physical visit to the Middle East by Xi can be expected in late 2022 or early 2023. 

The bottom line is that while the Middle East is not likely to be Xi’s first port of call after his self-imposed travel quarantine, it would be inconceivable for the Chinese president to give the region a pass entirely. After all, China’s other top leaders have been keeping the summit couches warm in recent months. In 2021, the Middle East received more visits from Chinese leaders than any other region in the world, including three trips to 11 countries by Politburo member Yang Jiechi and Foreign Minister Wang Yi. 

President Xi also hosted the Egyptian president, the Emir of Qatar, and the Crown Prince of Abu Dhabi during the Beijing Winter Olympics. 

There are two main reasons why China wants to keep the Middle East close. The first is a shared interest in transitioning from fossil fuels. As addressing climate change and achieving carbon neutrality become increasingly pressing concerns, both sides need each other to achieve their energy goals. China requires oil and gas from the Middle East to buttress its green-energy ambitions, and the Middle East needs China as a stable and reliable customer amid market contraction. China is also an important supplier of wind and solar technology to the region.

Second, and perhaps to the dismay of the West, China and many Middle Eastern countries are aligning on political values and domestic politics. The alignment has become so strong that the Uyghur issue, a human-rights imperative for the West, no longer poses an obstacle to the development of China’s ties with Islamic countries. 

Although Xi didn’t visit Saudi Arabia in August, the Middle East still matters to China; its strategic interests in the region will only accelerate in 2023. As an emergent superpower, China has a growing list of overseas goals, and achieving them will require many conversations around the table.

Syndication Bureau_____________________

Yun Sun is director of the China program and co-director of the East Asia program at the Stimson Center in Washington, DC.

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China Suggests How Russia and Ukraine Can Make Peace



China Suggests How Russia and Ukraine Can Make Peace
Zhang Jun, permanent representative of China to the United Nations speaks on the Russia-Ukraine conflict at the General Assembly emergency special session in New York, on February 28, 2022. Li Muzi/Xinhua/Getty Images

Dialogue is the key solution to tensions between the two nations, Beijing claims.

Moscow and Kiev’s top officials must sit down at the negotiating table to establish a path to de-escalating aggression, one of Beijing’s top diplomats has said, as Russia’s armed forces continue to attack Ukraine.

Speaking on Monday at an emergency session, China’s permanent representative to the UN, Zhang Jun weighed in on how he believed tensions between the two former Soviet Republics could be eased.

“The most important thing right now is to return to the track of diplomatic negotiations and [create] a political settlement as soon as possible to help de-escalate the situation,” he claimed.

According to the diplomat, “China supports direct dialogue and negotiation between Russia and Ukraine,” which he insists is the definitive way to resolve the conflict. Zhang also said that the international community should “prioritize regional peace, stability and the universal security for all.”

His remarks come after Russian President Vladimir Putin ordered military action against Ukraine last Thursday. It followed just hours after the leaders of the recently recognized breakaway Donetsk and Lugansk People’s Republics appealed to the Kremlin for assistance in relation to what they believed was a spike in “aggression” from Kiev.

Putin insisted that the offensive aims to “demilitarize” the country and rid it of “Nazi” elements. Shortly after the Russian president’s televised address, a series of explosions hit strategic military installations and airfields in Ukraine.

Several blasts have been reported across the country since, with footage circulating online purporting to show a large explosion at Kharkov’s government regional headquarters on Tuesday. A number of commentors online claim that it is the result of a Russian strike, while others argue that the missile came from Ukraine’s armed forces.

Beijing has previously blamed the US for inflaming the hostilities which led to Moscow’s incursion into its neighbor. Speaking last Thursday, China’s Foreign Ministry spokeswoman Hua Chunying dubbed Washington’s officials as “the [main] culprit of current tensions.”

“If someone keeps pouring oil on the flames while accusing others of not doing their best to put out the fire, such kind of behavior is clearly irresponsible and immoral,” Hua claimed.

Last month, Putin and his Chinese counterpart Xi Jinping issued a joint declaration calling for a halt to NATO expansion, which Moscow is vehemently opposed to and has tried to rule out through obtaining security guarantees from the US-led military bloc.

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International Officials, Fearing The Worst, Press For Proof China Tennis Star Is Safe



International Officials, Fearing The Worst, Press For Proof China Tennis Star Is Safe
Peng Shuai. UPI/Shutterstock/Monika Graff

International officials and supporters continue to desperately press for proof that China’s popular tennis superstar Peng Shuai is safe after she dropped from sight early this month when she accused a former member of the Chinese government of sexual assault.

The fear is that a high-profile sports star is being held against her will by the government for speaking out about an assault by a powerful man.

A brief video of a woman who appeared to be Peng released Saturday by China was insufficient to alleviate fears about her safety, said the head of the Women’s Tennis Association. Chinese state media has since released a new series of short videos showing Peng at a tennis event, but with similarly little clarity on Peng’s wellbeing.

“It remains unclear if she is free and able to make decisions and take actions on her own without coercion or external interference,” WTA CEO Steve Simon said in a statement.

The United Nations on Friday called for proof of Peng’s whereabouts, and the WTA is threatening to cut ties with the nation.

White House Press Secretary Jen Psaki said Friday that the Biden administration is “deeply concerned” about Peng.

Serena Williams joined other international tennis stars on Thursday to speak out for her.

“I hope she is safe,” Williams wrote on Twitter. “This must be investigated and we must not stay silent.”

Peng accused former Vice Premier Zhang Gaoli of forcing her into sex at his home, according to screenshots of a since-deleted social media post from Nov. 2. The post was deleted by Chinese censors within 30 minutes of its posting. Peng dropped from sight the same day.

The Chinese government has yet to even acknowledge publicly that the accusations were made.

Earlier this week, the Chinese state broadcaster released a highly suspect email, purportedly sent to Simon from Peng, which walked back her allegations.

UN Human Rights spokesperson Liz Throssell told reporters Friday that it’s “important to have proof of [Peng’s] whereabouts and wellbeing — and we would urge that there be an investigation with full transparency into her allegations of sexual assault.”

WTA’s Simon told CNN Thursday that he is prepared to forego hundreds of millions of dollars in business in China if Peng is not fully accounted for and her allegations are not investigated.

The Chinese Tennis Association has insisted to WTA officials that Peng is unharmed, according to Simon. But it has been impossible to reach her, he noted.

Simon believes the email revealed on state TV was fake. He called it a “staged statement of some type,” and told CNN that he hadn’t received any reply from Peng after immediately writing back to the email address.

The email “only raises my concerns as to her safety and whereabouts,” Simon said in a statement. “I have a hard time believing that Peng Shuai actually wrote the email we received or believes what is being attributed to her … we won’t be comfortable until we have a chance to speak with her.”

A journalist for the state broadcaster on Friday also shared photos of Peng that she had ostensibly posted on a social media, but that could not immediately be confirmed.

The scandal could have serious repercussions for China, which is set to host the 2022 Winter Olympics in February. There was already talk of a boycott due to China’s human rights abuses.

Source: Huffington

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China signals that crackdown on privacy, data, anti-trust to go on



China signals that crackdown on privacy, data, anti-trust to go on
Chinese President Xi Jinping stands by national flags in Berlin on March 28, 2014. Johannes Eisel/AFP/Getty Images

China will draft new laws on national security, technology innovation, monopolies and education, as well as in areas involving foreigners, the national leadership said in a document published late on Wednesday (Aug 11).

The announcement signals that a crackdown on industry with regard to privacy, data management, anti-trust, and other issues will persist on through the year.

The Chinese Communist Party and the government said in a blueprint for the five years to 2025, published by the state-run Xinhua news agency, that they would also improve legislation around public health by amending the infectious disease law and the “frontier health and quarantine law”.

China is working for a return to normal after the coronavirus pandemic, which emerged in its Wuhan city in late 2019.

Regulations dealing with food and medicine, natural resources, industrial safety production, urban governance, transport, would also be strictly enforced, they said.

Authorities will aim to develop laws consistent with new sectors such as the digital economy, internet finance, artificial intelligence, big data, cloud computing, they said, adding that they would also improve the response to emergencies.

They additionally laid out directives for the prevention and resolution of social conflicts and reiterated an order for officials to “nip conflicts in the bud”.

Better legislation for areas including education, race and religion and biosecurity was also on the cards, they said.

The government has in recent months reined in tech giants with anti-monopoly or data security rules and clamped down on tutoring companies, as the state increases its control of the economy and society.

On Thursday, state-media outlet, the Securities Times reported that banking regulators would step up scrutiny of online insurance companies in an effort to “purify the market environment” and “protect the legal interests of consumers”.

Authorities used a law aimed at responding to foreign sanctions for the first time last month to sanction former US Commerce Secretary Wilbur Ross and imposed a national security law on the special region of Hong Kong last year, employing legal means to protect interests beyond the mainland border.

The party and the government also asserted that a “rule of law government” must follow the leadership of the party.

President Xi Jinping has made “rule of law governance” a signature of his rule, which will be extended if, as expected, he seeks a third term next year. Reuters/ng

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Xi Jinping visits Tibet for first time since becoming president



Xi Jinping visits Tibet for first time since becoming president

Xi Jinping has made his first visit to Tibet since becoming China’s president in 2013, amid criticism from human rights groups of his hardline ethnic assimilation policies in the region.

Chinese state media said on Friday that Xi arrived in Nyingchi, a town near the contested border with India’s Arunachal Pradesh state, on Wednesday, before travelling by train to Lhasa, Tibet’s capital.

The ruling Chinese Communist party has come under renewed scrutiny over what human rights groups say is a nationwide effort to force ethnic minorities to be loyal to Beijing and adopt Chinese culture and language.

The party says its policies in border regions such as Xinjiang and Tibet promote “ethnic unity” and are necessary to fight “separatism, extremism and terrorism”. But humans rights activists argue that they trample on religious and cultural freedoms.

Chinese authorities shut down Lhasa’s Sengdruk Taktse middle school, a privately run Tibetan-language institution, this month, advising students to enrol in government institutions, according to a report by Free Tibet, a London-based advocacy group.

John Jones, a Free Tibet campaigner, said the closure demonstrated how “every facet of Tibetans’ identity — the right of Tibetans to control their language, land and religion — is under attack”.

It is not unusual for state media to avoid advertising Xi’s movements ahead of time but the level of secrecy surrounding his Tibet trip suggested that “Chinese authorities do not have confidence in their legitimacy among the Tibetan people”, according to the International Campaign for Tibet, a Washington-based advocacy group.

Xi arrived in the region shortly after the 70th anniversary of a controversial agreement in May 1951 between the Communist party and the Dalai Lama, the spiritual and then political leader of Tibet. The party considers the date as the region’s “peaceful liberation”.

The Dalai Lama fled China in 1959 after a failed uprising against party rule. Beijing has viewed the 86-year-old spiritual leader as a dangerous separatist and has largely refused to engage in talks with the India-based Tibetan government-in-exile.

Tenzin Lekshay, director at the policy institute of the Tibetan government-in-exile, said on Twitter it was “high time for [Xi] to understand the true aspiration of Tibetan people and resume the dialogue to resolve the Sino-Tibetan conflict”.

Xi’s visit comes as India and China have been locked in a stand-off near their border in Ladakh, following a clash that killed 21 Indian soldiers and at least four Chinese fighters last summer.

Both countries have tens of thousands of troops and heavy military equipment stationed in the mountainous region that was previously a lightly manned area guarded by occasional patrols.

The countries have held 11 rounds of talks but have failed to agree on military disengagement.

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