War or Peace in the South China Sea?

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Last week, Taiwan’s president Ma Ying-jeou made a visit to Itu Aba, a disputed island in the South China Sea. Itu Aba, also known in Chinese as “Taiping Island,” is under Taiwan’s control. Taiwan has recently finished upgrading a port and built a lighthouse. The island has an airstrip and a hospital.

MaYingjeouTaipingWhile Washington considers the visit “extremely unhelpful” to regional stability, many in China applaud it. The rational is that Taiwan shares China’s claims in the South China Sea. Since Taiwan is part of China, Ma’s assertion proves that the South China Sea is part of China’s territory.

On WeChat, China’s most popular social media site, people cited Ma’s speech on Itu Aba that Spratly Islands were originally discovered by their fore-bearers during the Han Dynasty (200 BC). At least during the Qing Emperor Kangxi’s time (around 1700), China had officially incorporated most islands and reefs into China’s coastal defense system.

After WWII, the U.S. sent Chiang Kai-shek-led Chinese troops to take over Itu Aba from the Japanese. In 1947, Chiang Kai-shek, China’s then president, issued maps with eleven dotted lines that included virtually all of the islands in the South China Sea. Continue reading

Xi Jinping’s Mideast Trip to Push “One Belt One Road”

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The Chinese president Xi Jinping has recently completed a three-nation tour in the Middle East – Saudi Arabia, Egypt, and Iran, offering tens of billions in loans and investments. These three countries are strategically located on the routes of the new silk roads that China is trying to revive, also known as “One Belt, One Road.”

MiddleEastMapAccording to a Reuters article, Iran’s supreme leader Ayatollah Ali Khamenei told President Xi Jinping during the visit that “Iranians never trusted the West…. That’s why Tehran seeks cooperation with more independent countries” (like China).

Xi certainly wants to cash in on this distrust. The two countries agreed to increase bilateral trade to $600 billion in the next 10 years. Among many agreements signed are 17 memorandums to kick-start “a maritime Silk Road of the 21st century,” one of the two routes of the “One Belt, One Road” program. Continue reading

Reports of the Chinese Economy’s Death Have Been Greatly Exaggerated

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I was baffled by why some people think a 6.9% growth for a $10 trillion economy is such bad news. The headlines were occupied by China’s economic slowdown, and what a catastrophe it might bring to the world.

quote-Mark-Twain-the-reports-of-my-death-have-been-88406To me, slower growth is long expected. It means that the Chinese economy is maturing. Even when I interviewed people in China about 10 years ago, no one had any illusion that the Chinese economy would continue its breakneck speed forever. “At some point,” many told me, “the economy will slow down.”

Now we are at that “point.” I am actually surprised that the high growth period lasted as long as it did. Yes, the volatile stock market was nerve-racking. The industrial overcapacity and high level of debt are alarming. But the government still has tools to address these problems.

For example, the New Silk Roads, or “One Belt, One Road” program, can be a way to help absorb China’s overcapacity in construction and steel. American companies are jumping on the bandwagon. Continue reading

China’s Middle Class Has Become a Major Pillar of Its Economy

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The Chinese middle class, now estimated at more than half a billion strong, has become a key driver for the country’s economy.

ChineseConsumerIphone

The newly released data indicates that China’s retail sales grew more than 11 percent in 2015, despite economic slowdown. Consumer spending was one of the brightest spots in the Chinese economy, which is now $10 trillion in size, and registered a 6.9 percent growth last year.

A Bloomberg article, “Beyond the Headlines, Five Things to Watch in China’s GDP Report,” wrote:

Rapid income growth over the last decade has made Chinese consumers an increasingly powerful force, snapping up Apple iPhones, Tiffany diamonds and Toyota sedans.

Urban household incomes increased more than 8 percent, the new data shows. China also added 13 million jobs last year, exceeding the government target of 10 million, thanks to the booming service sector.

The unemployment rate was at 5.2 percent, about the same as the United States.

While investment in fixed assets slowed, the residential housing market is rebounding. The data also shows that “home-price recovery spread to more cities in December, especially smaller ones.”

All these indicate that the Chinese middle class is still growing, Continue reading

Is China’s Economy Running Away from President Xi Jinping?

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China’s stock turmoil last week sent a shockwave across the globe. Many are concerned that the world’s second largest economy is on the verge of collapsing, and it may drag the rest of the world into a recession.

china-stocks-selloff-1024x576In an article by Wall Street Journal, The Consequences of China’s Stock Slide for Top Leaders in Beijing, Russell Leigh Moses pointed out that China’s top leaders have been sending conflicting messages regarding how to best handle the economy.

For example, the Chinese Premier, Li Keqiang, has argued that “China’s transition to a developed economy won’t happen while innovation and entrepreneurship are being stifled by too much bureaucracy; that central government oversight has given Chinese firms too little leeway in making difficult choices.”

However, China’s number one guy, President Xi Jinping, believes that “economic instability demands even tighter oversight of society, and that it’s the duty of the Communist Party to come to the rescue of citizens and companies…. Capitalism cares not for losers, only socialism can save China — and saving socialism means making sure that the Communist party is not only clean and loyal, but also willing and able to play the role of savior when the economy stumbles.” Continue reading

China’s Triple Wins: The New Silk Roads

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I recently came across an interesting article by Financial Times, China’s Great Game: Road to a New Empire. It describes China’s new Silk Road program – “a modern version of the ancient trade route,” and how it has become China’s signature foreign policy initiative under President Xi Jinping.

NewSilkRoadThe New Silk Road program consists two routes, known as “One Belt, One Road” (see the map). The land route is called “the Silk Road Economic Belt,” linking central Asia, Russia and Europe. The sea route has an odd name: “the 21st Century Maritime Silk Road,” and goes through the western Pacific and the Indian Ocean. Thus, “One Belt, One Road.”

If successful, the New Silk Roads could be the largest economic development scheme on the face of the earth. The Financial Times article compares it to the US-led Marshall Plan after WWII:

If the sum total of China’s commitments are taken at face value, the new Silk Road is set to become the largest programme of economic diplomacy since the US-led Marshall Plan for postwar reconstruction in Europe, covering dozens of countries with a total population of over 3bn people.

Indeed, if successful, the New Silk Road program will be triple wins for China. Continue reading

Will China Challenge U.S. Global Dominance?

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Will China challenge U.S. global dominance? If you had asked me this question two years ago, I would have said “definitely NO.” But now, I am not so sure.

In an article “A Bigger, Bolder China in 2016,” Jeremy Page, Beijing-based Wall Street Journal reporter, wrote:

With Beijing holding the rotating presidency of the Group of 20 nations next year [2016], Chinese President Xi Jinping is expected to press ahead with his drive to challenge U.S. dominance of the global financial and security order.

South-China-SeaPage listed a number of issues: the South China Sea, cybersecurity attacks, Taiwan, and Asia Infrastructure Investment Bank (AIIB). None are new, but any one of them could potentially spin out of control and result in more tension between the U.S. and China.

In the case of the South China Sea, China hasn’t stopped the constructions on the disputed islands. Continue reading

The Future of China’s Economy: Its Middle Class

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Two Wall Street Journal articles caught my eye this morning: The Future of China’s Economy: Yuppies and Women Fuel China’s Fitness Craze. Both discuss the spending power of the Chinese middle class.

Trendy Chinese consumersIn the first article, author Laurie Burkitt wrote that China’s economy will be relying heavily on “yuppies” – young urban professionals:

According to a new study from the consultancy the Boston Consulting Group and Alibaba’s Aliresearch, richer, younger and tech-savvier Chinese will be the main drivers of growth in the country’s consumer economy going forward. Affluent consumers, shoppers under the age of 35 and Internet surfers will push China’s consumer market up to $6.5 trillion in sales by 2020.

This projection is based on GDP growth at only 5.5% (compared to nearly 7% currently). I am not surprised. For years, I have been saying that the rise of the Chinese middle class is the biggest story of our time. Continue reading

America’s Self-inflicted Defeat in AIIB

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The New York Times has a fascinating article about the birth of the China-led Asia Infrastructure Investment Bank (AIIB), and how Washington’s lack of leadership and bad judgment resulted in its humiliating defeat.
AIIB

Apparently, China first lobbied the U. S. to join the AIIB in 2014 when the bank was still a concept. But a skeptical Washington worried “that China will use the bank to set the global economic agenda on its own terms.”

The Treasury secretary, Jacob J. Lew, the person who would normally be in charge of a matter like this, did not even call for a meeting to discuss whether the United States should consider joining or not. In addition, the administration sought to discourage its allies from joining, and advised G-7 countries that “the United States wanted a united front.”

However, America’s most steadfast ally, the United Kingdom, ignored the American request. The British government only gave Washington 24 hours’ notice after deciding to join the bank this March. Other US allies rushed in. This was an embarrassing diplomatic defeat for the United States. Continue reading

Why Washington Should Embrace Beijing’s “New Type of Major-power Relationship”

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At last week’s APEC summit in Manila, President Barack Obama sharply criticized China for building artificial islands in the disputed waters of the South China Sea. But instead of calling out China, Obama should have taken the opportunity to reconsider Chinese President Xi Jinping’s proposal for a “new type of major-power relationship.”

ApecObamaThe Obama administration was concerned when Xi first raised this concept in 2012 when he was still China’s vice president. Does that mean that China expects to share power equally with the United States? What signal would that send to U.S. allies?

In his 2013 meeting with Obama, Xi Jinping defined the “new type of major-power relationship” as “no confrontation, mutual respect, and win-win cooperation.” This proposition marks a break away from the zero-sum game mentality, and serves American interests as well as the interests of the world.

However, all Xi Jinping’s benevolent messages such as “win-win,” “shared future,” and “interdependence” are falling on deaf ears. Americans tend to view anything the Chinese say with suspicion, perhaps for good reason. China has repeatedly claimed that it will never pursue hegemony. Yet, the Communist Party itself is the hegemon within China. Beijing has a lot of work to do in order to convince the international community that it would behave differently on the world stage.

For the U.S., however, embracing the “new type of major-power relationship” does not diminish American leadership, nor does it mean that the U.S. needs to share power with China equally.

Continue reading