China and Afghanistan Draw Closer On The Roof Of The World

 

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CHINA’S BOUNDARY WITH Afghanistan is short; less than 100 kilometres arcing around the end of the Wakhan Corridor, a high mountain valley, seen above, on the ‘roof of the world’ that once provide a narrow imperial buffer between the Russian and British empires. Today it separates Tajikistan to the north and Pakistan to the south and looks on maps like a panhandle of Afghanistan whose territory it is.

Though it is an ancient trade route, spilling into Xinjiang through the Wakhjir Pass, it has long been closed at the Chinese end for fear of the drugs, Uighur separatists or other extremists that might flow through it.

Beijing and Kabul have a 2015 border policing agreement that involves joint patrols, but of late there have been reports that Chinese forces have been operating on the Afghan side of the border.

Map showing location of Wakhan Corridor in AfghanistanThis is a remote part of the world, so supporting accounts are scant. The Defense Ministry has confirmed that counter-terrorism and anti-cross-border crime operations have occurred but has dismissed Central Asian and Indian reports of Chinese military vehicles patrolling inside Afghanistan.

Pictures published last November show what look like Chinese-made armoured patrol vehicles inside the Wakhan Corridor. While the vehicles can be made out, what cannot is who is driving them — PLA soldiers, Chinese armed police, Chinese private security firm personnel, or someone else altogether, such as Afghanistan border police.

Relations between the two countries have been gradually growing closer since the establishment of Afghanistan’s National Unity government in 2014.

Afghanistan has agreed not to provide sanctuary for the East Turkestan Islamic Movement, the Uighur separatist group that has been fighting a long and sporadic war for Xinjiang’s independence. For its part, China is training Afghan police and supplying the force with equipment and has pledged $70 billion in military aid as the policing relationship expanded to the defence side (though this hasn’t yet extended to heavy weapons). Bilateral exchanges on both fronts are increasing.

None of this is yet any substitute for Afghanistan’s dependence on the West. However, for Beijing, always worried about insecurity on its Western marches, a close relationship with Kabul will also be essential to the success of One Belt One Road, especially if security concerns about the China-Pakistan Economic Corridor worsen.

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China Makes A Bigger Bang In Arms Dealing

THESE ARE RICH times for the arms trade. The Stockholm International Peace Research Institute (SIPRI) notes that transfers of major weapons in 2012–16 reached their highest volume for any five-year period since the end of the Cold War. (SIPRI uses five-year periods to smooth out annual fluctuations which can be marked in the arms trade.)

China is a leading player in the international arms trade, and one increasingly able to decrease its dependence on imports thanks to a growing domestic arms industry.

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This also makes China a frontline arms exporter, with estimated annual sales of just shy of $3 billion going to 44 countries, particularly to elsewhere in Asia (Pakistan, Bangladesh and Myanmar especially) and to Africa. China’s share of global arms exports rose to 6.2% from 3.8% between 2007–11 and 2012–16.

It is now firmly a top-tier supplier, in third place in the global rankings, moving ahead of France and Germany, though still a long way behind Russia and the United States, which have nearly four and more than five times the sales respectively.

China’s arms manufacturers still face significant quality issues in international markets, though that is improving at the cheaper end. However, IHS Jane’s reported two C-705 missiles failing to hit their targets during a large-scale Indonesia navy exercise in the Java Sea last September 14. In Cameroon, one of four Harbin Z-9 attack helicopters sold to it by China crashed soon after being handed over, bringing a halt to any further sales.

China is also poor at after-sales service and maintenance. Nor has it yet established a globally competitive arms brand in the same class as the US’s Lockheed Martin. China’s biggest arms maker is China North Industries Corp. (Norinco), but its strategy seems to be targeting developing economies with a sales pitch that boils down to near-Western quality but at a fraction of the price.

Chinese arms makers also remain dependent on key components, such aircraft engines, imported from abroad, notably from Russia, Ukraine and France. It also imports key weapons and large transport aircraft, helicopters, vehicles and ships.

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China Gives North Korea The Coal’d Shoulder

OUR MAN IN Munich, where those who make their living from discussing global security were gathered of late, sends word that foreign minister Wang Yi said there that the cycle of sanctions and missile tests has to stop and North Korea and the United States should return to the negotiating table.

Whether that would be as part of a resumption of the six-party talks or a bilateral meeting was unclear, but Wang said Beijing was ready to play the role of mediator, which leaves either interpretation open.

Yet in the meantime, China is suspending all imports of coal from North Korea until the end of this year. This is as close to compliance with UN sanctions against Pyongyang’s nuclear weapons programme that one can get. China is North Korea’s primary export market and coal is its biggest single export.

Last week, China was believed to have turned back from Wenzhou a $1 million shipment of  North Korean coal the day after North Korea had tested an intermediate-range ballistic missile in defiance of UN Security Council resolutions banning the country from carrying out such actions.

Suspending imports is the latest tightening by China as coal exports are what Pyongyang relies on to generate cash, particularly since China stopped importing some precious metals almost a year ago and banned the sale of fuel in the opposite direction. North Korean coal exports to China rose more than 12% last year, coming in through a loophole in the UN sanctions that allows imports on which North Koreans depend for their livelihood.

The mysterious death of North Korean leader Kim Jong Un’s half-brother Kim Jong Nam by apparent poisoning, if proved to be connected to North Korea as suspected, may have also tested Beijing’s patience beyond endurance.

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Another Little Bit Of Hong Kong Disappears With Xiao

TYCOON XIAO JIANHUA, the 46-years-old billionaire investor abducted from Hong Kong late last month, was the then 17-years-old chairman of Beijing University’s student union in 1989 and remained loyal to the Party in that tumultuous year. Subsequently, he was aligned with the Shanghai-based faction around Jiang Zemin, president from 1993-2003 and, as a nonagenarian, still casting a long shadow over the country’s elite politics. The allegiances helped Xiao deal his way from student leader to being one of China’s richest people through investments from insurance to coal mines.

However, like any good businessman, Xiao diversified his loyalties. He also built close business links with the family of President Xi Jinping, a position in which, perhaps dangerously, he would have learned much about the president’s family’s business enterprises.

The political rules of the anti-corruption operation have been unpredictable for tycoons for some time. Xiao was lifted by Chinese security agents from the tony Four Seasons hotel in Hong Kong, and, it seems certain, spirited across the border into mainland China and, in all likelihood, one of the unofficial detention centres being used to held businessman and officials who have fallen foul of the anti-corruption campaign.

Xiao is unlikely to be the only businessman with links to the Jiang faction to be helping authorities with their inquiries. Conspiracy theorists will be quick to draw links to the important party congress due later this year where Xi will be seeking to consolidate his power and aiming to put his stamp on the next generation of top leadership. Xiao’s disappearance will send a chill warning to others that this is no time to be playing party politics.

What makes Xiao’s case stand out, however, is that he was seized in Hong Kong, roughly a year on from when five booksellers mysteriously disappeared. Xiao had operated from the city for some years as a place close enough to the rest of China to let him run his mainland business interests while still offering the protection from Chinese security services of an independent legal system — or so he had supposed.

Bit by bit legal and civil rights protections are being eroded in Hong Kong as Beijing increasingly waits out the countdown to the end of 50 years of ‘one country, two systems’ by ignoring the second system and turning the city into just another corner of China of middling importance.

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Trump’s Withdrawal From TPP Opens Opportunity For China

THE TRUMP ADMINISTRATION’S withdrawal from the Trans-Pacific Partnership (TPP) free trade agreement opens up space for China to assume leadership of the development of trade and investment within the region.

Its own Regional Comprehensive Economic Partnership (RCEP) goes from being a poor second choice to virtually the only game in town. It limitation is that it encompasses Northeast and Southeast Asia along with Australasia, but not the Americas, the carrot that the TPP offered.

However, without the participation of the United States, the TTP is left floundering, for all the talk from quarters such as Australia that something can be salvaged. That would take several years at the very least.

RCEP would be substantial, accounting for about one-third of global GDP and one-half of the world’s population. It would incorporate all the Asian countries that had signed up for TPP plus TTP waiverers, such as Indonesia, and excluded, such India (not forgetting China itself, of course).

RCEP is considerably less liberalising of trade than TTP, however. The scope for exemptions on awkward sticking points is also greater, which may make reaching an eventually agreement easier, though.

Critically different from the TPP, labour, environmental issues are excluded form the RCEP negotiations, as is the role of state-owned enterprises.

RCEP’s primary focus is the trade in manufactures, although trade in services and investments will be discussed as one at India’s insistence. India is competitive in trade in services though less so in manufacturing and especially light manufacturing. It does not want trade in manufactures to be given priority over trade in services and investment, where its companies are competitive.

Intellectual property rights are also a point of contention. Tokyo and Seoul want high levels of IP protection, particularly for their pharmaceutical sectors, and akin to those proposed by the TPP, whereas poorer countries in the region want access to cheap medicines.

Beijing, however, may have both a short and a long game to play. The high standards proposed under TPP for intellectual property protections and the liberalisation of trade in services may well eventually suit Beijing as it gets more success in rebalancing its economy as a more services-oriented and innovate one.

To that end, it may well be prepared to keep the TPP negotiations lingering on should they be of future use. In the meantime, though, Beijing will seize the initiative that Washington has let drop.

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Stimulating Growth Puts Reforms At Risk

THERE IS A sprinkling of optimism, albeit tempered with uncertainty, to the International Monetary Fund’s latest update to its World Economic Outlook. This includes an upward revision to the near-term growth prospects for China on the basis that the policy stimulus that helped deliver 2016’s 6.7% economic expansion will continue.

Strong infrastructure and real estate investment were the stimulative effects. One other consequence noted by the IMF was that deflation has come to an end with capacity cuts and higher commodity prices pushing producer-prices inflation into positive territory after four years.

On the strength of all that the IMF is raising its forecast for 2017’s GDP growth by 0.3 percentage points from its forecast in October to 6.5%.

The balance of risk, as the Fund acknowledges, is to the downside, for both China and the global economy. A shift to protectionism is among the more prominent risks along with a more severe slowdown in China.

That latter event could come if a continued reliance on stimulus measures, with the accompanying rapid expansion of credit, exacerbates the slow progress being made in addressing the issue of impaired corporate debt, especially in light of persistent government support for inefficient state-owned firms — all elevating the risk of the adjustment being disorderly the longer it is left.

Besides, before then, capital outflow pressures could make matters worse, especially given the uncertain external outlook.

The warning about continued reliance on stimulus measures repeats what the IMF said last October:

China’s growth stability owes much to macroeconomic stimulus measures that slow needed adjustments in both its real economy and financial sector.

The foreboding this time could be misplaced.

President Trump might make good his promise of 4% annual GDP growth in the United States and his maxim of ‘buy American, hire American’ turn out to be less protectionist than feared, strengthening demand in US trading partners. Or China could ride history’s tilt towards south-south trade harder, raising demand in its trading partners.

The IMF, for one, is not banking on any of those developments. It has left its forecast for China’s GDP growth in 2018 unchanged at 6.0%.

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Fake Or Flawed,China’s GDP Numbers Show Slowing Growth

THE OFFICIAL RECKONING of economic expansion last year is 6.7%. As ever, that falls neatly into the target range of 6.5-7% GDP growth.

The cup half full view of the world sees that as meaning China’s managed growth slowdown is on track; the cup half empty view highlights that that is the slowest annual growth rate in more than a quarter century.

There are many who believe China’s economy is growing at nothing like the rate the published numbers say. This Bystander has never been in the camp of those who say they official numbers are so awry that growth now could be as low as 4%. Equally, we don’t doubt that there has been ‘smoothing’ of the numbers over the years.

However, for years, summing the provincial economies never exactly seems to match the size of the national economy as it more or less should, even given both data sets use different systems of data collection.

But now the sceptics can point to the confession of officials from Liaoning that the provincial government had faked its economic data, including fiscal revenue, between 2011 and 2014.

It was Liaoning, loyal readers will recall, even before that, in 2007, where the province’s then Party boss, Premier Li Keqiang, famously said he looked at economic indicators such as railway cargo and electricity generation because he did not trust the province’s official data.

That officials plump their numbers to boost their promotion prospects will come as a surprise to few. GDP numbers are anyway a flawed measure of an economy, and particularly as an economy shifts from manufacturing to services; a country can boost the value of its GDP just by having its lawyers raise their fees — not many people’s idea of economic growth.

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