China And FIFA: Keeping It Tight

A Song Dynasty painting by Su Hanchen, depicting Chinese children playing cuju.

THE REPUTATIONAL DAMAGE to the NBA, the globally expanding dominant professional basketball league in the United States, over its handling of a tweet by an official of one of its teams supporting the Hong Kong protestors does not seem to be deterring FIFA, world football’s governing body, from doing (more) business with Beijing.

FIFA is set to award hosting the finals of its inaugural world club championship in 2021 to China, according to press reports. The tournament is critical to FIFA to create a second lucrative revenue stream to lessen its financial dependence on its World Cups, but controversial within the game, especially among the powerful European clubs. FIFA’s executive council is due to vote shortly on which country will play host, but China is the only candidate.

Football has just as covetous eyes as basketball when it comes to the Chinese market. The games of the leading foreign leagues are widely broadcast. The leading clubs around the world assiduously cultivate fan bases in the country — and their willingness to buy club merchandise — but also development partnerships in a country that is investing heavily in becoming a world power in the game.

China’s domestic game at club and national level trails that ambition, despite an ingestion of foreign stars by its clubs and official aspirations to host a FIFA World Cup. It has also only recently shrugged off its corruption-laced past.

For its part, FIFA is no stranger to cosy relationships with the governments of the countries staging its tournaments, especially under its disgraced former president, Sepp Blatter. The organisation has since sought to clean up its act although it has, for example, struggled to deal with the racism currently afflicting the European game and to a lesser extent with match-fixing scandals.

One accusation against Blatter-era FIFA is that Qatar bought its award of the 2022 World Cup (an allegation that the emirate denies strongly). Calls persist for it to be stripped of the event. The competition that the new club tournament will replace, the Confederation Cup, was traditionally used as a tune-up for the host nation of the following year’s World Cup. Might China conceivably get its coveted World Cup ahead of plan?

The question would then be if Beijing would judge the prize worth the cost of being more tolerant of chatter not to its liking, or will the money talk, and football folk have to keep their lips closed tighter than a cup-winning defence.

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Slowing Growth’s Growing Challenge

The National Bureau of Statistics’ announcement that third-quarter growth was 6% year-on-year reveals not only the to-be-expected impact of China’s trade dispute with the United States but also that domestic demand is softening.

The industrial recession in the developed economies has now reached China. The outbreak of swine fever is hurting agriculture while the unrest in Hong Kong, which has hit the tourism and retail industries in particular, is, if to a lesser degree, spilling over into the mainland.

Authorities’ efforts to provide targeted domestic stimulus through tax cuts and infrastructure development are not doing enough. Construction activity decelerated in the third quarter, to 4.7% from 5.5% in the previous quarter.

As with monetary policy, fiscal easing is proving a delicate balancing act with the continuing need to deleverage the economy. More limited fiscal stimulus is likely, nonetheless. The tactical injection by the People’s Bank of China of $28 billion in liquidity into the interbank market earlier this week was in the same vein. Keeping annual GDP growth within touching distance of the official goal of 6% is the aim.

Chart of percentage change in China's annual GDP per capita. Chart by Bystander Media from World Bank dataFor the Party leadership, its ability to manage both the structural and cyclical slowdown of the economy is an existential test. As the chart shows, the rate at which the population is getting wealthier is slowing. At some point, that will start to feel like not becoming better off at all. Not for nothing is state media highlighting the country’s success in lifting millions out of poverty and the continuing efforts to alleviate income and wealth disparities between regions and between rural and urban China.

Ensuring that those, along with unemployment and real income growth, do not become the crucible of unrest and instability is the overarching policy goal.

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Building A Solution In Hong Kong

Tai Yuen Estate in Tai Po, Hong Kong, June 2015. Photo credit: Exploringlife - Own work, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=41005351AT THE HEART of the political standoff in Hong Kong lies the fact that the protesters will not end their demonstrations without concessions from the government while the government will not entertain concessions without an end to the demonstrations.

As the violence on the streets has escalated, both positions have hardened. Hence the possible significance of Chief Executive Carrie Lam’s references in her disrupted speech to open the new session of the Legislative Council about building more housing in the city and making it more affordable.

To this Bystander’s ear, that sounded like an attempt to shift the underlying cause of the demonstrations from the political to the social and lay some sort of foundation for a dialogue.

Affordable housing was a concern before the protests started. Measures to tackle the high cost of housing now being advanced such as a vacancy tax were being discussed previously. However, beneath the strident line taken by state media on the mainland that Hong Kong is a purely internal matter for China that will brook no foreign interference, the argument that housing is a root cause of the protest is being advanced.

Whether that will cut any ice with the demonstrators, especially the most hard-line who want political reform including universal suffrage, is a different matter. But even for moderates, it may at this point be too little, too late.

Lam has hinted at a future willingness to consider constitutional revisions, although reportedly she told EU officials privately that even discussing extending the voting franchise was not ‘feasible’ now. Getting the approval of Beijing for any political concessions to the demonstrators would look to be a more difficult task than lowering Hong Kong’s sky-high property prices.

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IMF Weighs The Cost Of The U.S.-China Rift

Screenshot of cover of MF's October 2019 World Economic Outlook and China data chat. Illustration credit: Bystander Media.The global economy is slowing. The U.S.-China trade dispute is a big part of that. The International Monetary Fund’s latest update to its World Economic Outlook has reduced the forecast for global economic growth to the slowest since the 2008 global financial crisis, with the trade dispute between Beijing and Washington reducing global GDP in 2020 by 0.8 of a percentage point. For China, in particular, the Fund also factors in the fact that backing off deleveraging to prop up domestic demand has further dampened the outlook.

Growth has also weakened in China, where the regulatory efforts needed to rein in debt and the macroeconomic consequences of increased trade tensions have taken a toll on aggregate demand. Growth is projected to continue to slow gradually in coming years, reflecting a decline in the growth of the working-age population and gradual convergence in per capita incomes.

The IMF is now forecasting GDP growth for China of 6.1% this year and 5.8% in 2020.  That is a trim of 0.1 of a percentage point and 0.2 respectively from its forecast made as recently as July, and of 0.2 and 0.3 from its April forecast. China’s GDP growth last year came in at 6.6%. The Fund’s projections for the global economy are for a slowdown to 3.0% this year from 3.6% in 2018 but picking up to 3.4% in 2020.

As noted earlier, the Fund estimates that U.S.-China trade tensions will cumulatively reduce the level of global GDP in 2020 by 0.8 percentage points. Global monetary easing in the absence of inflationary pressures has helped offset that. In addition, both Beijing and Washington have turned to fiscal stimulus to counter the negative impact of their tit-for-tat tariffs.

One the net effects of this is that while the emerging and developing economies of the region will remain the main engine of the global economy, their growth is what the Fund calls ‘softening gradually’ as China undergoes a structural slowdown. The Fund expects China’s economy to be growing at 5.5% by 2024.

The Fund’s policy prescriptions for pursuing sustainable and quality economic growth while navigating headwinds from trade tensions and weaker global demand offer some pointers as to where Beijing may be willing to make concessions to Washington that are in its long-term interest.

Any further stimulus should emphasize targeted transfers to low-income households, rather than large-scale infrastructure spending. In support of the transition to sustainable growth, regulatory efforts to restrain shadow banking have helped lessen reliance on debt, but corporate leverage remains high and household debt is growing rapidly. Further progress with reining in debt requires continued scaling back of widespread implicit guarantees and enhancing the macroprudential toolkit. Meanwhile, continuing with reducing the role of state-owned enterprises and lowering barriers to entry in such sectors as telecommunications and banking would help raise productivity while improving labor mobility. Moving toward a more progressive tax code and higher spending on health care, education, and social transfers would help lower precautionary saving and support consumption.

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A New Chill Blows Over Hong Kong

PRESIDENT XI JINPING’S silence over the increasingly violent protests in Hong Kong had been deafening. Now it is chilling.

While visiting Nepal — and not naming Hong Kong directly — he warned that the fate of those who attempted to sheer off any part of China would be to ‘perish, with their bodies smashed and bones ground to powder’. An additional reference to ‘external forces’ dispelled any lingering doubts about the target of his remarks. State media has banged on for months about the external forces they see being behind the Hong Kong protests.

Xi’s words will further reinforce the fears of those who worry that China will not be able to quell the unrest in Hong Kong any way but violently. Beijing’s reluctance to ‘send in the tanks’ for fear of a repeat of Tiananmen Square in 1989 looks less certain by the day.

There is no doubt that Beijing is well aware that doing so would have severe consequences for Hong Kong and for China’s international standing. And it very much remains a last resort. But casting the protests as being about separatism, rather than the implementation of the autonomy guaranteed to Hong Kong under the 50-year post-1997 settlement of ‘one country, two systems’, suggests that the winds are changing in Beijing as the policy of letting the protest play themselves out appears to be failing.

Instead, the new approach is to create a narrative about a violent and militant core of protestors who are pushing for independence — splitists who can be demonised. That will make it easier for Beijing to crack down on the demonstrators, not perhaps with the overt brutality seen in Tibet and Xinjiang, but still bone-crushingly hard if necessary.

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The Empty Promise Of The U.S.-China Trade Deal

AS TRADE DEALS go, the one struck — if not yet signed, sealed and delivered — between the United States and China scarcely deserves the name.

The Trump administration will suspend the implementation of further tariffs on China’s exports in return for Beijing buying U.S. farm produce in some volume and making some gestures over financial services, currency and intellectual property.

The gimlet-eyed will see the Chinese concessions as a repackaging of previous offers. The United States, for its part, is merely holding off implementing new tariffs, not lifting any of those already in place.

Much play is being made of the fact that the deal is being ‘papered’ in time for a grand signing by presidents Donald Trump and Xi Jinping at the APEC meeting in Chile in November. To this Bystander that smacks of political posturing more than a deal of substance. Both leaders need a truce in the U.S.-China trade war before it does more damage to their respective economies.

That is what will be declared in Chile. The thorniest issues in the relationship will be kicked down the road, certainly beyond the U.S. presidential election in November 2020 when this agreement, scant though it is, will no doubt be hailed by the U.S. president as another promise kept.

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China-U.S. Trade Talks Become A Different Game

CHINESE AND U.S. trade negotiators resume high-level talks in Washington on Thursday. The run-up could scarcely be less promising.

On Monday, the U.S. blacklisted 28 Chinese organisations for their role in what the Trump administration alleges is repression of Uighurs in Xinjiang province. The 28, which include both government agencies and technology companies specialising in surveillance equipment, will be added to the Entity List, which means they will require U.S., government permission to purchase anything from U.S. companies.

This brings a human rights dimension to the trade talks that the Trump administration has mostly sought to keep at arm’s length. In June, U.S. President Donald Trump had told President Xi Jinping in a phone call that he would not condemn the protests in Hong Kong in order not to jeopardise the trade discussions.

Those injected themselves into the conversation regardless over the weekend after Daryl Morey, the general manager of the U.S. professional basketball team, the Houston Rockets of the National Basketball Association (NBA), on Friday evening tweeted his support for the Hong Kong protests. He deleted his tweet overnight, but that did not prevent a deluge of criticism and retaliation from China, and damnation of the NBA within the United States for what many there said was craven capitulation by the NBA to protect what is now its most important market. The Rockets are particularly popular in China as it is the team that made Yao Ming into a superstar.

The Rockets’ attempts to recover from that position has been no less unedifying. It will be intriguing to see how two NBA preseason games to be played in Shanghai and Shenzhen at the week are received.

The affair offers a clear example of Chinese retaliation — perhaps more accurately a chilling threat of retaliation — against a U.S. business expressing a political line unacceptable to Beijing. It also shows the levers of pressure authorities can apply in such circumstances to U.S. businesses that are increasingly dependent on the Chinese market for growth.

However, it underlines how the Trump administration’s tariff-centric approach to applying pressure on the trade negotiations puts excessive emphasis on merchandise trade when so much of the big money in U.S-China trade is no longer that.

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