Monthly Archives: September 2010

China Frees Three Of Four Detained Japanese

China has released three of the four Japanese arrested at the height of the fishing trawler dispute and accused of entering a military facility in Hebei. Xinhua reports that the three admitted to having broken Chinese law. The fourth, Sada Takahashi, is still under investigation for videotaping military targets. He remains under house arrest. The four work for a Tokyo construction company which says said they had been preparing a bid to dispose of World War II-era chemical weapons.

The releases match the pattern of fishing trawler incident, with Japan having initially released the crew but keeping the captain under arrest. That incident brought Sino-Japanese relations to a low ebb and the manner in which China is dealing with these latest releases suggests that it is in no hurry to better them. If Foreign Ministry spokeswoman Jiang Yu’s latest comments are anything to go buy, Beijing sees the impetus being on Tokyo to improve them.

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U.S. Lawmakers Move Anti-China Currency Bill Past The Easy Stage

The U.S. House of Representatives has backed the high-profile trade sanctions legislation that targets countries that hold down the value of their currencies, as many American lawmakers accuse China of doing. The bill, which would require the U.S. Commerce Department to determine the extent to which a currency is undervalued, still has many hurdles to clear before it becomes law. It is likely to trip at the first of them, the U.S. Senate. Meanwhile, the People’s Bank of China said that it would take further action to increase the exchange rate flexibility of the yuan. Political posturing to counter political posturing.

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China’s North Korea Policy

President Hu Jintao sent an effusive congratulatory note to North Korea’s leader, Kim Jong Il, on his recent guest’s reelection as general secretary of the Workers’ Party of Korea (WPK). That the Chinese leader would not have sent fraternal felicitations would have been as unexpected as the unopposed Dear Leader not winning his rubber-stamp election. But Hu slipped in personal congratulations alongside those of his Party’s, giving more credence to the school of thought that Hu’s guiding hand is behind the leadership succession in North Korea that is seeing Kim’s youngest son Kim Jong Un — The Brilliant Comrade — emerging as the heir apparent.

It is not the who so much as the how that concerns China (or more accurately the Party, for it is the party not the foreign ministry that runs China’s North Korea policy). Beijing’s primary interest is to have a stable neighbour. Beijing fears both an economic collapse of North Korea, the so-called East German problem — a flood of refugees flowing across the border in to northeastern China to escape political and economic chaos, and also a rogue act of foreign policy by the military by whatever means. The sinking of a South Korean corvette by a North Korean torpedo earlier this year was greatly concerning to Beijing despite its public stance in refusing to join the international condemnation of Pyongyang for the attack. Beijing doesn’t like surprises in international affairs, and its erstwhile ally is nothing if not unpredictable.

To deal with both worries, Beijing’s plan for North Korea is to have it open and reform its economy (as Hu advised Kim to do on his last visit) and for the WPK to exert greater control over the now more powerful military — not too dissimilar from the Chinese Party’s own path decades back. Beijing would then put a protective aid, trade and diplomatic arm around North Korea to give it a chance to put its plans into action. In return, Kim Jong Il gets Beijing’s support for his dynastic succession (below, from left The Great Leader, The Dear Leader and The Brilliant Comrade). That succession looks to be having to be hurried forward faster than Kim would like because of his ill-health. Neither Kim nor Beijing would like the military to step into the power vacuum that would be created by Kim shuffling off too soon to join his father, the Great Leader, in that great Socialist republic in the sky. So the accommodation benefits both sides.

All this is to a certain extent speculation, given how little is actually known about the inner workings of both Pyongyang and the Hu-Kim relationship (albeit, we trust, informed speculation). There were plenty of signs of the WPK moving to exert greater control over the military at the conference that reelected Kim Jong Il — only the third such one in the WKP’s 62-year old history and first for 44 years. Kim Jong Un, a 27 year old with no military experience, was appointed a four-star general and deputy chairman of the Party’s Central Military Commission as well as joining the Politburo. His aunt, whose husband, Chang Song Taek, is head of the National Defence Commission, was also promoted to the rank of general as were four others from the Party. Revisions to the WPK’s charter stressed the need to buttress party leadership over the military “so that the WPK may be strengthened in every way and its leadership role further increased”.

A high-level North Korean delegation has already been dispatched to Beijing to brief the Party leadership there on the WPK’s conference. China’s other neighbours and the U.S. would likely be less sanguine about arrangements that would effectively put North Korea under China’s suzerainty, adding a new complication to the possible eventual unification of the Korean peninsular. But, equally, they might consider it the least of the available evils, a price to be paid for stability in the region and removing the Most Dangerous Country in the World tag from North Korea.

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China’s Economic Rebalancing Act

The Asian Development Bank’s latest update to its quarterly economic outlooks leaves China’s gross domestic product growth for the year unchanged at a forecast 9.6%. But it notes that the pace of growth has started to moderate and will continue to do so as the effects of the government’s fiscal and monetary stimulus wears off and recovery in China’s export markets in the developed world stays sluggish.

Despite exports being a net contributor to GDP in the second quarter this year for the first time since the onset of the global recession, the ADB is forecasting that China’s GDP growth in 2011 will slow by half a percentage point to 9.1% as those trends continue.

The ADB also reiterates the need to shift the economy from being driven by investment and exports to domestic demand.

Longer term, failure to decisively implement the agenda to rebalance the PRC economy risks jeopardizing the sustainability of growth. A greater emphasis on private consumption demand, as against the current investment-driven economic growth model, would promote longer-term growth and raise living standards. Growth in consumption has been limited by the declining share of household income in total income, while the shares of enterprises and the government have increased.

ADB economists believe that China won’t be able to sustain its current pace of growth over the long-term with its current development model under which a rising rate of investment is needed to maintain its target rate of economic growth. At some point investment will stop rising (even China will eventually run out of money) and growth will slow unless another source of demand replaces it. The ADB expects China’s average annual GDP growth over the two decades to 2030 to be 5.5%, compared to the annual average of 9.4% between 1981 and 2007, though it could average 6.6.% growth in 2010-2030 with greater rebalancing of its economy.

China’s growth since Deng Xiaoping opened the economy at the end of the 1970s has been a remarkably success, though its growth rates have been much the same as those of Japan and South Korea at similar stages of their economic development. China’s economy, however, is on a different scale to those of both its neighbors, which is what really makes the achievement so impressive. It is investment that has got it there, but won’t be able to keep it there alone. As even Prime Minister Wen Jiabao has said recently, “In the case of China, there is a lack of balance, co-ordination and sustainability in economic development.” How China finds its balance will shape the global economy over the next two decades.

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Rare State Spotlight Shone On China’s Black Jails

The day after the government published a report highlighting what it says are improvements in human rights, state media are reporting that police are investigating the detention of petitioners against local and provincial governments in secret prisons — so-called “black jails”. The chairman and largest shareholder, Zhang Jun, and the general manager, Zhang Jie, of An Yuan Ding Security Service Co., a six-year-old Beijing security firm which started life as a trading company before being taken over from its founders by an investor group including  Zhang, stand accused of taking money from local and provincial governments to abduct and hold people who travelled to the capital to complain about local injustices. The pair have been reportedly arrested, though it is unclear when.

According to Caijing and Southern Metropolis Daily, which first published the reports last week, the company started in 2008 to help the Beijing liaison offices of local governments to stop petitioners making it to the central government offices in Beijing where grievances are filed, employing 3,000 “interceptors” passing themselves off as special police to do so. Once trapped, would-be petitioners were then held in isolation, in some cases for more than a month, before local officials would arrange to have them escorted home.

The company denies the accusations. Yet Southern Metropolis Daily reported that in May, Shanghang County in Fujian announced that it had contracted An Yuan Ding to bring 18 female petitioners involved in an industrial pollution case back to their hometown. Caijing says the company made profits of 21 million yuan ($3 million) in 2008, mostly from its black-jail work, though being Beijing Olympics year, 2008 might have been especially fruitful for this line of business.

The existence of black jails and the practice of extra-legal forced detentions of petitioners, and in some cases their physical abuse, has been repeatedly asserted by human rights groups. The government has always denied that they exist, and certainly not turned the spotlight of publicity on accusations that they do as has happened in this case.

Local officials are penalized for grievances lodged against them, hence the motivation to prevent them getting to Beijing. Five consecutive years of a falling number of petition filings with central government shows the market at work — but not quite in the way the human rights report envisioned of improving human rights in China through greater transparency and economic reform.

Phelim Kine of Human Rights Watch, told the Agence France Press news agency that the black jails involve “a web of government officials, security forces, huge numbers of plainclothes thugs and dozens of facilities in Beijing alone.” What to watch for now is whether the Anyuanding case will be dealt with as a one-off or whether there will be a concerted crackdown on the practice. When leadership changes are in the offing, as now, there are commonly crackdowns on local government malfeasance, but for political reasons as much as anything.

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China Readies New Crackdown On Melamine In Milk

Despite the melamine-tainted milk powder scandal that killed six babies, sickened more than 300,000 children and all but closed down China’s dairy exports in 2008, batches of contaminated milk are still turning up, the latest only this month. Some of that is supplies from 2008 that should have been destroyed but which got unscrupulously diverted into a sort of dairy black market. But the suspicion has never gone away that some dairy farmers were continuing to pad out their milk with melamine, a toxic industrial chemical used to make plastics, fertilizers and concrete but which can increase milk’s apparent protein value.

That those suspicions are well founded is supported by proposed new food safety regulations. These tighten the rules on the production and marketing of melamine, including setting up a register of wholesalers to track distribution of the chemical to retailers and getting local governments to send resident supervisors into all dairy enterprises to enforce health and safety regulations, which have already been tightened since 2008. The new rules also call for all dairy enterprises to test their products for melamine before distributing them and for food enterprises to check dairy products they buy.

The new rules come into effect at the end of October. Dairies that break them face being shut down. We also expect an intensifying of the crackdown on any dairy farmer or milk producer found to be using melamine, and the imposition of some exemplary sentences.

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Is China Now Overplaying Its Hand?

We updated our previous post on the Sino-Japanese trawler incident to note that Beijing had demanded a formal apology from Tokyo and compensation for the detention of the vessel’s captain, Zhan Qixiong, both demands for which Japan has rebuffed. The question now is whether this was a final piece of bluster on Beijing’s part or is it now over-playing its hand?

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Protectionist Spirits Rise In Washington

A U.S. Congressional committee has voted out a bill that would subject China to retaliatory trade sanctions on the basis that Beijing keeps the yuan undervalued against the U.S. dollar to give its exports an unfair advantage. The full House will vote on the bill next week. It would still have to be approved in the Senate and survive a Presidential veto to become law. The last two hurdles are much higher than the first. Even if it clears all the American legislative hurdles, imposing countervailing duties skirts World Trade Organisation’s rules closely enough for China to be likely to launch a challenge.

Sander Levin, chairman of the House Ways and Means committee, draws a straight line between China’s currency policy and American jobs, saying the yuan “has a major impact on American workers and therefore American jobs. That’s what this is really all about.”

That is what the politics is all about. What is less clear is that revaluing the Chinese currency would create more jobs in he U.S. in any significant number. Few economists would argue that it would unless the revaluation is of a scale that would cause a whole new slate of economic problems of its own. And even within the narrow dimension of currencies, America’s international competitiveness turns on more than a single exchange rate now that China sits at the heart of a web of Asian manufacturing.

Chinese commentators have been uniform in pushing the line that the US. is blaming China for its poor economic performance instead of trying to put its own house in order. With American politicians deep into a contentious midterms election season, that message is likely to fall on deaf ears.

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Japan Defuses Trawler Row, Moves On To Next China Test

It looks, as this Bystander suggested yesterday, that arms have been discreetly twisted. Japanese prosecutors say that the continuing detention of Zhan Qixiong, a Chinese fishing trawler captain at the center of a row between the two countries, would be “inappropriate considering the impact on relations with China”. Beijing, which has sent a plane to bring Zhan home, had been increasingly strident in its demand that the captain should be released unconditionally, its hard line returning Sino-Japanese relations to the icy state of recent years from which they were just starting to thaw.

The Japanese formulation sidesteps the question of whether charges would be brought or not, and thus the validity of Japan’s legal jurisdiction which is the heart of the issue as the incident took place in disputed waters near unoccupied islets in the East China Sea that Japan administers as the the Senkaku Islands and China claims as the Diaoyu Islands. Tokyo can present itself as not backing down but acting reasonably for a greater good. “Our ties are important and both sides must work to enhance our strategic and mutual beneficial relations,” Japan’s Chief Cabinet Secretary Yoshito Sengoku told Reuters news agency. Whatever. That this minor incident escalated into a major row shows how much work needs to be done.

Meanwhile, both sides have confirmed that four Japanese men have been detained in China on suspicion of illegally filming in a military area in northern Hebei. Japanese foreign ministry officials say the quartet work for a Japanese construction company that is bidding for a contract to dispose of World War II era chemical weapons. Local state security authorities say their investigations are continuing. How Beijing deals with this matter should give an indication how it wants to calibrate its relationship with Tokyo in the immediate future, but we also expect it to continue to test where the boundaries of that relationship lie as it grows as East Asia’s dominant power.

Update: With Zhan back on Chinese soil, Beijing has demanded a formal apology from Japan and compensation for the captain’s detention; Tokyo has declined on both counts.

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The New World Of Security In East Asia

Word from our man in Tokyo throws some new light, for us, on the fishing trawler dispute between China and Japan. He says that there is a sense among officials that this is only the latest, if most serious, incident in a series of tests by Beijing over the past year of where Japan sees its security interests as truly lying: to what extent is the long-standing alliance with the U.S. weakening; and to what extent would a more Asia-focused security policy mean that Tokyo would see Beijing as a competitor or a rival?

While the governing DJP has been pushing improved relations with China and lessening Japan’s dependence on the U.S., the recent change of prime minister from Hatoyama to Kan has caused that pendulum to swing back a bit towards the alliance with the U.S., notably in terms of maintaining the existing agreements over the location of U.S. forces in Okinawa.

That swing is also reflected in Kan’s choice for foreign minister, Seiji Maehara, who falls squarely into the China-as-rival camp. Maehara has repeated that the islands in the East China Sea at the heart of the current dispute, the Senkakus (Diaoyus to China), are inalienable Japanese territory, though to be fair, even the most pro-Chinese Japanese politician holds the same line.

Japanese officials still believe that China will, after sufficient chest-thumping, accept that the rule of law holds in Japan and that Tokyo cannot overrule the legal process for political ends — as Beijing increasingly says publicly that it can’t with its own legal system. Fingers are crossed that the detained captain of the Chinese fishing trawler will be released by Japanese prosecutors with a warning. He faces up to three years in prison if court charges are brought and he is convicted; Beijing might not have enough invective left in that event. For all the belief in rule of law, as well as fingers being crossed, no doubt a few arms are being discreetly twisted, too.

A release would allow for face to be retained on both sides and the incident to be defused. It would not ease the underlying tensions, however. Japan is likely to continue its build up of ground and naval forces in and around the disputed waters of the East China Sea and to be sure that it keeps the U.S. over its shoulder. For its part, Beijing is likely to continue to keep probing a Japan still looking for its place in the new security environment of the western Pacific where a more assertive China is willing to test boundaries first and resolve disputes after.

Update: Xinhua is reporting that four Japanese have been detained for unauthorized entry into a military zone in Hebei.

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