Category Archives: China-U.S.

End Of The Road For Uber in China

 

Licenced under Creative Commons from iphonedigital

A BILLION DOLLARS loss here. A billion dollars loss here. Pretty soon you are talking serious red ink.

That is the scale of the annual loss that US ride-sharing service and poster child for the sharing e-economy, Uber, has apparently been making in an effort to break into the China market since 2014. In the face of bitter resistance from local rival Didi Chuxing (app seen above), it has now decided to end the debilitating price war between the two by selling its China operation to its competitor.

The deal struck will leave Uber owning 17.5% of Didi Chuxing, which itself was the fulmination of a merger between Didi Dache and Kuaidi Dache. Didi Chuxing, which also owns a stake in Uber’s US rival, Lyft, will end up with a 90% market share in China (and an estimated market valuation of $35 billion).

The deal comes, ever so coincidentally, within days of China agreeing to provide a legal framework for taxi-ordering apps, which have existed in a grey area. The new rules, due to come into effect in November, will make the heavy discounting that Uber and Didi Chuxing engaged in during their price war illegal.

In that, there may be some succor for Chinese taxi drivers, who, in common with cab drivers in many countries, have been protesting against the new competition of ride-sharing apps which they say is destroying their business.

Didi Chuxing will be able to rebuild its margins, to the pleasure of major shareholders which include Alibaba and Tencent. It is also likely to benefit from the $1 billion it is to invest in Uber’s global operations under the deal, especially once Uber makes its intended initial public offering in the United States.

That share offering will be even more attractive to investors without billion-dollar-losses in China weighing down Uber’s profit and loss account.

There are echoes of Yahoo!’s experience in China. The internet media company sold its China businesses to Alibaba in 2005, along with taking a stake in the Chinese tech group. Regardless of what is happening to Yahoo! now, that China deal paid off handsomely for it.

The model well may be repeated by other U.S. tech companies that are finding doing business in China to be a long and expensive road.

 

 

Leave a comment

Filed under China-U.S., Economy

The Disneyfication of Shanghai

Magic Castle at Disneyland ShanghaiTHERE AREN’T MANY places you could convene a crowd of 60,000 in China without police of any stripe in sight. Indeed, there may be only one — the new Disneyland in Shanghai (above).

Such was the appetite for Shanghai to land the theme park that Disney was able to negotiate self-policing rights. Chinese police authority stops at the exit to the new metro station outside the front gate. Thereafter it is the Disney security staff that you can see anywhere in the world there is a Disneyland.

Shanghai’s may turnout to the be world’s most-visited theme park. What does that say about whether American or Chinese culture is the most dominant?

Leave a comment

Filed under China-U.S., Politics & Society

COP21: Follow The Money

Paris skyline

THE PARIS CLIMATE talks — formally the United Nations 21st Conference of the Parties (COP21) — starting on November 30 will be a political bun fight in which China as the world’s biggest polluter will be at the centre. But the how, who and who pays arguments over environmentally sustainable development are only another front in the wider competitive-cooperative struggle between North and South for global influence.

Whatever the outcome of the Paris meeting, China will come off a winner.

The goal of COP21 is for more than 190 countries to agree a global and legally binding treaty that will let the world avoid the worst impacts of climate change. In practice, this means an enforceable plan to keep global warming below 2℃ by cutting greenhouse gas emissions.

The countries that account for 80% of the world’s emissions, three-quarters of which are accounted for by China, the United States, the 28 European Union members and India, have submitted plans for how they will play their part. However, these Intended Nationally Determined Contributions in aggregate fall short of what is needed to meet the 2℃ target.

China’s INDC’s are conventional enough: a speeding up of the transformation of energy production and consumption to mitigate increasing greenhouse gas emissions; continuing improvements in energy efficiency as the economy is rebalanced in a sustainable way; and increases in forest carbon sinks.

In hard numbers:

  • Peak CO2 emissions to be reached by 2030 at the latest;
  • Cut carbon intensity by 60-65% from 2005 levels;
  • 20% of energy produced by renewables by 2030 (10% in 2013); and
  • Increase forest coverage by 4.5 billion cubic meters compared to 2005.

These targets build on ones set out in 2009. That year, Beijing said that by 2020 it would lower carbon dioxide emissions per unit of GDP by 40-45% from 2005’s levels, increase the share of non-fossil fuels in primary energy consumption to around 15%, and increase forests by 40 million hectares and the forest stock volume by 1.3 billion cubic meters compared to 2005 levels.

In its INDC, Beijing claimed that by 2014, it had achieved:

  • 33.8% lower carbon dioxide emissions per unit of GDP than the 2005 level;
  • 11.2% non-fossil fuels share in primary energy consumption;
  • Forested area and forest stock volume increased by 21.6 million hectares and 2.188 billion cubic meters respectively compared to the 2005 levels;
  • 300 gigawatts of installed hydropower capacity — 2.57 times of that in 2005;
  • 95.81 gigawatts of on-grid wind power capacity — 90 times of that of 2005);
  • 28.05 gigawatts of solar power installed capacity of — 400 times of that of 2005; and
  • 19.88 gigawatts of nuclear power installed capacity — 2.9 times of that for 2005.
  • Also, China has initiated pilot carbon-trading markets in seven provinces and cities and low-carbon development pilots in 42 provinces and cities, with a goal of having a nationwide cap-and-trade market in place by 2017.

All of which is real progress, though not sufficient to have kept up fully with the growing economy, as the skies over Beijing bear daily witness.

China’s COP21 targets still look ambitious, unlikely to be achieved without either technological advances both to improve energy intensity (units of energy required per unit of GDP created) and to help nuclear energy replace coal-fired power generation, or a slowdown in the economy to reduce power demand. On some estimates, the later would mean China’s GDP growth rate slowing to at least 4.5% a year for a sustained period in the decade to 2030.

All of which helps to explain why the politics of climate control will be so confrontational at COP21 behind the feel-good words the politicians will spout.

As de facto spokesnation for developing economies, China wants the rich nations to carry the much more of the burden of reducing emissions than poor ones. Its argues that historically the developed countries have gone through their industrial revolutions and so should not expect developing economies to have artificial constraints put on them as they now go through theirs.

The motives for such a position fall along a spectrum running from fairness — developed nations shouldn’t get a ‘free ride’ on pollution just because it occurred centuries ago — to nefariousness — the old world powers are using climate change to hold back the development of new rivals arising in the East and South.

Thus, China wants ‘ambitious economy-wide absolute quantified emissions reductions targets’ for developed countries, while calling only for ‘enhanced mitigation actions’ on the part of developing economies such as itself. Furthermore, it wants developed countries to provide the finance, technology and capacity-building for developing nations to do so.

The proposed financing is scarcely chump change. Beijing wants it to start at $100 billion in 2020 and then increase yearly, with the monies coming from the West’s public purses, not private sources. It proposes that this financing is channeled through the UN’s Green Climate Fund, a somewhat misbegotten five-year-old UN agency that would be made directly accountable to COP21.

So far, the fund has barely raised more money than needed to cover its set-up costs and is wracked by internal disagreements over what it should be funding and how. As of May this year it had received pledges of only $10.2 billion towards its own $100 billion-by-2020 target.

Developing nations don’t like the fund’s focus on private investment, which in practice means Western investing institutions. Environmentalists don’t like its acceptance of fossil-fuel investments, and no one likes the fund’s governance, hence Beijing’s effort to switch it to public funding and put it under COP21’s authority.

The third area of contention at Paris beyond targets and where the money is coming from will be technology. Beijing wants COP21 to impose a clear requirement on developed nations to transfer technologies and R&D to developing countries ‘based on their technology needs’. That would give developing economies, including China, carte blanche to demand virtually any technologies from the developed nations that it wants.

China has need of such technologies, given the challenges of its COP21 proposals. It will not be able to displace coal from the central place it now occupies in the energy mix without a significant increase in nuclear power generation. China is developing an indigenous nuclear industry apace, but its third-generation technology remains unproven, its capacity for making key components for reactors is uneven, and it has limited abilities in spent fuel reprocessing and storage.

Free licence to demand technology transfers from Washington and Paris to tackle any and all of those problems so its nuclear industry can make itself internationally competitive is not going to be acceptable to the West.

However, COP21 will likely yield an agreement, not the vague promises of previous UN climate summits. China will, of course, not get everything it is calling for going in. Binding hard 2030 targets on developed nations are unlikely, as are commitments by the West to any significant public funding of the Global Climate Fund or carte blanche technology transfers.

A mechanism for strengthening national carbon reduction targets every five years is likely. Presidents Xi Jinping and Barack Obama agreed when they met in September to support such an approach, calling for COP21 to establish reporting and accountability that would strengthen emission reduction targets over time.

That, along with some concrete steps towards mobilizing financial and technical resources to assist the power countries to develop sustainable low-carbon and climate resilient economies would be achievement enough in Paris.

These outcomes would give Beijing plenty of advantages. It would get flexibility in recalibrating its tough 2030 domestic emissions targets and constrain Western efforts to impose a World Bank IFC-type private-sector financing model on climate mitigation.

At the same time, it would be free to expand its bilateral climate lending channels such as its South-South Climate Fund. Through its other burgeoning channels such as the Asian Infrastructure Investment Bank, the BRICS’ development bank, and its Silk Road Fund, it can position itself as a key player in global low-carbon investment through its overseas infrastructure and project finance.

With that would come another broad, long-term ratcheting up of Beijing’s global clout, and especially if the next U.S. administration is a more isolationist and climate-change-rejecting Republican one.

Leave a comment

Filed under China-U.S., Environment

Navies Calm Dangerous Waters Beneath The Political Storms

US Navy officer on board the PLA-Navy's aircraft carrier Liaoning, October 2015. Photo credit: People's Daily.

THE RECENT ‘FREEDOM of navigation’ passage by the US Navy’s destroyer, the USS Lassen, through the Spratly islands was sandwiched between a visit by 27 US naval officers to the PLA-Navy’s aircraft carrier, the Liaoning (seen above), and the first visit by the PLA-Navy to an East Coast US Navy station when three PLA-Navy warships of Escort Task Force 152 led by the guided missile destroyer Jinan called at Mayport in Jacksonville, Florida.

That was far from the first visit by Chinese military officers. The chief of the PLA general staff, General Fang Fenghui, toured of the nuclear-powered aircraft carrier the USS Ronald Reagan in San Diego in May last year. Also last year China was invited for the first time to participate in the biannual RIMPAC exercises, the 22-nation maritime warfare drills organized by the US Navy’s Pacific fleet.

Beyond the political rhetoric, military-to-military cooperation between China and the U.S. is on the rise, and particularly between their respective navies over the past two years.

Military-to-military contacts have long been a staple of U.S. diplomacy to prevent wars of words becoming anything more deadly. They build trust and transparency between two groups of professional military men who often have more in common and more respect for each other than they do with and for their political masters.

China and the United States undertake similar technical contacts in the realms of trade and financial affairs. The military contacts, however, and especially the naval ones given the increasing political tensions between the two countries over the South China Sea, have raised concerns in the U.S. Congress that they are yielding too much military information to the PLA without restraining Beijing’s increasingly assertive actions off its shores and beyond.

Fang’s visit, in particular, raised questions of whether the US Navy had broken Congressional rules that forbid exchanges with China that could involve ‘force projection’. In December, Randy Forbes, the Virginian congressman who heads the seapower and projection forces subcommittee of the House Armed Services Committee sent a letter to the civilian bosses of the Pentagon calling for a review of America’s current military-to-military engagement policy with China.

Forbes’s letter did not fall on entirely deaf ears. Attitudes towards China in many parts of political Washington are hardening to a degree.

There is no evidence that those shifts are being felt among the military, although they will keep a weather eye out for shifting political winds. And the Pentagon continues, if perhaps slightly more circumspectly than before, to pursue the so-called new model of military-to-military relations between the two countries that reflects the broader framework of a relationship that China wants to put more on a partnership footing.

The Obama administration let President Xi Jinping write the rubric for that — “no conflict, no confrontation, mutual respect, and win-win cooperation.” It is language that Washington is showing less enthusiasm for now than before. But it is the tone that is changing rather than the overall narrative.

The working model is now cooperation where interests overlap, careful management where they do not. As relations go through a rocky patch, the priorities are avoiding accidents that turn into crises and establishing lines of communications if they do happen.

The risk is real. Last year a PLA fighter buzzed a US Navy plane, coming within 10 meters of it. The year before, a Chinese amphibious transport vessel escorting the Liaoning forced the USS Cowpens, a guided-missile cruiser, to take evasive action to avoid a collision.

That there have been no further mishaps is down in part to the Code for Unplanned Encounters at Sea, known by its acronym, CUES, that China, the United States and other Western Pacific nations agreed last year. The Code sets out ground rules for safe speeds and distances that vessels should keep, the language to be used in communications between navies, and actions to be taken in case a ship becomes disabled.

However, the rules do not apply to coast guard or other civilian vessels such as fishing boats. Nor are there enforcement mechanisms.

A third issue is that the rules apply “at sea.” They do not specify it that means international and territorial waters, or just international waters, which makes the disputed waters of the South and East China seas huge grey areas.  Washington and many other regional nations do not recognize Beijing’s maritime territorial claims.

It is the same disagreement as Washington and Beijing have over the United Nations’ Convention on the Law of Sea (UNCLOS), to which the Code is subservient.

Nonetheless, any code is better than none. Even the process of creating it was a confidence-building measure in its own right, as is the joint practice drill on using the Code that the two navies held in February. The USS Lassen was warned by China using the CUES protocols when it sailed passed the Spratlys last month.

Beijing and Washington signed a further bilateral memorandum of understanding that was a follow-up to the Code and in October this his year added a codicil. The two countries have also set up a military crisis hotline.

Is this all enough to prevent anything untoward happening? Probably not if one side or the other is set on a deliberately provocative act or even if a citizen-patriot becomes recklessly overzealous. But it does provide an often overlooked counterpoint to the currently testy political narrative.

Leave a comment

Filed under China-U.S., Defence

Beijing And Washington Plot Course Through Disputed Waters Dispute

IT HAS BEEN three years since the United States sailed a warship within 12-miles of Subi Reef, part of the South China Sea’s Spratly islands that China claims as the Nansha islands. Washington says the recent passage of the USS Lassen, a guided-missile destroyer, was to assert the rights of freedom of navigation in international waters, albeit, this Bystander notes, waters also claimed by China, Taiwan, Vietnam and the Philippines as their own.

For all Beijing’s bombastic denunciation, as geostrategic sparring goes, this was well advertised and came less than a couple of months after five PLA-Navy warships sailed just as close to the United States’ Aleutian islands in the Bering Sea.

Washington made it known some time in advance that it intended to carry out the operation in the Spratlys. The Kunming, the first of the PLA-Navy’s Type 052D advanced destroyers, has reportedly been trailing the Lassen for weeks and kept a measured distance as the U.S. warship sailed past Subi Reef.

Barring accidents, both navies — and their political bosses — will want to avoid a direct clash in the South China Sea. But that doesn’t mean the face-off between the two powers won’t be ratcheted up by other means.

China will likely continue to strengthen its presence on disputed reefs and islands. President Xi Jinping has said China has no intention to ‘militarize’ the area, but that does not exclude growing coast guard, maritime rescue, fisheries and natural resources facilities and operations there.

For its part, the United States has said it will continue to sail freedom-of-navigation passages. It already routinely flies surveillance aircraft over the South China Sea in airspace that China claims, and its subs operate under those waters. “We will fly, sail, and operate anywhere in the world that international law allows,” a U.S. defense department official told the French news agency AFP.

It has little option to do otherwise if it wants to retain its credibility as a security guarantor for its regional partners as it and Beijing jockey for position in the Pacific. Similarly, Beijing has to challenge every challenge to its maritime claims.

1 Comment

Filed under China-U.S., Defence

Win-Win Ways In Washington

China's President Xi Jinping addresses the United Nations General Assembly, September 2015

PRESIDENT XI JINPING’S visit to the United States delivered as little, in the eyes of the outside world, as had been expected. On that score, it did not disappoint.

The two headline outcomes, a cybersecurity dialogue and the announcement of a national cap-and-trade carbon market, were a fudge and a repackaging respectively. The two sides agreed not to support commercial cyber-espionage, although what one side sees as cybertheft the other regards as matters of national security. So we’ll see how far that goes. Meanwhile, China has long been running pilot cap-and-trade carbon projects in preparation for launching a national market.

Plenty of other areas of contention remain, from the impact of China’s recent stock market turmoil and currency devaluation on the U.S. Federal Reserve’s interest rate policy to questions of maritime sovereignty in the South and East China Seas.

Even the agreement to start a high-level dialogue on cybercrime, albeit narrowly defined, risks triggering another front in the simmering trade wars between the two, and especially with the U.S. going into a presidential election campaign that has already shown signs of inflammatory anti-China rhetoric before it has even got going.

The proposed cybercrime dialogue provides, though, another example, of how Xi is trying to define issues on Beijing’s own or parallel terms, not on Washington’s. The Asian Infrastructure Investment Bank initiative is another. The Beijing development model in Africa is a third.

Being seen at home to be writing new rules of the game not playing by the old ones and standing shoulder to shoulder with the U.S. as an equal was a significant purpose of Xi’s trip.

State media laid great emphasis for its domestic audience on Xi and Obama forging a new model for great power leadership, a theme echoed in the coverage of Xi’s address to the United Nations General Assembly where Xi was lauded for breathing “new life into the development of international relations, leaving a deep imprint in the history of China’s diplomacy.”

Win-win is the new watchword for China’s diplomacy. It is a portrayal of the country as an alternative to traditional great or colonial powers. China’s narrative is that it is a developing country that will be a partner to others not a master. This fits with a traditional commercial concept that negotiation is about building trust for long-term cooperation rather than resolving an immediate problem at hand.

The reality is that great powers have national interests and it is their power to impose those interests that makes them great powers.

1 Comment

Filed under China-U.S.

Droning On

DJI Phantom 2 drone with GoPro camera. Licenced under Creative Commons.

IT IS A sign of the increasing sophistication of the country’s technology that Beijing is imposing controls on exports of some advanced drones and supercomputers. Or at very least a sign that Beijing wants its technology so regarded.

From the middle of this month, export licenses will be required for drones that can fly 1,500 meters high, stay airborne for longer than an hour and handle strong winds. Licences will be granted or withheld on grounds of national security, which will, in the manner of the times, inevitably be judged case by case.

There is also a bit of tit-for-tat at play. The export licensing scheme also covers supercomputer chips and follows US restrictions on computer hardware that can be sold to China. China’s Tianhe-2 is currently the world’s fastest supercomputer though the Obama administration has announced a programme to reclaim that title for the U.S. The Americans have concerns that the Tianhe-2 is being used for nuclear-weapons development

Meanwhile, China has become a leader in drone manufacturing. DJI Technology, the Shenzhen-based company whose drones have been flown (uninvited) into the White House grounds in Washington and onto the roof of the office of the Japanese prime minister in Tokyo, had sales of $500 million in 2014, more than any another maker of unmanned aircraft.

Sales of its best-selling Phantom line of commercial drones (seen above mounted with a GoPro camera) are unlikely to suffer from the new regulations, and so DJI will remain on track to become this year the first drone maker to record $1 billion in sales.

Update: DJI has 70% of the world market for commercial drones and is valued at $10 billion, according to an FT interview with one of its earliest outside investors, Neil Shen, who runs the China arm of the Silicon Valley investment firm, Sequoia Capital.

Leave a comment

Filed under China-Russia, China-U.S., Industry