A President At Court

Donald Trump seen in Washington, November 2011. Photo credit: Gage Skidmore. Licenced under Creative Commons

IT IS THE time US President Donald Trump spends in Beijing that will be the most critical part of his more-than-weeklong tour of five Asian countries that he started this weekend.

To the other four countries on his itinerary — Japan, South Korea, Vietnam and the Philippines — he will offer some measure of assurance that the United States’ traditional security guarantees to the region can be squared with his ‘America First’ economic nationalism.

Trump’s withdrawal from the Trans-Pacific Trade Partnership (TPP), a cornerstone of his predecessor Barack Obama’s ‘Asian pivot’, has been deeply felt with some concern across the region. Nowhere less so than in Japan, where Prime Minister Shinzo Abe had invested considerable political capital in TPP and must now still assume the role of the principal regional counterweight to China.

The Trump administration is increasingly referring to the region as the Indo-Pacific, not Asia-Pacific, to diminish the Asia part, which to most Americans implies Chinese. The two regions are not the same to a geologist or marine biologist,  but the co-option of the term by geopolitical strategists is blurring the distinction. However, it will take more than rebranding to assuage Asian allies’ anxieties.

In Beijing, the mood will be very different. Trump will be pampered and feted at the court of ‘the King of China’, to use Trump’s phrase. The US businessmen accompanying the US president will sign multi-billion dollar sales deals that will help to diminish China’s trade surplus with the United States, but in designated sectors, notably energy, of Beijing’s not the free-market’s choosing.

Discussions about North Korea have potential to be contentious, but Trump may well find himself an uncharacteristically restrained guest as Xi holds to China’s ‘dual approach’ line and stresses the need to get all parties back to the negotiating table.

Most of all Beijing will project the visit of a meeting of two superpowers, who will jointly “map out a blueprint for the development of bilateral ties in a new era”, as Vice Foreign Minister Zheng Zequang puts it. China-America First, perhaps, but every photo opportunity will be carefully used to convey which of the two leaders is the great draftsman.

It is a formula that worked well for China when Xi visited Washington in January. On these trips, the optics are as, if not more important than the outcomes.

As soon as Trump has departed Beijing, Xi will head to the Asia-Pacific Economic Cooperation (APEC) summit in Danang in Vietnam. Trump, too, will be there, and the allies and adversaries on both sides will make their judgements about which of the two superpowers will figure most prominently in their lives.

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One Belt, One Road To Rule Them All

Belt and Road International Forum, Beijing, May 2017. Photo credit: The Russian Presidential Press and Information Office. Licensed under Creative Commons.IT IS NOT just General Secretary Xi Jinping’s ‘Thought’ that has been inscribed in the Party’s constitution. So, too, has his grand vision and signature policy, the Belt and Road Initiative, or OBOR for its original designation, One Belt One Road.

This will give political longevity to the ambitious scheme Xi announced in 2013 to transverse the Eurasia landmass and beyond with a network of roads, railways, ports, pipelines and other infrastructure projects carrying China’s surplus industrial and services capacity westwards and food and energy resources in the opposite direction. Opposing or obstructing it, just as with opposing or obstructing Xi, will henceforth equate with betraying the Party itself.

Few, if any infrastructure projects can boast either such prestige or protection. As Xi indicated at the Party Congress just concluded, OBOR will be central to China’s development until at least 2050, the date Xi has set by which China is to be a leading global power (neatly coinciding with the 100th anniversary of the founding of the People’s Republic on October 1, 1949).

So great is the ambition of this combination of commerce, construction and capital that it is impossible to put an accurate cost or timetable on it.

Bloomberg counts more than $500 million the China has so far spent or committed to OBOR. There is a $40 billion Silk Road Fund and much of the $100 billion Asian Infrastructure Investment Bank (AIIB) will be directed towards it. No doubt some of the $300 billion National Pension Fund will find its way to OBOR projects as will investment from state-owned banks and enterprises and dutifully patriotic private companies.

The US investment bank Morgan Stanley has suggested that $1.2 trillion will be spent on OBOR-related infrastructure over the next decade. However, so loosely is it defined and so ambitious its scope that you can just about put any price tag on it, as long as it is in the many trillions.

Beijing lists 68 countries as OBOR partners spanning Asia, Africa, the Middle East, Europe and Oceania. They already account for one-third of global GDP and trade, two-thirds of the population and one-quarter of global foreign direct investment. The management consultancy McKinsey & Co.reckons they will contribute 80% of global economic growth and add 3 billion to the global middle class by 2050. Any number is going to be large.

For all the trillions of dollars of hard infrastructure that will be built — and as we have noted before, if even only a fraction of what is being talked about gets completed, it will still be huge — OBOR is also a geopolitical project. Whether you see that as 21st-century merchant hegemony writ large or the world’s largest platform for regional collaboration and future engine of trade and investment growth, there can be little argument that it will potentially give Beijing vast sway over a large part of the world.

It is a part of the world with lots of risks, however, both geopolitical and financial. One measure of both is that state-owned insurer China Export & Credit Insurance Corp. said it has paid out $1.7 billion in claims since 2013 on $480 billion of exports and investments it has insured in OBOR countries. The sort of risks the insurer covers are things like government seizures, nationalisation and political violence.

More than half of China’s outward OBOR investment since 2013 has been in countries whose sovereign credit rating is below investment grade — ‘junk’ in the jargon. Of the 68 OBOR countries, only 27 of them are not rated as junk.

It is easy to assume that the Chinese state and its own and private (and dutifully patriotic) companies will be pouring a lot of good money after bad. However, many of the OBOR countries have trade and growth potential that can be released by infrastructure development, especially on the scale and interconnectedness envisaged. That would generate some of the growth necessary to provide some return on the investment.

It will also give China a huge sphere of influence far beyond its near abroad, in which today’s superpowers will be marginalised.

The ‘America First’ economic and political nationalism of the Trump administration, which has caused the stalling of the TransPacific Partnership (TPP) and disengaged the ‘Asian pivot’ of its predecessor Obama administration, has given Beijing an unexpected window of opportunity to advance OBOR and its alternative arrangements to those that have governed the international order in the era since World War II.

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No Change At The Top

Members of the Politburo standing committee elected October 2017

THE QUINQUENNIAL CONGRESS of the Chinese Communist Party has, by recent convention, set the course of the Party’s future leadership. The 19th, just concluded, is no exception. The future leadership of the Party is for the foreseeable future, general secretary Xi Jinping.

Two signs of Xi’s sway are, first, that his ‘Thought’ has been written into the Party’s constitution by name. That not only elevates him to the level of Mao Zedong but makes any challenge to his authority a challenge to the Party as a whole. Second, he has been able to avoid installing a Politburo Standing Committee — the seven men (and it is all men, as seen above) at the apex of Chinese affairs — that contains any obvious successor.

That may be his most important achievement of all at the Congress. It avoids him being seen as a lame duck during the second of his two five-year terms as president, and leaves him the most flexibility in putting in place whatever arrangements he wishes for when that five years are up.

His options then are:

  • to hand over the presidency to a loyalist who would perform the role as a ceremonial head of state (like a queen in a constitutional monarchy) while he exercises executive power from a post such as Party general secretary or head of the military commission (as Jiang Zemin did);
  • to ensure that a hand-picked successor takes over the presidency and general secretary positions while he exercises control for behind the scenes as ‘core leader’ (as Deng Xiaoping did as ‘paramount leader’). That successor would be promoted from the Politburo without the customary five-year preparation period of being on the standing committee, though, as that is meant to be a time for the successor to establish his authority, that would not be needed as the authority would stay with Xi anyway;
  • or he could baldly amend the national constitution to allow himself to continue as President for a third term.

In the meantime, Xi will embark on his second term with a Politburo standing committee that contains some allies but no fierce opponents, and all of an age at which they can have no expectation of taking the top job before they retire.

Five of the seven members of the previous standing committee have retired, leaving Xi and prime minister Li Keqiang as the only two carryovers. Among the newcomers, the two most important factions within the Party, Jiang’s Shanghai faction and the Communist Youth League of Xi’s predecessor Hu Jintao, have got places at that highest of high tables, notably Han Zheng for the Shanghai group and Wang Yang for the Youth League, which can also count Li. But both factions have been considerably weakened by Xi’s anti-corruption-cum-political-purge campaign.

To say that Xi has established his own faction may be over egging the pudding. If he is at the centre of one it is the amorphous group known as princelings, which has many cross-overs with other groupings.

However, jockeying for power is part of the warp and weft of China’s elite politics. Xi now has two firm allies. One is his former chief of staff and long-standing associate, Li Zhanshu, who will head the rubberstamp parliament, the National People’s Congress, in which role he would be critical if Xi did want to amend the natonal constitution to permit a third term as president. The other is the former head of the Party’s Organisation Department, Zhao Leji, who will head the Central Discipline Inspection Commission in succession to Wang Qishan, who led the anti-corruption operations that were instrumental in consolidating Xi’s power.

Yet, apart from supporting Xi, the overriding characteristics of the new standing committee, however, is experience and competence. These are people who know how to run a large operations as well as operate at the highest levels of the Party.

Xi also knows the importance of snuffing out factional struggles. In Hu’s last term, Xi and Hu spared over how quickly the outgoing president would successively yield his Party, state and military offices as he attempted to cement his legacy and power behind the throne.

Below the standing committee, the 25-member Politburo is broadly pro-Xi. The same can be said for the 200-member Central Committee beneath them.

Perhaps most critically, Xi loyalists now control all the key provinces and provincial-level municipalities that matter — Beijing, Shanghai, Guangdong, Chongqing and Tianjin, for example, and those where the could be unrest, notably Xinjiang. The mountains may be high and the emperor far away, as the old proverb has it, but Xi has his loyalists in place to ensure there is no repeat of city bosses like the disgraced Bo Xilai and his recently purged successor Sun Zhengcai getting uppity.

Our man in Davos sent word of how he remembered seeing a somewhat hesitant Xi being unveiled to the world at a World Economic Forum meeting a decade or so back and contrasted that with the assured, commanding figure that was seen at the 19th Party Congress. This Bystander also remembers some words penned here about Xi back in 2012 just ahead of the 18th Party Congress that would bring him to power:

Cunning, calculating and ambitious Xi plays politics like a chameleon playing poker.

He has played a winning hand, and still holds most of the aces.

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China Looks To Make A Razor-Sharp Deal For Saudi Aramco

Chinese Vice Premier Zhang Gaoli (L) meets with Saudi King Salman bin Abdulaziz Al Saud in Jeddah, Saudi Arabia, Aug. 24, 2017. Photo credit: Xinhua/Wang Ye

THIS BYSTANDER RECALLS a classic television advertisement from the 1970s in which US businessman Victor Kiam said he so loved using a Remington electric razor that he bought the company. China’s state-owned oil companies so love buying Saudi oil they are reportedly thinking of doing the same.

The Reuters news agency recently reported that the kingdom is evaluating the sale of 5% of its state oil company, Saudi Aramco, to a Chinese consortium comprising PetroChina and Sinopec, state-owned banks and China’s sovereign wealth fund. This would be as an alternative, or possibly a precursor to an initial public offering (IPO) of the Aramco’s shares on one or more stock markets, a listing that would likely be the biggest share sale ever and expected to raise $100 billion. The Chinese consortium would presumably have to come close to matching that number.

Ever since the Saudi government said it was looking to sell a small stake in Aramco in 2018 to kick start the funding of its economic diversification programme, Vision 2030, the world’s leading stock exchanges have been bidding for what would be both a large and a prestige bit of business. Some suitors have been ready to turn a blind eye to infringements of their own rules in their desire to get the listing.

A direct sale of a stake to China, the biggest buyer of Saudi oil, would make any eventual listing more likely to happen in Shanghai or Hong Kong than New York or London, which would be a considerable feather in the caps of either exchange.

Such a deal would also strengthen two-way Saudi-China trade and investment ties. In August, the Saudi energy minister said he expected to conclude a deal next year with PetroChina for the Saudis to invest in a new 260,000-barrels-a-day oil refinery in Yunnan that started operations in July. That investment was reported in April to be a 30% stake valued at $2 billion.

A similar arrangement could be struck with China National Offshore Oil Corp, (CNOOC), which is building a 200,000-barrels-a-day refinery in Guangdong province.

Vice Premier Zhang Gaoli (seen above on the left) visited Saudi Arabia in August, meeting Saudi King Salman (on the right) and Crown Prince Mohammed bin Salman in the Red Sea resort of Jeddah. This followed an exchange of official visits in 2016, with the king in March returning a visit by President Xi Jinping in January in which the two countries agreed to upgrade the bilateral ties to a comprehensive strategic partnership.

China is already Saudi Arabia’s largest export market, at $23.6 billion (2016 figures), all but a slither of it crude and refined oil and petrochemical products, and accounting for 15% of Saudi export volumes. China is also the kingdom’s leading source of imports, at $18.7 billion, accounting for 14% of total import volumes. Machinery accounts for 36% of Chinese imports, followed by metals (13%) and textiles (12%).

However, since late 2015, when China changed its rules on where independent refiners could buy crude, Russian suppliers have been vying with the Saudis to be China’s leading source of crude. That generates competition that will be welcome in Beijing for the effect it will have on prices, but another reason that Saudi might be prepared to cut investment deals to secure its exports.

 

Update: Aramco’s chief executive, Amin Nasser, told the US business news TV channel CNBC in an interview broadcast on October 23 that an IPO was on track for the second half of 2018. Nasser also denied a Financial Times report that Aramco was talking to ‘the Chinese or others’ about delaying the share sale. He was not pressed, however, on whether a separate deal with investor groups could co-exist with a public share sale.

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Xi Sets Out What He Is Thinking

Screengrab from a live television broadcast of Xi Jinping presenting his work report to the 19th Party Congress in Beijing, October 18, 2017

MAO TRANSFORMED CHINA. Deng Xiaoping transformed China.

Xi Jinping?

Xi has placed his marker at the 19th Party Congress — ‘socialism with Chinese characteristics for a new era’. Significantly, state media are starting to report it appended to his name: ‘Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era’. Xi’s formal induction into the pantheon of Party ideology alongside Mao Zedong Thought and Deng Xiaoping Theory cannot be far behind.

Xi Jinping Thought comprises 14 bullets points that, in short, reiterate that the Party leads everything. However, the sense of marking an epoch is as palpable as it is deliberate.

Xi portrays his China as one that will have become a global leader with international influence, a modern economy, advanced culture and world-class armed forces.

This future will come in two 15-year phases, 2020-2035 and 2035-2050.

The first phase will focus on turning fast growth into high-quality development, the deliverance of a ‘moderately prosperous society’. The second will turn China, by then likely the world’s largest economy, into Beautiful China, some nirvana-like flowering of a great modern socialist country-cum-superpower, and to do so, conveniently, in time for the 2049 centenary of the revolution that brought Mao and the Party to power. (Poverty is to be eradicated by the centenary of the Party’s founding, 2021.)

The first phase involves moving ahead with the rebalancing of the economy towards consumption-led growth that has been haltingly underway for some time. The financial system will become more market-based, and state-owned enterprises will be turned into world-class, globally competitive firm. China will become more open to foreign investors. Rule by law will be enhanced. Greater environmental protections introduced. The modernization of the PLA will be completed by 2035, giving China a world-class military, for which read on par with or better than the United States’.

Diplomatically, China will pursue global development in partnership with other countries, though it will create an alternative (and Beijing-led) global order architecture to be the framework for that. Alongside that, it will seek to strengthen its cultural soft power. Meanwhile, internally the anti-corruption campaign will continue to ensure the Party does not rot from the inside. And loyalty to the party and central leadership group must be absolute.

If this sounds like a political laundry list drawn up by a committee that is because, at heart, it is. Nor does it contain any new initiatives. Though delivered by Xi as his ‘work report’ and bearing his indelible stamp, the three and a half hour speech and its underlying text is the result of a year of consensus building involving thousands of officials.

Its purpose is to show the Party’s rank and file the signposts to the long-term actions expected from them by the leadership in all policy areas. That leadership, though, is now firmly Xi’s. The next question is how long he will feel he needs to exercise it.

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Xi Jinping: Two Eyes To The Future

xi-jinping

Xi Jinping

THE CRITICAL 19th Party Congress is due to get underway on October 18. A three-day preparatory meeting of the Party’s top leadership wrapped up today in Beijing.

It is commonly held that President Xi Jinping will emerge from the forthcoming Party congress with an even greater grip on power.  That may well be true; Xi will certainly be reappointed to the Party’s top post, general secretary, and might well be able to prevent Politburo Standing Committee promotions that indicate a designated successor in five years time — suggesting that Xi might stay beyond the now customary two terms.

An extension for Prime Minister Li Keqiang is less likely, with Hu Chunhua, Party boss in Guangdong (a post Xi’s father once held), being lined up to succeed him.

However, Xi’s enhanced power will not be as absolute as the personality cult building up around him might suggest. He will still have to horse trade with nodes of power and influence within the Party that have been diminished but not extinguished by his anti-corruption campaign.

The outcome of those compromises will offer a measure of the willingness of China’s elite to accept another five years of Xi’s tightening and highly personalised political control.

Little of that horse trading will be on public view at the Party Congress. Instead, there will be much play given to the ‘great rejuvenation of the Chinese nation’ and the ‘Chinese dream’, two somewhat ill-defined distillations of Xi’s “four identifications” that he believes all Chinese should make (with the motherland, the Chinese race, Chinese culture and the Chinese socialist road).

Part of that, also likely to be prominently presented is China-centric alternatives to the US-dominated Western international order, if not couched in quite such confrontational terms. Ambitious attempts to redraw the global geostrategic map, such as Xi’s pet ‘One Belt One Road’ project, will be presented not in terms of Chinese assertiveness and expansionism on the global stage but ‘win-win’ partnership and cooperation. China will also be presented as the rational counterpoint to US President Donald Trump that the world needs now, with Xi himself as its embodiment.

Meanwhile, much of the backroom dealing will already have been done.

Xi’s goals are twofold. First, he will wish to drive forward his self-appointed mission of reinventing both party and country so that the Party retains its monopolistic grip on power, which history suggests is at risk as China becomes richer.

Five years ago, managed economic reform was at the forefront of Xi’s agenda, but has been thwarted by vested interests, which have had to be systematically removed, mostly through the anti-corruption purge. Economic reform needs to be restarted, and before the country’s debt problem causes political problems. He still does not have the control over the economy that he does over the state security apparatus, military and, increasingly, the Party.

Second, he will want to put in place people who can carry forward that mission if and when he is gone, and to make sure they do not suffer the purges that Xi has used to decimate his rivals.

We use the verb deliberately. Roughly one in ten officials have been warned, put on probation, demoted or expelled from the Party since the crackdown started. According to Central Commission for Discipline Inspection figures published earlier this month, 1.34 million township-level and 648,000 Party members and officials in rural areas have been punished in the five years of the campaign, as well as more than 70,000 officials at or above the county-head level. More than 35,000 officials have been prosecuted.

That is a lot of ‘flies’, but several ‘tigers’ were tamed, too, including Sun Zhengcai, a Politburo member seen as a potential successor to Xi, and Wu Aiying, 65,  justice minister from 2005 until this February past and one of only a handful of senior female officials in China. The flies represent, as this Bystander noted before Xi ascended to power, how he is driven by a sense of a loss of the Party’s traditional moral values of honesty, dignity and self-respect; the tigers reveal his political ruthlessness.

This crackdown consolidated Xi’s control but also broke the implicit post-Mao pact that effectively banned large-scale purges within the elite. Xi’s followers no longer have that self-preservation guarantee, either. Xi needs to gather more power to himself now to protect them, and thus his legacy, in the future.

There are risks. The anti-corruption campaign has had a chilling effect on officialdom and morale is low. The security apparatus and military can be kept onside through expanded missions, new toys and reorganisations that elevate Xi loyalists. But the civil administration is a different matter.

Xi will need China’s massive administrative apparatus to implement his economic reforms. Their disciplined enthusiasm for doing so will be critical, especially as they will no longer be able to skim off their piece of economic progress. The anti-corruption campaign appears to have eased back on the Communist Youth League, the faction that draws heavily from cadres and government officials.

Xi’s leadership is likely to be more openly challenged within ruling circles should the economy run into serious problems, perhaps as a result of the debt crisis being mishandled or from an external shock, such as a trade war with the United States, although the state security apparatus would likely prevent either from triggering social unrest. Similarly, failures connected with his signature international projects, notably One Belt One Road, could undermine him domestically.

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