Western China Observers Have to Give up Doomsdays Prediction

Accept the rise of China as pessimist predictions have always been wrong. That is Jeremy Goldkorn’s message in his SubChina post “The pessimists have always been wrong” yesterday, full text of which is reblogged below:

The pessimists have always been wrong

Jeremy GoldkornDecember 15, 2017

Arthur Kroeber is one of the most perspicacious observers of China’s economy. His views are closely scrutinized by global investors. Kroeber has a cautiously optimistic, but entirely hype-free perspective on the movement of money in the Middle Kingdom that many of us at SupChina are in sympathy with, as you can hear in our Sinica Podcast: Arthur Kroeber vs. The Conventional Wisdom.

The China Economic Quarterly, a journal founded by Kroeber 20 years ago, is ceasing publication as the company behind it pursues one-off reports. In the Australian, Rowan Callick summarizes (paywall) “four hard-earned and important lessons about China’s economy” learned during the Quarterly’s 20 year run, and reflected in its final issue:
•The pessimists have always been wrong;
•Effectiveness — at allocating resources to produce sustained growth — trumps efficiency;
•The financial system is stronger than it looks; and
•And a dynamic economy can survive even authoritarian politics.

Kroeber also believes that “it is basically impossible for China ever to fully liberalise its capital account” because its economic stability depends on a large pool of captive domestic savings, restrictions on capital outflows and limits on borrowing from abroad. As long as this situation continues, China will not be able to take a leading role in the global financial system.


Local Debts May Not Give Rise to China’s Lost Decade

Reuters says in its report “China raises market rates to fend off financial risks, growth cools” on December 14 that China’s central bank nudged up money market rates in order “to defuse financial risks without imperiling the economy”.

According to the report, China’s economy “has started to cool in recent months amid a government crackdown on high-risk lending and polluting factories” and the move by the central bank “signaled that Beijing will keep policy tighter next year”.

The report says, “A flurry of data on the day highlighted the economic impact of government efforts to wean China off its years-long addiction to debt, with industrial output, investment and property market all backing evidence of a moderation in momentum.”

It shows that China has employed talents to manage its economy so that it will be able to control local debts without greatly affecting China’s economic growth. If good financial policies keep on being implemented wisely, “local debts may not give rise to a Lost Decade” as pointed out in my post “Will China’s Growth Cease like Japan Did when It Said It Could Say No?: Xi Jinping Thought, Declaration of ‘China Can Say No’ (2)” yesterday.

Comment by Chan Kai Yee on Reuters’ report, full text of which can be viewed at https://www.reuters.com/article/us-china-economy-activity/china-raises-market-rates-to-fend-off-financial-risks-growth-cools-idUSKBN1E8077.

Will China’s Growth Cease like Japan Did when It Said It Could Say No?

Xi Jinping Thought, Declaration of ‘China Can Say No’ (2)

Since Japan was defeated by the US, Japanese government has always been a mere “yes man” to the United States. However, after three decades of fast growth, an influential Japanese politician Shintaro Ishihara and a well-known Japanese tycoon Akio Morita published a book in 1989 titled “The Japan That Can Say No: Why Japan Will Be First Among Equals”. The book criticizes US business practices and believes as Japan has grown so rich and strong, it is time for Japan to declare that it can say no to the US on many issues from business to foreign affairs. As Japanese people were fed up with Japanese government’s “yes man” attitude towards the US, the book soon gained fame.

I wonder whether Japanese people were fond of the book’s declaration as US arrogance had upset them or they had became arrogant themselves when Japan had become rich and might surpass the US. Germany did become arrogant when it had recovered from its defeat in WWI and fought a war of revenge but was defeated again. When Japan declared its ability to say no to the US, however, Japan did not seem arrogant nor wanted to revenge.

However, we really do not know what Japan will do when it has surpassed the US as Japan’s asset price bubble soon burst and left Japan struggle in vain to reinvigorate its stagnant economy in its Lost Decade. Japanese government remains the “yes man” towards the US.

Has China become arrogant now after its four decades of fast economic growth?

It does not seem so according to China’s friendly attitude towards EU and the US. Moreover unlike Japan who said no specifically to the US, what China says no to is related to ideology, system, governance style and values, which are not directed at any specific country.

Moreover, China has said no for quite a few years. For example, Jiang Zemin’s protégé Wu Bangguo said no to westernization, Western democracy, privatization, etc in almost every of his annual speeches to China’s National People’s Congress (NPC) in the decade when he was rank-3 Politburo Standing Committee member serving as NPC chairman. Collection of all the say-nos in Xi Jinping Thought and regarding the Thought as China’s guiding ideology only put more emphasis on previous saying-nos.

The conflict between China’s socialist ideology and Western ideology may intensify and make prominent the new Cold War that I described in my posts “The beginning of a new Cold War: On Putin’s Beijing visit”, “The new Cold War: The autocracy camp” and “The new Cold War: The democracy camp” respectively on June 6, 7 and 11, 2012.

However, the declaration of China can say no is already a fact. In fact, China’s ally Russia has long been saying no. It is now challenging the West militarily arms in Ukraine and Syria in spite of Western sanctions. Like saying no, the Cold War is predictable.

The question now is whether like Japan China will suddenly encounter serious obstacles and experience a Lost Decade.

No one can accurately foresee the future so that neither Japanese government nor Japanese people foresaw Japan’s Lost Decade.

However, as China’s fast rising is indeed unprecedented and as it makes some people in the West unhappy or scares them, in China’s decades of rising, there are lots of doomsday prediction about China. The most prominent is Gordon Chang’s best seller written in 2001 and updated in 2002 titled “The Coming Collapse of China”. He predicted in the book that China would collapse within 10 years, but now 16 years have passed China has not collapsed. It has, instead, grown into a superpower.

Gordon Chang is an American Chinese lawyer who had been working in China for over 2 decades when he wrote his best seller.

He really knows China and the problems of China’s state-owned enterprises mentioned by him in his book, their heavy debts and serious losses, might really cause China to collapse. According to him, the situation would worsen gravely when China joined WTO as Chinese enterprises, especially banks, simply could not compete with foreign ones.

However, since China joined WTO, Chinese SOEs’ profits have soared. Their total profit jumped from US$38.59 billion (RMB263.60 billion) in 2002 to US$237.19 billion (RMB1,620 billion) in 2008. China’s foreign exchange reserve shot up from US$286.41 billion in 2002 to US$2.45 trillion in March 2010.

What Gordon Chang Missed in His Prediction?

Gordon Chang probed into the fundamentals and had contacts with Chinese people in China for years. His approach was correct and the problems he pointed out in his book were real serious ones very difficult to resolve. He did have a whole picture of the predicament Chinese leaders were in. In addition, no one had ever tried to resolve the problems of SOEs suffering losses and being on the verge of bankruptcy; therefore, there were no lessons or experience that Chinese leaders could learn from.

However, there is a common missing link in all Westerners’ study of China: Due to the Cultural Revolution, all talented scholars with moral integrity studied hard and wanted to become politicians to establish scholars’ rule and save the country. China had a large number of talented politicians with moral integrity far superior to those in other countries (see my book “Tiananmen’s Tremendous Achievements”). Western China-watchers including Gordon Chang failed in their prediction because they underestimated Chinese politicians’ talents.

CCP has a long history of power struggle, which was especially fierce in Mao era and the initial period after Mao era. As a result, Western media and China-watchers pay more attention to power struggle than anything else. As power struggle is often sensational and interesting, the media is especially thirsty for news in this respect in order to attract audience. The disasters caused by Mao and the Tiananmen Massacre have caused people in the West to hold negative views about Chinese leaders. Due to the lack of transparency in Chinese politics, the reports on power struggles and other misrule are often mere speculation. Gordon Chang had certainly been affected. Therefore, in spite of more than two decades of good rule resulting in huge economic and social progress, Westerners including Gordon Chang are still accustomed to regarding Chinese leaders as dogmatists interested only in power struggle and incapable of resolving difficult problems, let alone such unprecedented, tricky problem as turning SOEs profitable.

As no Westerners lived among Chinese scholars in China especially the new generation of talented scholars with moral integrity that emerged during the Cultural Revolution (Xi Jinping being one of them), they certainly are unable to know the reasons why Chinese scholars are able to satisfactorily resolve the problems regarded as insolvable by them and why lots of Chinese entrepreneurs and SOE managers capable of competing with foreign giants can have emerged.

Now, the doomsday foretellers place their hope on Chinese local governments’ heavy debts. As most of the debts have been borrowed for construction of infrastructures to facilitate economic development, the problem is not so serious as Japan’s asset price bubble. Xi Jinping is strengthening centralism to control local government; therefore, local debts may not hinder China’s economic growth.

However, as I said above no one can foresee the future, I cannot say for sure that China may not experience a Lost Decade. Only local debts may not give rise to a Lost Decade.

Comment by Chan Kai Yee on People’s Daily’s editorial, full text of which in Chinese can be found at http://paper.people.com.cn/rmrb/html/2017-12/06/nw.D110000renmrb_20171206_8-01.htm.

While focus is on North Korea, China continues South China Sea buildup: think tank

FILE PHOTO: Construction is shown on Fiery Cross Reef, in the Spratly Islands, the disputed South China Sea in this June 16, 2017 satellite image released by CSIS Asia Maritime Transparency Initiative at the Center for Strategic and International Studies (CSIS) to Reuters on June 29, 2017. MANDATORY CREDIT CSIS/AMTI DigitalGlobe/Handout via REUTERS/File Photo

David Brunnstrom December 15, 2017

WASHINGTON (Reuters) – While attention in Asia has been distracted by the North Korean nuclear crisis in the past year, China has continued to install high-frequency radar and other facilities that can be used for military purposes on its man-made islands in the South China Sea, a U.S. think tank said on Thursday.

Chinese activity has involved work on facilities covering 72 acres (29 hectares) of the Spratly and Paracel islands, territory contested with several other Asian nations, according to the Asia Maritime Transparency Initiative of Washington’s Center for Strategic and International Studies. The report cited satellite images.

The United States and its allies oppose China’s building of artificial islands in the South China Sea and their militarization, given concerns Beijing plans to use them to deny access to strategic routes.

The report said that in the last several months China had constructed what appeared to be a new high-frequency radar array at the northern end of Fiery Cross Reef in the Spratlys.

Subi Reef had seen tunnels completed that were likely for ammunition storage and another radar antenna array and radar domes, the report said.

Construction on Mischief Reef included underground storage for ammunition and hangars, missile shelters and radar arrays.

Smaller-scale work had continued in the Paracel Islands, including a new helipad and wind turbines on Tree Island and two large radar towers on Triton Island.

It said the latter were especially important as waters around Triton had been the scene of recent incidents between China and Vietnam and multiple U.S. freedom-of-navigation operations, which the U.S. navy has used to assert what it sees as its right to free passage in international waters.

Woody Island, China’s military and administrative headquarters in the South China Sea, saw two first-time air deployments “that hint at things to come at the three Spratly Island air bases farther south,” the report said.

At the end of October, the Chinese military released images showing J-11B fighters at Woody Island for exercises, while on Nov. 15, AMTI spotted what appeared to be Y-8 transport planes, a type that can be configured for electronic surveillance.

The Pentagon has conducted several patrols near Chinese-held South China Sea territory this year, even as it has sought China’s help in northeast Asia to press North Korea to give up its nuclear weapons program.

On Tuesday, U.S. Secretary of State Rex Tillerson reiterated a call for a “freeze” in China’s island building and said it was unacceptable to continue their militarization.

Reporting by David Brunnstrom; Editing by James Dalgleish

Source: Reuters “While focus is on North Korea, China continues South China Sea buildup: think tank”

Note: This is Reuters’ report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.

China cultivates African elites

Jeremy Goldkorn  December 14, 2017

Former Beijing resident and now Nairobi-based Quartz reporter Lily Kuo’s latest report looks at Chinese efforts to bring “thousands of African leaders, bureaucrats, students, and business people to China” for inter-party exchanges, training, and education.
•“The trips help solidify political and business ties between China and its partners” in Africa, says Kuo, and give China opportunities to “cultivate partners on the continent who are more likely to be sympathetic to China and its way of doing things.”
•One thousand young African politicians would be invited to China for training, according to a government announcement last year. There were around 200 in total between 2011 and 2015.
•There are now more Anglophone African students in China than in the U.S. or the U.K., and around 50,000 African students in total, many on scholarships from the Chinese government.
•South Sudan will prove to be an interesting study in the program to cultivate African elites: There are frequent exchanges between South Sudanese and Chinese officials, and Beijing “has given at least 4,100 scholarships and training programs to South Sudanese students and officials since 2011, when the young country was established.”

While China’s efforts to engage with African politicians and thought leaders are viewed with suspicion in the West, much of the English-language media coverage suffers from a patronizing attitude to Africans that does not grant them agency in their own decisions. The Quartz article quotes Adams Bodomo, professor of African studies at the University of Vienna:

“The young Africans are not robots and tabula rasa such that the Chinese will just stuff them with whatever they want. The students will take the best of China and leave the bad there in China and go back to Africa.”

SupChina’s recent work on Africa-China relations includes this Sinica Podcast with scholar Lina Benabdallah.

Source: SubChina “China cultivates African elites”

Note: This is SubChina’s report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.

South Korean firms flock to Beijing hoping summit will hasten thaw with China

File photo: South Korea’s President Moon Jae-in attends the APEC Economic Leaders’ Meeting in Danang, Vietnam November 11, 2017. REUTERS/Jorge Silva

Joyce Lee, Christine Kim December 13, 2017

SEOUL (Reuters) – Hoping a thaw in relations with China will reopen opportunities after a diplomatic spat earlier this year cost many of them business, some 300 South Korean executives joined President Moon Jae-in for the start of his four-day trip to China on Wednesday.

The delegation was the largest to accompany a South Korean leader abroad, and reflected the value the firms placed on mending ties with their country’s biggest trading partner.

Trade and business exchanges between the two countries froze earlier this year after South Korea deployed U.S.-made Terminal High Altitude Area Defense (THAAD) anti-missile system regardless of vehement objections from Beijing.

Among those who traveled were executives from some of the firms hit hardest by the backlash, including Lotte Group and cosmetics and entertainment firms such as Amorepacific and S.M. Entertainment.

Addressing around 500 Chinese and South Korean businessmen at a forum in Beijing, Moon stressed the need to “build a systemic foundation for a stable economic cooperation”.

Moon said he expects to sign a memorandum with President Xi Jinping at a summit on Thursday, a step toward follow-up negotiations of the South Korea-China Free Trade Agreement (FTA) concerning services and investments.

“This is expected to expand the entry of both countries’ companies into service industries, and revitalize mutual investments,” he said.


The THAAD disagreement knocked about 0.4 percentage points off expected economic growth in South Korea this year and resulted in lost revenues of around $6.5 billion from Chinese tourists in the first nine months of the year, as the number of visitors fell by half.

Anti-South Korean sentiment also battered firms’ sales of entertainment, cosmetics and cars in China.

Multiple officials from South Korea’s largest companies told Reuters they hoped that Moon’s visit to China would mark the next step toward improving ties after the two governments reached an initial agreement in late October to move past the dispute.

Still, they were doubtful whether a sudden turnaround in business relations would be achieved over the coming days.

“If you look at earlier cases, it takes several, gradual steps for unspoken reprisals to be eased,” said an official from a Korean firm accompanying Moon who declined to be identified as the matter was sensitive.

“We’re hoping this is a key step.”

Reuters spoke to around 20 of the South Korean firms represented in the delegation, and none had any fresh investment or business deal announcements planned.

Instead, an official at game developer Wemade Entertainment Co Ltd, whose CEO attended the forum, said executives would be looking to reopen dialogue with Chinese counterparts.

“Rather than having a specific agenda, we are hoping for a space to discuss various matters,” the official said.


In late November, China allowed travel agencies in Beijing and Shandong to resume some sales of group tours to South Korea, but tour agencies were told not to include South Korean retail-to-chemicals giant Lotte Group in travel packages.

Lotte, which provided the land where the THAAD system was installed, was hardest hit in the diplomatic standoff.

Its chain of hypermarkets and supermarkets in China were largely shuttered, and it is expected to sell the stores for a fraction of what it invested.

The conglomerate previously said it planned to sell the stores by the end of this year, but the talks have been in “a stalemate,” a Lotte Group official said, declining to be identified due to the sensitivities.

Still, the official hoped the summit would ease the way for the planned sales of hypermarkets in China and lead to a full lifting of group tour bans.

“We have big hopes about the summit,” the official said.

Reporting by Joyce Lee and Christine Kim; Additional reporting by Hyunjoo Jin, Heekyong Yang, Yuna Park and Jane Chung; Editing by Simon Cameron-Moore

Source: Reuters “South Korean firms flock to Beijing hoping summit will hasten thaw with China”

Note: This is Reuters’ report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.

Ford to Move Midsize Sedan Production to China

Reuters says in its report “Ford to shift midsize sedan production out of Mexico: sources” today, “Ford Motor Co has told suppliers it plans to shift production of midsize Fusion and Mondeo sedans out of Mexico and Spain in 2020 and move it to China, three sources said on Wednesday”, and “The automaker said it will not ship those cars from China to the United States and Europe.”

Source: Reuters “Ford to shift midsize sedan production out of Mexico: sources” (summary by Chan Kai Yee, full text of the report can be found at https://www.reuters.com/article/us-fordmotor-china/ford-to-shift-midsize-sedan-production-out-of-mexico-sources-idUSKBN1E72LK)