Authorities are worried about tycoons pulling strings behind the scenes
PUBLISHED : Monday, 27 February, 2017, 6:37pm
UPDATED : Tuesday, 28 February, 2017, 3:01am
The collapse of a highly leveraged, 3 billion yuan (US$436 million) takeover bid for a Shanghai-listed animation company this month shone a spotlight on a shadowy corner of China’s stock market that is worrying the authorities in Beijing.
The bidding vehicle, Longwei Culture and Media, was set up in Tibet in November by wealthy actress Zhao Wei and her husband Huang Youlong with registered capital of just 2 million yuan. A month later, it offered 3.06 billion yuan for a controlling, 29 per cent stake in Zhejiang People Culture (ZPC), a former property developer that now produces cartoons.
The Shanghai Stock Exchange asked the two companies to explain where the funding was coming from after ZPC made the bid public, causing its share price to rally. The answer from Longwei, released via ZPC, raised even more questions: Zhao and Huang were proposing to pay 60 million yuan from their own pockets, with 1.5 billion yuan borrowed, with no collateral, from Yinbixin, a trust investment firm based in Tibet, and another 1.5 billion yuan borrowed from an unidentified bank, using the ZPC shares as collateral.
Mainland law is silent on leveraged takeovers – even ones with a sky-high leverage ratio of 50, as in the proposed ZPC deal – and there are no rules preventing trust companies from funding them. That’s made such opaquely financed deals quite common, leading to big price swings, increased market volatility, massive profits for a few and big losses for retail investors.
But such deals have alarmed and angered the government in Beijing, which saw its credibility damaged by a stock market rout in the summer of 2015 that wiped about US$5 trillion off the market’s capitalisation and undermined the country’s financial security. Now, as the leadership prepares for a big reshuffle at the top of the Communist Party later this year, the authorities are digging deeper into fishy deals to bring “big crocodiles” – tycoons who pull the strings behind the curtains – to account and root out potential sources of financial instability that could also have political implications.
China Securities Regulatory Commission (CSRC) chairman Liu Shiyu told the stock market watchdog’s annual work conference on February 10 that China would capture more crocodiles and would not allow tycoons to “suck the blood” of retail investors.
While Liu declined to name any “crocodiles” at a press conference on Sunday, he pledged that the regulator would continue to look into dubious takeover deals involving “barbarians, monsters and big crocodiles”.
“They cloak their behaviour under lawful arrangements, take advantage of the rules, make shots in the capital market as they wish and damage the legitimate interests of small shareholders,” he said. “The job of the CSRC is to regulate: how can we sit idle and turn a blind eye?”
Xiang Junbo, the head of the China Insurance Regulatory Commission, told a press conference on Wednesday that insurance companies would not be allowed to become a “a club for the rich” that sheltered “big crocodiles”.
Yao Zhenhua, a tycoon who attempted to use funds raised from insurance products to take over leading property developer Vanke, was barred last week from entering the insurance business for 10 years, while Evergrande Life, the insurance of arm of property tycoon Hui Ka-Yan, was prohibited from making any stock investments for a year.
The appointment of Guo Shuqing, a former CSRC chairman, as chairman of China’s banking regulator, widely reported by mainland media last week, is being seen by some as a step towards the creation of a financial “super regulator”.
The People’s Bank of China, the mainland’s central bank, is now leading a number of government agencies in the drafting of an umbrella regulation aimed at shedding light on the mainland’s 60 trillion yuan asset management industry and put an end to the regulatory arbitrage made possible by loopholes arising from fragmented financial market supervision.
In a broad sense, the crackdown on “big crocodiles” is part of Beijing’s strategy to channel the tens of trillions of yuan it has injected into the system over the past decade into the “real economy” – shops, factories and technology projects capable of propelling growth – instead of the money being concentrated in the hands of a few tycoons and shuffled between various financial products, often without government oversight.
“In China’s capital market, there are many different groups behind the scenes, using all possible manipulative ways to make huge amounts of profit, and it’s become quite a big problem in China,” said Peking University Professor Zhou Qiren, an economist who used to be a member of the central bank’s monetary policy committee. “China shouldn’t become such a society – you are a thief if you steal a dollar, and you are a successful man if you can steal billions.”
The mainland’s stock market, created in the 1990s with the aim of raising funds for ailing state-owned companies, has long been plagued by insider trading and illicit deals. Wu Jinglian, a renowned Chinese economist, once described the market as a “casino”.
The problem was so serious at the turn of the century that then premier Zhu Rongji invited Laura Cha Shih May-lung, a Hong Kong businesswoman and politician, to serve as a vice-chairman of the CSRC from 2001 to 2004. Cha, the only non-mainlander to hold a vice-ministerial position in the central government, tried hard to implant mature, Hong Kong-style regulatory practices in the mainland market to stamp out insider trading.
Her efforts earned her the nickname “chasing you to death” but achieved only limited progress because she was unable to change China’s broader political, economic and legal framework. She declined to comment for this story.
Superficial changes in rules and mechanisms, in turn, were misused by well-connected people. For instance, when the mainland allowed the trading of stock index futures, a derivative designed to hedge risks, the new product exacerbated market swings. In another example, a stock market circuit-breaker introduced at the start of last year with the intention of damping share price movements lasted just four days before it was abandoned after it sparked panicked sell-offs. That debacle led to the downfall of Xiao Gang, Liu’s predecessor.
With multilayered, opaque business empires empowered by funds from the shadow banking sector continuing to call the shots in mainland stock markets, the CSRC handled 182 cases of information disclosure violation, insider trading and market manipulation last year. The number of cases concerning information disclosure by intermediaries rose 67 per cent year on year to 25, while the number of cases of stock transactions based on non-public information rose 87 per cent to 28.
Xu Xiang, a high-profile private fund investor, was sentenced to five and half years’ jail for insider trading last month and fined a record 11 billion yuan.
The disappearance of mainland billionaire Xiao Jianhua from a luxury Hong Kong serviced apartment last month was also linked to the crackdown, analysts said. He is believed to be assisting investigations on the mainland.
Based on public information, Xiao’s Tomorrow Group, a vast conglomerate, controls several mid-sized banks, brokerages, trust companies, insurers and private equity funds, on top of at least four listed companies. According to an investigative report by China’s New Fortune magazine in 2013, Xiao could be in control of nine listed companies and own stakes in 30 Chinese financial institutions with total assets of nearly 1 trillion yuan.
When asked on the sidelines of Sunday’s press conference about Xiao and Tomorrow Group, Liu said he had no information to give.
Zheng Zhigang, a professor of finance at Beijing’s Renmin University, said the way Xiao controlled his business empire was a classic example of a pyramid corporate structure, something common on the mainland and in Hong Kong and elsewhere in East Asia, particularly among family businesses, because it allows a parent company to control a big number of affiliates through a subsidiary.
The pyramid structure “obviously hurts small shareholders’ interests, and makes insider trading and other capital market tricks possible”, Zheng said.
Zhang Wei, an assistant professor at Singapore Management University’s school of law, said pyramid-shaped business empires were too opaque for outsiders to gain a clear picture of their internal structure and money flow, allowing for ambiguity about where their money came from and where it went.
The problem is shared by a considerable number of Chinese companies that often emerge out of nowhere with mysterious fortunes backing them, Zhang said. “The disclosure rules in China are actually looser than in some developed markets,” he said, which gave the real controller of a company more room to manoeuvre behind the scenes.
Longwei’s bid for ZPC led to speculation on the mainland that a “crocodile” could have been pulling the levers behind the scenes. The Chinese news portal Netease.com reported that the true financer of the deal might be Xiao’s Tomorrow Group, but it issued a statement on January 13 denying it was involved in the bid and saying Xiao had not been cooperating with Zhao.
However, multiple links between Xiao and the deal were uncovered. According to corporate filings with the Shanghai Stock Exchange, the deal was brokered by a financing firm of Hengtai Securities, a brokerage controlled by Xiao. Meanwhile, Yinbixin’s chairman is Qin Bo who, according to a source familiar with Tomorrow Group’ s internal structure, is a business associate of Xiao.
There was no answer to repeated telephone calls to Yinbixin’s listed number. There is no public contact information for Longwei and questions emailed to Zhao Wei’s studio went answered.
ZPC announced on February 14 that Longwei had scaled back the bid to 529 million yuan for a 5 per cent stake because it was unsure it could secure the funds needed to complete the original deal. Upon further inquiry from the stock exchange, Longwei and ZPC said Yinbixin was still willing to lend but the unidentified bank’s risk control department had vetoed its 1.5 billion yuan loan.
Exchanges between the stock exchange, the CSRC’s Zhejiang branch, ZPC, its controlling shareholder and Longwei are ongoing, with the authorities demanding further information from ZPC and Longwei.
Meanwhile, Xiao’s whereabouts remain unknown. No Chinese government department has released information about him, or even mentioned his case. His Tomorrow Group said in a statement on February 2 that business was proceeding as normal in his absence.
The opaque handling of Xiao’s case has raised doubts about where Beijing’s “crocodile hunt” fits in with proper market regulation.
“China has a lot of hidden tycoons and big shareholders … complicated equity structures and opaque information make it impossible for small shareholders and the outside world to see the real picture,” said Hu Xingdou, a professor at Beijing Institute of Technology.
“On the other hand, the Chinese authorities are often acting or conducting investigations in high secrecy … China is in dire need of a proper market, proper procedures and transparent law enforcement behaviour.”
Additional reporting Wendy Wu
This article appeared in the South China Morning Post print edition as: ‘Crocodiles’ in Beijing’s cross hairs
Source: SCMP “Why is Beijing declaring war on stock market ‘crocodiles’ now?”
Note: This is SCMP’s article I post here for readers’ information. It does not mean that I agree or disagree with the article’s views.
By Steve Holland and David Brunnstrom | WASHINGTON Mon Feb 27, 2017 | 7:03pm EST
U.S. President Donald Trump, who has attacked China on issues from trade to the South China Sea, held his first face-to-face talks with a member of the Chinese leadership on Monday, and the White House said it was a chance to discuss shared security interests and a possible meeting with President Xi Jinping.
State Councilor Yang Jiechi, China’s top diplomat, met Trump briefly after talks with the new U.S. National Security adviser, H.R. McMaster, Trump’s son-in-law and senior adviser, Jared Kushner, and White House chief strategist Steve Bannon.
A senior U.S. administration official said discussions included bilateral cooperation and the possibility of arranging a meeting between Trump and Xi, but no date was set.
The official said the meeting with Trump lasted five to seven minutes.
White House spokesman Sean Spicer called it “an opportunity to say ‘hi’ to the president” before Yang left.
“This was an opportunity to begin that conversation and talk to them on shared interests of national security,” he said at a regular news briefing.
China’s Foreign Ministry cited Yang as telling Trump that China was willing to enhance exchanges with the United States at all levels, expand coordination and cooperation, and respect each others’ core interests and major concerns.
“Ensuring the steady and healthy development of China-U.S. ties will surely benefit both peoples and the world as a whole,” the ministry paraphrased Yang as saying.
Yang, who outranks China’s foreign minister, was the first top Chinese official to visit the White House since Trump took office on Jan. 20.
His visit followed a phone call between Yang and U.S. Secretary of State Rex Tillerson last week, during which the two affirmed the importance of a constructive U.S.-China relationship.
It was the latest step by the world’s two largest economies to try to put relations back on an even keel after a rocky start following Trump’s election victory.
Trump has been a strong critic of Beijing, accusing China of unfair trade policies, criticizing its island building in the strategic South China Sea, and accusing it of not doing enough to constrain its neighbor, North Korea.
Trump incensed Beijing in December by talking to the president of Taiwan and saying the United States did not have to stick to the “one China” policy, under which Washington acknowledges the Chinese position that there is only one China, of which Taiwan is a part.
Trump later agreed in a phone call with Xi to honor the “one China” policy in a diplomatic boost for Beijing, which vehemently opposes criticism of its claim to self-ruled Taiwan.
In an interview with Reuters on Thursday, Trump pressed China to do more to rein in North Korea’s nuclear and missile programs, saying Beijing could resolve the issue “very easily if it wanted to.”
China dismissed Trump’s remarks, saying on Friday the crux of the matter was a dispute between Washington and Pyongyang. Beijing has repeatedly called for a return to negotiations between Pyongyang and world powers.
As Yang held talks at the White House, senior officials from the United States, Japan and South Korea met at the State Department to discuss additional measures to choke off funding to North Korea’s weapons program.
“The officials considered other possible measures under national authorities, including means to restrict further the revenue sources for North Korea’s weapons programs, particularly illicit activities,” they said in a joint statement.
They also agreed that North Korea’s nuclear and ballistic missile programs directly threatened their security and “strong international pressure” was needed to push back at Pyongyang, the statement said.
Plans for renewed contacts with North Korea in the United States were canceled last week after the U.S. State Department denied a visa for the top envoy from Pyongyang, the Wall Street Journal reported on Saturday.
(Reporting by Steve Holland, David Brunnstrom, Matt Spetalnick and Washington Newsroom, and Ben Blanchard in Beijing; Editing by Andrew Hay and Jonathan Oatis)
Source: Reuters “Trump, China’s top diplomat, discuss cooperation, possible Xi meeting”
Note: This is National Interest’s article I post here for readers’ information. It does not mean that I agree or disagree with the article’s views.
SCMP says in its report “China on course to rival United States for internet speed” today that a Chinese content delivery network (CDN) company Wangsu Science & Technology Co buys 97.82 per cent of its Korean rival CDNetworks from Japan’s KDDI Corporation for US$185.72 million “to rival the United States in internet speed”.
A CDN is a collection of global servers that host websites and optimise internet speeds by allowing users to get data from the closest server rather than at the origin.
The move will give Wangsu a global presence and narrow its gap with the world’s largest CDN company, Akamai Technologies of the US, which generated a revenue of US$2.3 billion last year.
China has the financial resources to be world number one. US President Donald Trump is aware that to compete with China, he has to achieve economic growth in the US, but he meets lots of obstacles as under US media’s influence, lots of Americans are not aware of US lack of capabilities to remain world number one if Trump fails to stop US decline.
Comment by Chan Kai Yee on SCMP’s report, full text of which can be found at http://www.scmp.com/news/china/policies-politics/article/2074046/china-course-rival-united-states-internet-speed.
Chinese market is indispensable for the US if it pursues job creation and economic growth, period!
That is why while employing harsh rhetoric, US President Donald Trump used his attractive daughters to win goodwill among Chinese people and conducted friendly talks with China in secret.
He soon was able to have friendly phone call with Chinese President Xi Jinping about what he needs from China for his pursuit of job creation and economic growth in the US.
That is soon followed by an invitation of China’s top diplomat Yang Jiechi to visit the US for talks about essential issues for cooperation between the US and China.
SCMP says in its report “China’s top diplomat on two-day mission to US” today:
China’s top diplomat, Yang Jiechi, will start a two-day trip to the United States on Monday, according to state media.
State Councillor Yang was making the trip at the invitation of the US government and would discuss issues of mutual concern with senior American officials, Xinhua quoted foreign ministry spokesman Lu Kang as saying on Sunday.
That is much sooner than the beginning of the thaw of US-China relations after Mao’s ping-pong diplomacy.
Daughters diplomacy works well.
Comment by Chan Kai Yee on SCMP’s report, full text of which can be found at http://www.scmp.com/news/china/diplomacy-defence/article/2074209/chinas-top-diplomat-two-day-mission-us.
By Ben Blanchard and Michael Martina | BEIJING Sat Feb 25, 2017 | 8:04pm EST
The PLA Navy is likely to secure significant new funding in China’s upcoming defense budget as Beijing seeks to check U.S. dominance of the high seas and step up its own projection of power around the globe.
China’s navy has been taking an increasingly prominent role in recent months, with a rising star admiral taking command, its first aircraft carrier sailing around self-ruled Taiwan and new Chinese warships popping up in far-flung places.
Now, with President Donald Trump promising a U.S. shipbuilding spree and unnerving Beijing with his unpredictable approach on hot button issues including Taiwan and the South and East China Seas, China is pushing to narrow the gap with the U.S. Navy.
“It’s opportunity in crisis,” said a Beijing-based Asian diplomat, of China’s recent naval moves. “China fears Trump will turn on them eventually as he’s so unpredictable and it’s getting ready.”
Beijing does not give a breakdown for how much it spends on the navy, and the overall official defense spending figures it gives – 954.35 billion yuan ($139 billion) for 2016 – likely understates its investment, according to diplomats.
China unveils the defense budget for this year at next month’s annual meeting of parliament, a closely watched figure around the region and in Washington, for clues to China’s intentions.
China surprised last year with its lowest increase in six years, 7.6 percent, the first single-digit rise since 2010, following a nearly unbroken two-decade run of double-digit jumps.
“Certainly, the PLA Navy has really been the beneficiary of a lot of this new spending in the past 15 years,” said Richard Bitzinger, Senior Fellow and Coordinator of the Military Transformations Programme at the S.Rajaratnam School of International Studies in Singapore.
“We don’t how much they spend on the navy, but simply extrapolating from the quantity and the quality of things that are coming out of their shipyards, it’s pretty amazing.”
The Chinese navy, once generally limited to coastal operations, has developed rapidly under President Xi Jinping’s ambitious military modernization.
It commissioned 18 ships in 2016, including missile destroyers, corvettes and guided missile frigates, according to state media.
Barely a week goes by without an announcement of some new piece of equipment, including an electronic reconnaissance ship put into service in January.
Still, the PLA Navy significantly lags the United States, which operates 10 aircraft carriers to China’s one, the Soviet-era Liaoning.
Xu Guangyu, a retired major general in the People’s Liberation Army now senior adviser to the government-run China Arms Control and Disarmament Association, said China was keenly aware of the U.S. ability to project power at sea.
“It’s like a marathon and we’re falling behind. We need to step on the gas,” Xu said.
Trump has vowed to increase the U.S. Navy to 350 ships from the current 290 as part of “one of the “greatest military buildups in American history”, a move aides say is needed to counter China’s rise as a military power.
“We’ve known this is a 15-20 year project and every year they get closer to being a blue-water navy with global aspirations,” said a U.S. administration official, speaking on the condition of anonymity.
“What you have seen this last year and what I think you will see with the new budget is that they are moving ahead with the short-term goal of being the premier naval force in the South China Sea and the East China Sea, with the mid-term goal, of extending all the way to the Indian Ocean.”
In January, China appointed new navy chief, Shen Jinlong, to lead that push.
Shen has enjoyed a meteoric rise and is close to Xi, diplomatic and leadership sources say.
“The navy has gotten very lucky with Shen,” said a Chinese official close to the military, speaking on condition of anonymity. “Now they know for certain their support goes all the way to the top.”
Recent PLA Navy missions have included visits to Gulf states, where the United States has traditionally protected sea lanes, and to the South China Sea, Indian Ocean and Western Pacific, in what the state-run website StrongChina called Shen’s “first show of force against the United States, Japan and Taiwan”.
Last month, a Chinese submarine docked at a port in Malaysia’s Sabah state, which lies on the South China Sea, only the second confirmed visit of a Chinese submarine to a foreign port, according to state media.
The submarine had come from supporting anti-piracy operations off the coast of Somalia, where China has been learning valuable lessons about overseas naval operations since 2008.
Chinese warships have also been calling at ports in Pakistan, Bangladesh and Myanmar, unnerving regional rival India.
“It’s power projection,” said a Beijing-based Western diplomat, of China’s navy.
(Additional reporting by David Brunnstrom and Adrees Ali in WASHINGTON; Editing by Lincoln Feast)
Source: Reuters “Wary of Trump unpredictability, China ramps up naval abilities”
Note: This is Reuters report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.
SCMP says in its report “Chinese legislature keeps corporate tax rate unchanged at 25 per cent” that China keeps its corporate tax rate unchanged at 25% but will watch closely changes in other countries, especially the United States, to be competitive.
It is certainly not easy for China to reduce corporate tax. SCMP quotes Han Baojiang, head of the economic department at the Central Party School, as saying, “The room to cut taxes this year is not big considering China’s slow fiscal revenue growth and large rise of expenditures, especially in social welfare.”
Comment by Chan Kai Yee on SCMP’s report, full text of which can be found at http://www.scmp.com/news/china/article/2074043/chinese-legislature-keeps-corporate-tax-rate-unchanged-25-cent.
BBC China editor Carrie Gracie seems easily be fooled by Trump when she gives the impression in her article “Could China’s Trump tactics actually be working?” that it was China who took the initiative to please Trump and succeeded in bringing Trump around.
She seems to be ignorant that “It takes two to tango”.
She only sees what appears on the surface without understanding what counts under the surface for Trump. As a result, she only mentions that “Beijing needs American goodwill, markets and technology to build what it calls its ‘comprehensive strength’” but forgets that Chinese goodwill and growing huge market are indispensable for Trump to bring back jobs to America and reinvigorate American economy.
Trump is well aware that without market for American goods, it is utterly impossible for him to bring back jobs or reinvigorate US economy while China is and will remain America’s largest market.
It is obvious that led by Trump, his family is much interested in China so that his eldest daughter Ivanka Trump readily accepted Chinese embassy’s invitation to attend its Chinese New Year celebration and even brought her daughter to give performance of a Chinese song there. Her daughter’s ability to sing a Chinese song itself means a lot, but Ms. Gracie ignores that.
The performance gives the impression that deep in his heart Trump admires China’s economic success and wants the US to catch up. His provocative words are but postures for getting better terms in his behind-the-scene negotiations with China.
Due to the interest Trump’s another daughter Tiffany and Chinese fashion designer Taoray Wang are close to each other. The above photo was taken backstage at Wang’s fashion show during New York Fashion Week on September 12, 2016.
Now, Trump has got what he wants from China. China makes easy concessions to him by promising him what China intends to do in its reforms such as allowing the market to determine the exchange rate of its currency, protection of intellectual property and lowering import tariffs as China promised when it joined WTO.
The only thing hard for China to please Trump is to pressure hard on North Korea as China fears that it may cause North Korea’s Kim Dynasty to collapse with serious consequence to China. However, as China has found ways to deal with the consequence and as stopping North Korea’s development of nuclear weapons is necessary for China’s own security, China has yielded to Trump and begun to ban coal import from North Korea.
People believe that the Obama Administration is friendly while Trump is hostile to China. The truth is precisely the contrary. Obama tried hard to contain China with TPP economically and with its pivot to Asia with 60% US military to threaten China. Trump has done great service to China by withdrawal from TPP. He knows well that the US is utterly unable to contain China whether economically, diplomatically or militarily. If the US is afraid of China surpassing it, it shall put its own house in order and reinvigorate its economy.
I am pleased that China does not want to contend with the US for world leadership. It is not afraid of a prosperous United States. On the contrary, it knows well a prosperous US economy will provide China with great opportunities for China’s own economic growth.
Ms. Gracie says, “It (China) has done a good job of neutralising the risks and exploiting the opportunities of President Trump’s first month in office.” However, according to her, “this is a multi-player multi-dimensional game with many dangers and traps over the long term.”
This blogger does not believe so because what Trump wants is bringing back jobs and economic recovery that will benefit China. There are no fundamental conflicts between China and the US; therefore, there are good prospects for win-win cooperation between the two countries.
Ms. Gracie is fundamentally wrong about Trump by beginning his article with the description “Donald Trump as US president has been an enormous challenge for China, as for many around the world.”
Trump’s great efforts to please Japanese Prime Minister Shinzo Abe prove precisely the contrary. True, Trump has said something hard on Japan. Japan’s top diplomatic priority is to contain the rising China, but Trump would not contain China economically by withdrawal from TPP. He really hurt Japan painfully by so doing but he has great diplomatic tact to please the Japanese in spite of that.
Has that been an enormous challenge? It is not judging by Japanese media’s positive response to Abe’s US visit.
People shall know how to distinguish a politician’ rhetoric from what he actually does.
Comment by Chan Kai Yee on Carrie Gracie’s article on BBC, full text of which can be viewed at http://www.bbc.com/news/world-asia-china-39061702
In its report “Pentagon studies ways to counter hypersonic missile threat from China, Russia”, Washington Times says that the US lags behind China and Russia in developing hypersonic missiles as they, especially China, have been busy testing hypersonic glide vehicles and maneuvering ballistic missile warheads.
No existing US missile defense systems can intercept hypersonic maneuvering ballistic missiles. As a result, even US homeland may be attacked by such weapons.
The report says, “Congress has been pushing the Pentagon to deal with the threat. The most recent defense authorization bill signed into law in December requires the Pentagon to create a dedicated office for emerging hypersonic missile threats.”
China has now caught up with the US in weapon development and surpassed the US in certain key areas such as hypersonic weapons that are regarded as major weapons in the future.
Comment by Chan Kai Yee on Washington Times’ report, full text of which can be viewed at http://www.washingtontimes.com/news/2017/feb/22/china-russia-hypersonic-missile-threat-under-revie/
Philippine President Rodrigo Duterte said on Friday he was not sure why China’s commerce minister had canceled a trip to his country, and that Beijing misunderstood his foreign minister’s comments about its militarization in the South China Sea.
Duterte said he wanted solid ties with China and there was no urgency in pressing it to abide by last year’s arbitration ruling on the Philippines’ maritime boundaries and sovereign rights, which went in favor of Manila and infuriated Beijing.
On Tuesday, Foreign Secretary Perfecto Yasay, the chairman of a meeting of foreign ministers of the Association of South East Asian Nations, said the region had “grave concerns” about China putting weapons installations on its manmade islands in the Spratlys.
“The problem is I think Secretary Yasay was misunderstood by the Chinese government,” Duterte said in a speech.
“I would like to assure China, and this is what I had committed to do when I was there, that we will talk as friends,” he said, referring to a trip he made to China last year.
China’s Commerce Minister Gao Hucheng decided at the last minute to postpone an official trip on Thursday to the Philippines to sign about 40 joint projects worth billions of dollars. No reason was given by either side.
However, on Friday, the Chinese government announced the appointment of a new trade minister to replace Gao, as part of a reshuffle ahead of a crucial Communist Party meeting later this year.
Establishing better relations with China has been a key plank of Duterte’s sometimes perplexing foreign policy, which has seen him lash out at major donors and investors such as the United States and European Union.
He is keen to tap China for loans, tourists and infrastructure.
On Friday Duterte said the Philippines’ longstanding alliance with the United States did not make it “duty bound to follow” Washington’s foreign policy, and conflict with Beijing was not an option.
“We cannot go to war because we cannot afford it,” he said. “And as much as possible, the bilateral relations between the two countries would be enhanced and improved and trade and commerce between the two countries greatly improved.”
But that could be affected by Yasay’s comments that ASEAN members were “unanimous in their expression of concern” about “very unsettling” developments. He mentioned China by name, something the 10-nation grouping is often reluctant to do.
China’s foreign ministry spokesman, Geng Shuang, on Thursday told a regular briefing that Yasay’s remarks were “baffling and regrettable”, and he hoped Yasay would “speak and act cautiously”.
(Reporting by Martin Petty and Neil Jerome Morales; Additional reporting by Ben Blanchard in Beijing; Editing by Robert Birsel and Clarence Fernandez)
Source: Reuters “Duterte says China misunderstood Philippine minister’s South China Sea remarks”
Note: This is Reuters report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.
A Reverse “Nixon Strategy” Won’t Work for Trump
By Jacob Stokes
Several commentators, among them Doug Bandow of the Cato Institute and Edward Luttwak of the Center for Strategic and International Studies, have suggested that U.S. President Donald Trump should take any efforts to warm relations with Russia one step further and try to enlist Moscow’s help in balancing a rising China. Trump views China and Islamist extremism as the two principal challenges to U.S. security, and he sees Russia as a potential partner in combating both. The thinking goes, then, that Trump should run a version of the diplomatic play that former U.S. President Richard Nixon and National Security Adviser Henry Kissinger followed in the early 1970s when they thawed relations with Beijing to counter the Soviet Union. This time, however, Trump would partner with Russia to balance China.
The proposal entices with visions of ambitious strategic gambits across Eurasia, in Trumpian vernacular the “big league” of geopolitics. Nixon going to China was one of the most consequential diplomatic deals in U.S. history. What better way for the dealmaker in chief—especially one who regularly consults with Kissinger—to burnish his credentials than carrying out a version of it for himself? In theory, the move would adhere to traditional maxims of geopolitics: namely, the imperative to maintain the balance of power on the Eurasian continent. U.S. strategists have relied on this principle to varying degrees since at least World War II. Further, a strategy that engages with Russia to counter China might lend a degree of coherence to the Trump administration’s otherwise disjointed foreign policy.
The problem for Trump is that Sino-Russian ties have been improving more or less steadily since the waning years of the Cold War. The thaw between the two communist powers began in the early 1980s and was followed by normalized relations in May 1989. Beijing and Moscow established a “strategic partnership” in 1996 and signed a Treaty of Good-Neighborliness and Friendly Cooperation in 2001. Chinese and Russian leaders now refer to the relationship as a “comprehensive strategic partnership of coordination,” a convoluted term for a not-quite alliance. Last September, Chinese State Councilor Yang Jiechi proclaimed that “the depth and scope of coordination between both countries are unprecedented.” Robust cooperation has accelerated since Xi Jinping became China’s top leader in 2012; he reportedly has a warm personal relationship with Russian President Vladimir Putin.
The two countries cooperate closely across a number of fields. On energy, Russia became the top oil supplier to China in 2016. Crucially for China, it transports supplies overland rather than through contested sea lanes. The nations have partnered on military exercises, including in the Mediterranean and South China Sea, as well as on some joint technology development projects. They have revived their languishing arms trade relationship. In 2015, Beijing agreed to purchase both Su-35 fighter jets and the S-400 Triumf surface-to-air missile system from Moscow. The two countries have also embarked on a number of symbolic people-to-people projects, such as beginning the long-delayed construction of a bridge across the Amur River. And in June 2016, Presidents Xi and Putin agreed to work jointly to increase their control over cyberspace and communications technologies.
A shared political vision for world order provides the foundation for Chinese-Russian cooperation. It is defined primarily by the desire to see an end to U.S. primacy, to be replaced by multipolarity. Once this vision is realized, each nation would command an effective sphere of influence in Asia and eastern Europe, respectively. For now, though, China and Russia have tenser relations with the United States than at any point since the end of the Cold War. This is primarily because of maritime territorial disputes in the East and South China Seas—including over the Diaoyu/Senkaku, the Paracel, and the Spratly island chains—and the war in Ukraine, making the Sino-Russian partnership more important than ever. A recent op-ed in the Chinese Communist Party mouthpiece People’s Daily called that relationship “the ballast stone in maintaining world peace and stability.”
A shared political vision for world order provides the foundation for Chinese-Russian cooperation.
In the 1970s, it was deep discord in the Sino-Soviet relationship that helped convince China to align with the United States. This discord culminated in border clashes in 1969. By 1972, relations between the two communist powers had deteriorated from frosty to outright frozen. When Kissinger came calling, Beijing already saw Moscow as a bigger threat than Washington. For Russia today, the opposite is true. Moscow sees Washington as the primary adversary despite hopes that Trump will repair the relationship.
Moscow sees Washington as the primary adversary despite hopes that Trump will repair the relationship.
To be sure, there is some potential for a rupture between China and Russia. Moscow worries about a lopsided economic relationship based on trading Russian resources for Chinese finished goods. China’s growing influence in Central Asia and the sparsely populated areas of eastern Russia, Moscow’s arms sales to India and Vietnam, and China’s theft of Russian weapons designs all threaten to derail the partnership. But the United States’ ability to fuel those disputes in order to foster divisions remains limited at best. Moreover, Xi and Putin have found a modus vivendi that downplays and contains those frictions while focusing on the cooperative aspects of their relationship. When Chinese leaders talk about a “new type of great power relations” with the United States, they envision something much like the Sino-Russian relationship as a model.
In exchange for turning against China, Moscow might seek the lifting of sanctions imposed following the annexation of Crimea, an end to U.S. support for a free and independent Ukraine, and acquiescence to the regime of Syrian President Bashar al-Assad. It may also demand a removal of missile defenses from Europe, the cessation of NATO expansion, or, even better from a Russian perspective, the abolition of NATO altogether. Granting Putin’s wishes on these issues would undermine the seven-decade U.S. investment in a Europe whole, free, and at peace—an investment that propelled the United States’ ascension to postwar primacy in the first place. What is more, accepting Russia’s acquisition of territory by force would undermine U.S. arguments about the prohibition of such actions under international law when Beijing asserts its expansive claims in the East and South China Seas using force.
Even if Trump convinced Putin to end Moscow’s partnership with Beijing, Russia would still have little capability to thwart China’s bad behavior in places that matter. Russia’s Pacific Fleet, although relatively sizable in number, suffers from severe shortfalls in maintenance, and many of its assets are aging. Planned additions to the fleet—including extra missile defense systems and submarines—will bolster deterrence capabilities but have limited applicability to the types of sea patrol tasks necessary to counter China’s maritime assertiveness. In theory, Moscow could help arm Asian nations to contribute to the balancing effort, but direct U.S. and other allied assistance could easily substitute for that, building relationships more advantageous to U.S. interests in the process.
Putin would also need to patch up diplomatic relations in Asia if he planned to balance against Beijing. Doing so would require a substantial diplomatic investment and, likely, Russian concessions. Putin’s ballyhooed rapprochement with Tokyo seems to have run aground despite clear eagerness on the part of Japanese Prime Minister Shinzo Abe for a deal to address the dispute over the Northern Territories islands, which Russia calls the Southern Kurils, as well as a peace treaty officially concluding World War II. And Russia’s continued support of North Korea and staunch opposition to the Terminal High Altitude Area Defense missile defense system has made for rocky relations with Seoul. The Russian position on the South China Sea—studied aloofness while agreeing to joint naval exercises with China—means that strategic relations in Southeast Asia would also require substantial diplomatic spadework (Putin’s warm relations with President Rodrigo Duterte in the Philippines notwithstanding).
A better U.S. strategy for competing effectively in the no-holds-barred contest of great power politics—including in “triangular diplomacy” with Moscow and Beijing—would focus on two lines of effort. First, the Trump administration should work with both Russia and China where possible. Those efforts should seek to forge a trilateral understanding on contentious issues affecting strategic stability, such as nuclear and missile defense issues, twenty-first-century definitions of sovereignty, and rules for armed intervention. Trilateral discussions should also build practical cooperation on areas of mutual interest, such as climate and energy, counterterrorism, and nonproliferation. Addressing frictions head-on and building habits of cooperation could mitigate strategic distrust among the three great powers by lessening the worry that two will cut deals at the expense of the other.
Second, Washington must continue to do the hard work of maintaining and building support among current U.S. allies and partners in both Europe and Asia, along with other increasingly powerful middle-tier states such as Brazil, India, and Vietnam. Such ties give the United States leverage over China and Russia, neither of which has similar worldwide networks of friendly states. The United States must assess the costs and benefits of finding and keeping friends overseas in a manner that looks beyond the narrow transactionalism Trump espoused on the campaign trail. Put simply, when considered in the context of a global competition for power and influence, a vast network of allies and partners starts to look more like an asset than a liability.
Trump seeks “good deals” with Russia. Cozying up to Putin in hopes of receiving Moscow’s help in balancing Beijing would not be one.
Source: Foreign Affairs “Russia and China’s Enduring Alliance”
Note: This is Foreign Affair’s article I post here for readers’ information. It does not mean that I agree or disagree with the article’s views.