From Economic Connection to Expansion, Belt and Road Enters 2nd Stage


Initially, China’s Belt and Road focused on connections to Europe and the Middle East through Russia, Central Asia and Pakistan for safety of China’s trade lifelines especially the access to oil and gas from the Middle East. Now railways connection to Europe has been established through Russia and Central Asia and there are bright prospects of access to Iran’s oil and gas through the China-Pakistan Economic Corridor and brighter now due to Trump’s isolated exit from the multilateral nuclear deal with Iran.

When connections have been ensured, China’s Belt and Road initiative has been turned into economic expansion abroad. That is typically reflected by China’s efforts for free trade areas (FTA) with and investment in Latin America, which have nothing to do whatever with China’s connections abroad, In fact Silk Road has never stretched to America.

China now have secure provision of oil and gas from Russia and Iran when the connections to Iran has been built through Pakistan. However, China’s investments in Libya and South Sudan in Africa and Venezuela to ensure oil supply from there are sad failures. China has learnt lessons not to make investments in countries without political stability unless the investments in the connections abroad are indispensable for China’s national security.

China has now invested heavily in building and fortifying its artificial islands in the South China Sea to extract oil and gas from its own marine areas. The West is unhappy, but just as Australian retired general Molan describes China has been so soundly established there, the West cannot dislodge China without a full-out war.

Now, China’s economic expansion abroad will be win-win investment that benefit both China and the countries it invests in.

According to Reuters’s report “China’s State Grid to invest $38 billion in Brazil power sector” today China’s state-owned Power company China State Grid Corp Ltd will “invest 140 billion reais ($38 billion) in Brazil over the next five years, including investments in transmission and generation, an executive said on Wednesday.”

That is really very good investment as power generation industry is a stable business with ensure profit. In addition, Brazil is quite a good destination of investment.

Comment by Chan Kai Yee on Reuters report, full text of which is reblogged below:

China’s State Grid to invest $38 billion in Brazil power sector

Jake Spring May 31, 2018

SAO PAULO (Reuters) – Power company China State Grid Corp Ltd [STGRD.UL] will invest 140 billion reais ($38 billion) in Brazil over the next five years, including investments in transmission and generation, an executive said on Wednesday.

Investment in the transmission segment alone will total more than 90 billion reais, Qu Yang, vice president of State Grid’s Brazilian unit, said at a conference in Sao Paulo.

Qu said the company had evaluated the potential for solar and wind power in Brazil, including in the northeastern states of Bahia and Rio Grande do Norte, and in the south of the country.

He said it could use ultra-high voltage transmission technology – which sends huge amount of power long distances with low losses – to connect remote areas that can generate large amounts of wind and solar to population centers in Rio de Janeiro, Sao Paulo and the rest of the Americas.

“I’ve talked to other big power generation companies and they’re all worried with the rise of wind power that they’ll generate more than they’ll use,” he said. “But we can install a (transmission line) that can send it where it needs to go. We could even send it all the way to the U.S.”

Reporting by Jake Spring; Editing by Lisa Shumaker and Peter Cooney


The West Has Already Lost to China Battle for Control over SCS


The Australian says in its report titled “South China Sea battle already lost: Jim Molan” that Australian retired major general Jim Molan, a senator now, said that the West has failed to stop China’s construction of artificial islands in the South China Sea (SCS) in time. Now, China has not only completed construction of but has also fortified and militarized the islands to obtain firm control of SCS so that China cannot be dislodged without a full-out war, which he knows will not be fought now.

Molan is of the same view as mine that China has full control of SCS now and US freedom of navigation operations (FONO’s) are useless. The Australian quotes Molan as saying that he was not convinced so-called FONO’s, in which warships sailed within 12 nautical miles of disputed territory as a means of making a point, were either “tactically or strategically significant’’.

On the other hand, China’s PLA Daily says in its report “First joint military, police and civilian patrol of Xisha Islands and Reefs drove away 10 foreign fishing boats” on May 20 that China has begun to conduct join naval, coast guards and civilian patrol of SCS and driven 10 foreign fishing boats away in their first patrol.

Comment by Chan Kai Yee on The Australian’s and PLA Daily’s reports which can respectively be viewed at https://www.theaustralian.com.au/news/south-china-sea-battle-already-lost-jim-molan/news-story/f32cebefde596ecb42a93cbaa81e60cc and http://mil.huanqiu.com/world/2018-05/12061593.html (the latter is in Chinese).


Do Not Look Down on Weak Philippines!


In my post “Weak Philippines Will Fight China but Powerful US Won’t in SCS! Why?” yesterday, I showed that I believe that Philippine President Duterte is serious in setting the red lines which if China has crossed, the Philippines will fight a war with China. Why? Because it involves too high interests as the energy resources are too valuable for the Philippines.

The Philippines, though weak, its people are brave. Do not look down on them. Lots of US troopers have been killed by Iraqi resistant Islamic extremists who have even established an Islamic state. If China occupies the Philippines, it will encounter similar trouble as Philippine people will be resourceful to find clever ways of resistance.

However, China is certainly not so stupid as the US and European colonists who tried to conquer the Philippines but failed at the end.

SubChina certainly does not believe that Duterte was serious in seting the red lines as it puts a question mark in title of its report “Duterte’s red line?”

Do not look down on weak people. US suffered defeats due to its arrogance. Korean War, Vietnam War, 911 (which could have been prevented if US President Bush had not refused to pay attention to the warning from US intelligence due to his arrogance. He was so arrogant as to believe that the US was capable of fighting two wars simultaneously!) and ISIS still could not wake the US up from its arrogant dream of being an invincible hegemon. Trump seems arrogant but he is really not arrogant so that he has not really started a trade war with China or attacked North Korea but US Congress remains so.

China shall learn lessons from the failures of European and American colonists and never try to conquer or control other countries; therefore, Chinese President’s Belt and Road win-win cooperation is China’s best strategy of economic expansion.

Comment by Chan Kai Yee on SubChina’s report, full text of which can be viewed at https://supchina.com/2018/05/29/is-duterte-serious-about-a-south-china-sea-red-line/


China sees trade opportunities in Iran after the US drops out of nuclear deal


Lucy Best May 29, 2018

Russia and China are eager to dance with Iran after U.S. President Donald Trump rtore up his government’s commitment to the Iran nuclear deal. Iranian President Hassan Rouhani will attend a regional summit for the Shanghai Cooperation Organization (SCO) in Qingdao next month, where discussions will cover economic, energy, and security cooperation throughout Central Asia.

  • Iran currently is an SCO observer, but has long sought full SCO membership, for which Russia and China have voiced approval.
  • Beijing will push for cooperation to combat the “three evil forces” — terrorism, extremism, and separatism — in addition to economic cooperation related to Belt and Road at the SCO Summit in June, the SCMP reports, but in general China wants to “push forward evelopment of bilateral cooperation,” Reuters reports.
  • Chinese support for Iran also has a lot to do with oil. The Wall Street Journal reports (paywall) that “Sinopec…sent a delegation to Tehran this month to complete a $3 billion deal” to develop the Yadavaran oil field, which would be “the biggest foreign investment in a decade.”

Source: SubChina “China sees trade opportunities in Iran after the U.S. drops out of nuclear deal”

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.


China Continues to Subdue the US in Trade War without Tariff war


US goal of trade war is to reduce its trade deficit with China. Like others, especially politicians in US Congress and lots of people in US media, Trump believes tariff is the best weapon to subdue China.

However, Trump is wise to see that unlike military weapons in military war, tariff hurts the US itself as well as its enemy. The US buys so many Chinese goods because its people like those cheap goods. With high tariff, American people will suffer especially the large number of people who cannot afford the higher prices of the goods due to high tariffs. Trump will thus lose votes in his reelection!

Chinese leader Xi Jinping has the vision to see that his retaliation of high tariff on US goods, especially agricultural products, will hurt Chinese consumers. He will be hitting China instead of the US with his tariff weapons.

Therefore, the tariff war is but bluffing.

However, for China’s national security, it shall strive to be self-dependent on agricultural goods. That is why China is planning a tremendous project to divert river from Tibet to Xijiang to turn vast desert into rich farm land. That will be a weapon much better than tariff on US agricultural products as China will simply import no agricultural goods from the US. It’s a weapon that really kills in a trade war.

Another weapon is China’s Made-in-China-2025 scheme. Just imagine how much the US will be hurt if China does not import Boeing airliners, but instead will sell its airliners in world airliner market to reduce Boeing’s income.

There are lots of other hi-tech goods China will stop import from the US if China has succeeded in producing import substitutes through the scheme.

That scheme is a real lethal weapon! Why imposes high tariffs on hi-tech goods China wants so that Chinese enterprises and people have to pay high prices for the imports? Retaliation to hurt oneself? Stupid!

China is moving its labor-intensive industries to the Silk Road economic belt with lower labor costs so that US consumers will be able to be benefited from the cheap goods that China produces there. China will continue to make money by such products and the US will enjoy its trade deficits as it is not due to trade with China but with very poor countries in the economic belt. It will be happy it will be helping those poor countries by its trade deficits!

Sun Tzu says: Subdue the enemy without fighting is the best of the best.

Now, subdue the enemy without tariff war is the best of the best in modern trade war!.

However, US media does not understand that China needs time to subdue the US without tariff war. Its strategy now is to delay tariff war till it has subdued the US in real and effective trade war that benefits China but hurts the US.

SubChina seems puzzled by what Trump and Xi are doing with respect to their trade war as reflected in its report “The Trump and Xi trade war show: Surprised, but not surprised”. My comment will perhaps help readers better understand the situation.

Comment on SubChina’s report, full text of which is reblogged below:.

SUBCHINA
The Trump and Xi trade war show: Surprised, but not surprised

It was just a week ago that U.S. Treasury Secretary Steven Mnuchin declared, “We’re putting the trade war on hold,” and stock markets breathed a sigh of relief. Chinese negotiators called the pause a “win-win choice” (SupChina paywall), although most American media lambasted the outcome and even White House officials backed off calling it a “deal.”

Meanwhile, President Trump continued to pursue a deal to revive Chinese telecom giant ZTE, despite opposition from fellow Republicans, and findings from the U.S. government that ZTE had endangered national security by breaking sanctions on Iran and North Korea.

The latest twist in trade tensions was announced on the White House website today:

•The U.S. will impose a 25 percent tariff on $50 billion of imports from China that contain “industrially significant technology,” including those related to the Made in China 2025 program. The final list of covered imports will be announced by June 15, 2018.
•The United States Trade Representative (USTR) will continue the WTO dispute settlement against China originally initiated in March to address China’s discriminatory technology licensing requirements.
•The U.S. will implement specific investment restrictions and enhanced export controls for Chinese persons and entities related to the acquisition of industrially significant technology. The list of restrictions and controls will be announced by June 30, 2018.

A Chinese Ministry of Commerce spokesperson said (in Chinese), “We feel surprised, yet also not surprised…this clearly goes against the common understanding recently established in Washington.”

Meanwhile, Trump’s team continues to negotiate to achieve Trump’s pet project of reducing the trade deficit. Here’s how that’s going:
•“Washington is pressing Beijing to enter into multiyear contracts to buy U.S. agricultural and energy imports,” the Financial Times reports (paywall), but “the move could mean taking Chinese business away from key U.S. allies such the EU, Australia, Brazil and Argentina.”
•Coal from West Virginia is attracting eyes from Beijing, Bloomberg says (paywall), though “a final decision hasn’t been made.”
•Unfortunately, the root of the problem isn’t trade in goods, Stephen Roach, a veteran practitioner and scholar of the interplay of American and Chinese economies, points out in a piece in the SCMP. Roach makes the same argument in the article that he did in a Sinica Podcast episode last year: “Without addressing the [American] shortfall in domestic saving, the bilateral fix simply moves the deficit from one economy to others.”

Finally, in what is probably just an innocent coincidence, Ivanka Trump — the president’s daughter and a senior adviser in the White House — received 13 new trademark approvals in China in the past three months, AP reports.

—Lucas Niewenhuis


Weak Philippines Will Fight China but Powerful US Won’t in SCS! Why?


The Philippines will fight for the rich natural resources it claims in the South China Sea (SCS) but the US has no claim at all why shall it fight? The US is only interested in freedom of navigation there, which China won’t fight to hinder even though US warships enter China’s territorial waters.

Now according to SCMP’s report “Philippines’ Rodrigo Duterte will go to war with China if it crosses ‘red lines’ and claims disputed resources, Philippine foreign ministry warns” today, Philippine Foreign Secretary Alan Peter Cayetano has declared President Duterte’s “red lines” that China shall not exploit natural resources alone in the area of dispute between the Philippines and China. Otherwise the Philippines will fight to protect its interests. As China, though much stronger, has the wisdom that it has to share the resources with other claimants to avoid trouble in the future there will not be such a war. In fact, it is a realistic and fair way to resolve the disputes for both countries.

Both China and the Philippines know that neither of them is able to have the resources alone. Better to be friends in sharing the resources than eternal enemies in taking the resources alone by relying on one’s strength at present.

However, I remain confident to say that SCS is now China’s lake as China will have the rich resources in the vast non-disputed areas entirely alone. If the areas are international waters, other country will come to exploit the resources. The US certainly dare not do so as China has military dominance there. With the three airstrips in its artificial islands in SCS, China can deploy at least 600 warplanes there. Together with the warplanes, radars and other surveillance and command centers on its shore, it has overwhelming military superiority.

Chinese sage Mencius says, “Timing is not as good as geographic advantages, geographic advantages, popular support”.

The US will have no popular support as its people simply will not support a war US interests are not involved. It has no geographic advantages at all as all its ground support facilities are too far away and within the range of Chinese intermediate missiles.

The Philippines will have popular support if it fights for its national interests, though its troops are much weaker. So the Philippines may fight but the US may not.

As for timing, it is certainly not the right timing as the US as it is having troubles elsewhere in Europe and the Middle East, while China has no such trouble at all.

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/2148204/philippines-rodrigo-duterte-will-go-war-china-if-it.


Serious Nuclear Arms Race between the US, China, Russia


SCMP says in its report “China steps up pace in new nuclear arms race with US and Russia as experts warn of rising risk of conflict” yesterday that China conducted 200 laboratory experiments that simulate nuclear blasts to develop smaller nuclear warheads that cause less damage and radioactive pollution so that they will be next-generation of strategic nuclear weapons with less disastrous effect or even be used as tactical weapons.

The report says that “In comparison, the US carried out only 50 such tests between 2012 and 2017”.

Though having less tests, SCMP says, “Pentagon officials have said the US wants its enemies to believe it might actually use its new-generation weapons, such as smaller, smarter tactical warheads designed to limit damage by destroying only specific targets.”

That proves that China’s tests are but a response of self defense. As the US has more than 1,000 live tests of nuclear explosion since 1945 while China has only 45, China needs to carry out more laboratory tests to collect data for development of next-generation of nuclear weapons. I don’t think that China can surpass the US with so many laboratory tests as live tests provide much better data than laboratory ones.

Moreover, China’s efforts are also its response to Russia’s intensive development of nuclear weapons. SCMP says in the report, “The Russian government under Vladimir Putin has in recent years revealed a series of new nuclear weapon programmes, including smaller weapons, as well as a super torpedo capable of wiping out coastal cities.” China shall develop capabilities to counter that in spite of its de facto alliance with Russia. Situation may change. There is the saying: “There is no eternal friend or enemy.”

China’s nuclear arms remain defensive as China has promised not to be the first to use nuclear weapons.

Comment by Chan Kai Yee on SCMP’s report, full text of which can be found at http://www.scmp.com/news/china/society/article/2147304/china-steps-pace-new-nuclear-arms-race-us-and-russia-experts-warn


US Intensifies Naval Challenge by Sailing 2 Warships into Chinese Waters


Reuters says in its report, “Exclusive: U.S. warships sail near South China Sea islands claimed by Beijing” that two warships sailed into Chinese territorial waters around China’s Xisha (also known as Paracel) Islands.

The report was confirmed by China’s official protest on US naval move.

When China has landed bombers on its islands, Pentagon said there would be consequence. True enough it soon uninvited China from a major U.S.-hosted naval drill and intensified its freedom of navigation into Chinese territorial waters by sending two warships instead one in all the previous US freedom of navigation operations to challenge China .

There will be consequences too. China will intensify its militarization of its artificial islands with US help as US move gives China the excuse to do so for “defense”.

The US is satisfied with the move as it shows its naval presence in the South China Sea while China though protested, is pleased to have the excuse it needs to militarize its artificial islands to turn the sea into its lake.

There seems to be tension there, but we can rest at ease there will be no war especially when China has militarized the artificial islands to obtain superior geographical advantages in the sea. Otherwise, why shall China have incurred billions of dollars costs in building the islands in the first place? I shall say there is wonderful cooperation between the US and China in the South China Sea whether there is intention of such cooperation is another question quite irrelevant?

Comment by Chan Kai Yee on Reuters’ report, full text of which can be viewed at https://www.reuters.com/article/us-usa-china-military-exclusive/exclusive-u-s-warships-sail-near-south-china-sea-islands-claimed-by-beijing-idUSKCN1IS07W.


China’s Vigorous Economic Expansion into US Backyard


On April 24, I have a post “China’s Economic Expansion Welcome in Latin America” of comment on SCMP’s report titled “‘China is just as important to South America as the US’: why Argentina is keen to start talks on free-trade agreement” about Argentina’s ambassador to Beijing Diego Ramiro Guelar’s view that “China is as important as US to South America and Argentina is keen to discuss with China a free trade agreement between China and Mercosur, the world’s fourth-largest trading bloc with a population of 260 million people in Argentina, Brazil, Uruguay and Paraguay and three-quarters of South America’s GDP”. In spite of US demonizing China, major Latin American countries want win-win cooperation with China.

Now, According to Reuters’ report “Talks over Panama-China free trade pact to start in July”, another Latin American company Panama is also keen to conduct win-win cooperation with China. Panama, though a small country, due to its favorable geological location with Panama Canal is an important re-export center of Chinese goods in Latin America.

The US has just lost the Philippines to China in Southeast Asia. Now it is harsh on Mexico and other countries where lots of people want to immigrate to the US illegally. Will the US in addition loses Latin America to China? Perhaps so as demonizing is difficult to work but win-win cooperation brings real benefits!

Poor United States!

Comment by Chan Kai Yee on SCMP’s and Reuters’ reports, full text of which can respectively be viewed at http://www.scmp.com/news/china/diplomacy-defence/article/2142842/china-just-important-south-america-us-why-argentina and https://www.reuters.com/article/us-china-panama-trade/talks-over-panama-china-free-trade-pact-to-start-in-july-idUSKCN1IQ36N.


U.S. reaches deal to keep China’s ZTE in business: congressional aide


David Shepardson, Karen Freifeld May 26, 2018

WASHINGTON (Reuters) – The Trump administration told lawmakers the U.S. government has reached a deal to put Chinese telecommunications company ZTE Corp back in business after it pays a significant fine and makes management changes, a senior congressional aide said on Friday.

U.S. President Donald Trump appeared to confirm the deal in a tweet late on Friday. “I closed it down then let it reopen with high level security guarantees, change of management and board, must purchase U.S. parts and pay a $1.3 Billion fine.”

The reported deal involving China’s second-largest telecommunications equipment maker ran into immediate resistance in Congress, where Democrats and Trump’s fellow Republicans accused him of bending to pressure from Beijing to ease up on a company that U.S. intelligence officials have suggested poses a significant risk to U.S. national security.

ZTE was banned in April from buying U.S. technology components for seven years for breaking an agreement reached after it violated U.S. sanctions against Iran and North Korea.. After ZTE makes a series of changes it would now be allowed to resume business with U.S. companies, including chipmaker Qualcomm Inc.

The deal, earlier communicated to officials on Capitol Hill by the Commerce Department, requires ZTE to pay a substantial fine, place U.S. compliance officers at the company and change its management team, the aide said.

The Commerce Department would then lift an order issued in April preventing ZTE from buying U.S. products. ZTE shut down most of its production after the ruling was announced.

Fox News said Trump told them on Thursday that he had negotiated the $1.3 billion fine with Chinese President Xi Jinping in a phone call.

ZTE, which is publicly traded but whose largest shareholder is a Chinese state-owned enterprise, agreed last year to pay a nearly $900 million penalty and open its books to a U.S. monitor. The penalty stemmed from for breaking an agreement after it was caught illegally shipping U.S. goods to Iran and North Korea, in an investigation dating to the Obama administration.

The company has lost over $3 billion since the April 15th ban on doing business with U.S. suppliers, according to a source familiar with the matter.

Trump on Tuesday floated a plan to fine ZTE up to $1.3 billion and shake up its management as his administration considered rolling back more severe penalties that have crippled the company.

Responding to news of the administration’s deal with ZTE, Republican Senator Marco Rubio tweeted: “Yes they have a deal in mind. It is a great deal … for #ZTE & China. #China crushes U.S. companies with no mercy & they use these telecom companies to spy & steal from us.”

Rubio, as well as Democratic Senators Chuck Schumer and Chris Van Hollen, said Congress should act to stop Trump from letting ZTE get back into business. “If the administration goes through with this reported deal, President Trump would be helping make China great again,” Schumer said Friday on Twitter. “Would be a huge victory for President Xi, and a dramatic retreat by Pres Trump. Both parties in Congress should come together to stop this deal in its tracks.”

U.S. intelligence and U.S. law enforcement agencies have serious concerns that ZTE and other Chinese telecommunications firms use their equipment to gather intelligence on U.S. citizens.

The U.S. Department of Defense has also stopped selling ZTE’s mobile phones and modems in stores on its military bases, citing potential security risks.

William Evanina, the acting director of the National Counterintelligence and Security Center, said at his May 15 confirmation hearing that he would not use a ZTE phone nor recommend that anyone in a sensitive position in government use one.

Chinese officials sought a pullback on ZTE as part of any broader deal to prevent a trade war between the world’s two biggest economies. U.S. Commerce Secretary Wilbur Ross is scheduled to visit China next week for another round of talks. White House legislative director Marc Short told PBS Friday that Ross “would be making that announcement in the coming day” of a resolution of the ZTE issue.

ZTE needs U.S. components for its mobile phones and network equipment. U.S. companies provide an estimated 25 percent to 30 percent of components in ZTE’s equipment.

As part of the agreements ZTE made last year it dismissed four senior employees.

Shares of ZTE’s U.S. suppliers traded higher on Friday. Optical networking equipment maker Acacia Communications Inc, which got 30 percent of 2017 revenue from ZTE, rose 4.4 percent. Optical component company Oclaro Inc, which received 18 percent of its fiscal 2017 revenue from ZTE, rose 2.7 percent.

Reuters reported earlier this week citing sources that a proposed trade deal with China would lift the ZTE ban. In return, China would eliminate tariffs on U.S. agriculture or agree to buy more farm products from the United States.

Reporting by Roberta Rampton and Doina Chiacu; Additional reporting by Jonathan Landay; Writing by Chris Sanders; Editing by Meredith Mazzilli, Tom Brown and Diane Craft

Source: Reuters “U.S. reaches deal to keep China’s ZTE in business: congressional aide”

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