Xi Speeds Up China’s Inward Economic Pivot in More Hostile World

  • ‘Domestic market first’ approach has self-reliance at core
  • China faces sluggish consumption, behind on tech goals
Xi Jinping during the National Peoples Congress  in Beijing in May.
Xi Jinping during the National Peoples Congress  in Beijing in May.

Photographer: Wang Zhao/AFP via Getty Images

In a series of remarks over the past few weeks he’s touted the so-called “dual circulation” development model, in which a more self-reliant domestic economy serves as the main growth driver supplemented by certain foreign technologies and investment. Following a Politburo meeting Thursday, Xi said China should speed up this approach in the face of an economic situation that “remains complicated and challenging with unstable and uncertain factors.”

For Xi, the strategy is to effectively reduce reliance on the West just as other nations seek to become less dependent on China for economic growth. While the world’s biggest economies still need each other for the moment, rising U.S.-China tension fueled by the pandemic looks set to persist even if President Donald Trump loses an election in November, as both major American political parties increasingly see Beijing as an ideological threat.

“China’s leadership doesn’t want to leave an impression that the country would just close its doors in the face of external challenges,” said Wang Huiyao, an adviser to China’s cabinet and founder of the Center for China and Globalization. “However, if the U.S. initiates a hard decoupling, such efforts could help boost China’s immunity from possible fallout.”

Global Execs

Xi has been out front driving the point home over the past month. In a letter to global chief executives in mid-July, he urged them to stay in China and pledged to improve the business climate. A week later he called on foreign and domestic companies to step up innovation and help stabilize employment, telling them to fully tap the potential of China’s market.

What Bloomberg’s Economists Say…

A subtle but important policy shift is underway in China. The government has highlighted ‘dual circulation’ in recent policy statements — a reference to the domestic economy and external trade. This suggests an official shift away from an export-led growth model toward a sharper focus on building an economy with stronger domestic drivers.

— Chang Shu, Chief Asia Economist

For the full note click here

On that trip, Xi called for boosting national auto brands, developing key technologies and stepping up research into drone warfare and training. And just on Friday, Xi announced that Beidou-3 navigation satellite system, China’s alternative to the U.S.-run Global Positioning System, had started operation.

China’s better-than-expected recovery in the second quarter demonstrated the kind of domestic resilience that the country’s leaders hoped will get its economy back on track. But that performance was bolstered by a splurge in government-led investment, a range of administrative orders aimed at spurring credit expansion and small exporters adaptive to the shifting global demand of protective gear.

Domestic Worry

The worrying figure remains weak consumption, which has raised concerns about the sustainability of the recovery. The country’s income distribution has worsened of late, with groups at the lower end of the income ladder seeing wages falling while millions of others who lost their jobs don’t show up as unemployed in the official data.

China Is Buying Up Chips Before Hong Kong Route Shuts

“China’s future growth will depend on domestic demand, domestic wealth re-distribution and internal circulation of materials,” said Liu Peiqian, a China economist at Natwest Markets in Singapore.

China also has a long way to go to master the core technologies it desperately needs for its development, from semiconductors and aircraft to new energy vehicles and artificial intelligence, despite a range of official programs from “Made in China 2025” to a push to build out 5G infrastructure.

Some experts say it could take more than a decade to catch the U.S. in terms of manufacturing computer chips, particularly after the Trump administration tightened supplies. Beijing is widely expected to miss a goal of domestic suppliers meeting around 70% of chip needs by 2025. That compares with about 16% now, according IC Insights, Inc., a semiconductor market research company headquartered in Scottsdale, Arizona.

Set Up to Fail

“I’m not sure why they set such aggressive targets, other than to try and encourage the industry to work harder,” said Stewart Randall, head of electronics at consultancy Intralink in Shanghai. “It feels like setting oneself up to fail.”

One sign of the inward shift was the exclusion of any mention of Xi’s Belt and Road Initiative — a major “turn outward” policy since 2013 — following Thursday’s Politburo meeting. That indicates a “clear digression from the previous national strategy,” Nomura’s Chief China Economist Lu Ting wrote in a research note Friday, adding that it likely stemmed from the wider U.S.-China clash. “A retreat might make sense for China, as it needs to adjust its role in the global arena,” he wrote.

Bricks and Mortar

Drove China’s rebound in the second quarter

Source: Nomura Holdings Inc

Building a more self-reliant economy could also pay dividends over the long haul for the Communist Party, which faces pressure both to deliver economic gains to the country’s 1.4 billion people and to prevent them from pushing for any Western ideas of democracy that could threaten its rule.

“This whole onshoring is just a reflection of a withdrawal that might be politically needed in order to keep Xi or the party in power,” said Joerg Wuttke, president of the European Union Chamber of Commerce in China, who in the past has participated in discussions with senior government officials on economic policy.

Still, he said, Beijing’s leaders may struggle to pull it off: “Does China realize how difficult it is to make up the technology on which they built their success stories, and that it’s them against the world? Are they willing to pay the economic price?”

— With assistance by Colum Murphy, Yinan Zhao, Simon Flint, and Jing Li

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

China’s Beidou Navigation System ready to go global

By Wu Lei 21:52, 29-May-2019

The U.S. ban on selling chips and other key components to Huawei has raised concerns among other Chinese tech companies. But I talked with two major players in the Beidou Navigation System who say they are not worried by the move.

Comnav Technology is one of the key suppliers of high precision modules and receivers for the Beidou Navigation System.

Photo Conav
Comnav’s terminal products have been sold to over 100 countries including the U.S. /CGTN Photo

The U.S. government put Comnav’s products on its list of additional tariffs last year, but the company said the impact has been limited.

Yin Qing, Comnav Technology’s Vice General manager told CGTN that because they don’t have very big sales in the U.S. right now, tariffs didn’t really affect them.

China started to build its Beidou Navigation System in the late 1990s. High tech companies used to rely on imported components.

But after years of research, Chinese high tech companies have developed the core technology and completed the supply chain. Now, this module only costs around 2,000 U.S. dollars with all the same functions. These companies say the key for sustainable growth is building a complete industrial chain.

Photo according
According to official data, 80 million chips have been sold for products using China’s BeiDou Navigation System. /CGTN Photo

From chipsets to receivers, thousands of companies have provided products and solutions in the sector. Shen Jun, Vice President of Beijing Unistrong Science and Technology Company told CGTN that once a senior scientist says the core technology cannot be bought, they have to develop their own key skills and technologies. He thinks this is the main lesson that can be learned from Beidou’s independent development.

Some Chinese tech companies may have felt increasing uncertainty due to the ongoing U.S.-China trade war, but experts say that where there is danger, there might be opportunities as well.

Photo experts
Experts say the trade war might be a double-edged sword for Chinese tech companies. /CGTN Photo

Wang Jianyu, the director of Chinese Academy of Sciences Shanghai Branch said in the short term, a ban may restrict you, but in the long run, it helps you to reshape your technology and business model.

Source: CGTN “China’s Beidou Navigation System ready to go global”

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

Why Is Xi Happy at Trump’s Tariff Hikes?

On September 28, I had a post “Xi Happy at Tariff Hikes, Trump Furious to Place All-round Pressure” as my comment on SCMP’s report “Xi Jinping says trade war pushes China to rely on itself and ‘that’s not a bad thing’” on September 26 and Reuters’ report “Trump’s election meddling charge against China marks U.S. pressure campaign” on September 28.

SCMP quotes Xi as saying “Internationally, it’s becoming more and more difficult [for China] to obtain advanced technologies and key know-how. Unilateralism and trade protectionism are rising, forcing us to adopt a self-reliant approach. This is not a bad thing.” It is based on People’s Daily’s report but People’s Daily’s those passages are not direct quotes from Xi.

As what Xi said concerning the trade war between the US and China is very important, I carefully watched CCTV’s footage, transcribed and translated in full what Xi says as shown on CCTV screen as follows:

A hundred-mile journey is half completed at ninety miles. In attaining our two century-goals, we are now closer to success than any other time, but are also encountering so many challenges and difficulties that we have never encountered at any other time. Internationally, unilateralism and protectionism are rising, which are forcing us to rely on ourselves, to follow the path of self-reliance. That is not a bad thing. Disaster lurks within good fortune; good fortune accompanies disaster. Ultimately, China has to rely on itself.

The last sentence is a quote of a well-know saying from Chapter 58 of Lao Tzu’s “Tao Te Ching” in reverse order. What Lao Tzu says is “Good fortune accompanies disaster; disaster lurks within good fortune.”

Why does Xi quote in reverse order?

Xi was aware of the lurking disaster when China is enjoying good fortune due to West’s especially America’s fear of China’s rise. He has been carrying out Belt and Road initiative and Made in China 2025 as his ways to counter the coming challenges and difficulties. True enough Trump’s trade war has given rise to the challenges and difficulties mentioned in his speech. However, he is confident that with self-reliance, China will have the good fortune that accompanies the disaster.

He is happy at the tariff hikes as he foresee the good fortune that will accompany the disastrous trade war.

Note that he did not say “Internationally, it’s becoming more and more difficult [for China] to obtain advanced technologies and key know-how.” People’s Daily does not say that is what it directly quotes from Xi, but SCMP regards it as a direct quote from Xi in its report.

Comment by Chan Kai Yee on CCTV’s report on Xi’s words related to trade war. CCTV’s footage in Chinese can be viewed at http://tv.cctv.com/2018/09/28/VIDEMjb1NGXmqSB9oZeSsB3H180928.shtml

Xi Happy at Tariff Hikes, Trump Furious to Place All-round Pressure

We have two very interesting reports on US-China trade war. The first is SCMP’s report titled “Xi Jinping says trade war pushes China to rely on itself and ‘that’s not a bad thing’” on September 26.

The report quotes Xi as saying, “Internationally, it’s becoming more and more difficult [for China] to obtain advanced technologies and key know-how. Unilateralism and trade protectionism are rising, forcing us to adopt a self-reliant approach. This is not a bad thing.”

By trade protectionism, Xi obviously refers to Trump’s trade war attacks at China.

However, Xi did not stop at technology self-reliance. The report quotes him as saying that China was a big country which must “depend on itself for food supply, depend on itself for economic development, and depend on itself for manufacturing”.

Now food ranks first in Xi’s self-reliance. It means Xi is determined to free China from its dependence on US exports of agricultural products. Sorry, US farmers.

Trump thought he would have brought China down to its knees by his high pressure of tariff hikes. Xi’s firm response, the first ever of Xi’s response to Trump’s trade war, makes Trump furious. Trump sees that he has limited ammunition in tariff hikes. What if he has imposed tariff hikes on all Chinese goods but still fail to subdue China?

He has to find other means. That is reflected in Reuters’ report today titled “Trump’s election meddling charge against China marks U.S. pressure campaign”. It says that according to senior US officials, Trump’s “accusation of Chinese meddling in upcoming U.S. elections marks a new phase in an escalating pressure campaign against Beijing that Washington is pursuing on multiple fronts”

The accusation is not supported by any evidence. Reuters says, “The only specific action by China that Trump cited was that it was ‘placing propaganda ads’ in U.S. newspapers, referring to a Chinese government-run media company’s four-page supplement in the Sunday Des Moines Register promoting the mutual benefits of U.S.-China trade.

The ad may has some influence on Iowa farmers but Reuters says, “However, the practice of foreign governments buying space in U.S. newspapers to promote trade is common and differs from a clandestine operation run by a national intelligence agency.”

Trump’s accusation proves what US senior officials said about Trump, being furious, resorting to all-round pressure on China to force it to surrender.

It is also proved by recent flights of US B-52 bombers in East and South China Seas, US planned sale of weapons to Taiwan, etc.

In my previous posts I said that a soldier may fight with emotion but a commander must fight with wisdom. It seems that Trump is now fighting with emotion while Xi, with wisdom. Trump’s accusation, B-52 flights and weapons sales to Taiwan cannot hurt China but Xi’s self-reliance may hit the US hard.

Tariff hikes are but frontal confrontation, according to Sun Tzu’s teaching, to win the war China shall have ingenious surprise move. Now, self-reliance is Xi’s ingenious surprise move.

Xi wants China to rely on itself in food, manufacture and technology. If so China will not import food, airliners, electronics, chips, etc. from the US. With self-reliance on China’s huge market, China will no longer rely on its exports to the US. Then what will be the use of tariff hikes?

Xi’s self-reliance will ensure Trump’s failure in trade war.

Comment by Chan Kai Yee on SCMP and Reuters’ reports, full text of which can respectively be viewed at https://www.scmp.com/economy/china-economy/article/2165860/xi-jinping-says-trade-war-pushes-china-rely-itself-and-thats and https://www.reuters.com/article/us-usa-china/trumps-election-meddling-charge-against-china-marks-u-s-pressure-campaign-idUSKCN1M72VQ.