In its article “Industries may relocate to Pakistan due to covid-19” on March 12 Pakistan media Tribune quotes State Bank of Pakistan (SBP) Deputy Governor Dr Murtaza Syed as saying that after recovery from coronavirus, the world is likely to reconsider the global supply chains to avoid concentration of industries in one country, China, which will create opportunities of relocation of some industries to Pakistan.
Syed hopes that industries will move from China to Pakistan. That is precisely what China wants in its Belt and Road initiative. China is now switching from export- and investment-geared economic growth to innovation-, creationg- and consumption-led economic growth but it is hard to transform all its export-oriented enterprises into innovation- and creation-geared ones so that it has to move those it cannot transform to Silk Road economic belt including Pakistan.
Moreover, US trade war offensive is forcing China to move enterprises geared for export to the US out of China to avoid tariff hikes.
Pakistan, Myanmar, Bangladesh, Laos, Cambodia, Vietnam, etc. are all destinations for such removal as they are all in Silk Road economic belt. Syed is wise to see and wants to grab the opportunity.
Comment by Chan Kai Yee on Trubune’s article, full text of which can be viewed at https://tribune.com.pk/story/2174277/2-industries-may-relocate-pakistan-due-virus/.
In my post “China Coming Into the Arctic: Shaping a Flanking Strategy” on June 15, I said, “China is not an Arctic country but tries hard to take a share of the benefits in melting Arctic in resource exploitation, trade routes, etc.”
What progress China has made since June?
SCMP describes China’s successes there in its article “China’s plan for the Arctic – and a shipping centre to rival Singapore” yesterday.
The shipping route to Europe through the Arctic is 6,400 km shorter and much more safer from being cut by US navy as it goes along the coast of China’s de facto ally Russia. However, SCMP says, “Yet only a little over 15 ships did so (traveled along the Arctic route) this summer. This is because the challenges are still immense: ice-locked much of the year without any major stopping-off points – or indeed any deep-sea ports at all – the sparsely charted waters remain fraught with icebergs, dangerous shallows and other hazards that bump up insurance premiums even in ‘ice-free’ conditions.”
To facilitate shipping, China has accepted tender for building a homegrown icebreaker in addition to the Xue Long it has imported. In addition, China plans to invest in construction of infrastructures for shipping along the route. That will be Silk Road economic belt initiative in addition to maritime Silk Road.
For such belt, in addition to joint oil and gas exploration with Russia, according to SCMP, China’s Shenghe Resources has recently taken a 12.51 per cent stake in Greenland Minerals and Energy to become its largest individual shareholder. The purchase agreement provides that as soon as the Greenland firm’s flagship Kvanefjeld project enters the development stage, Shenghe is allowed to raise its stake to 60%. With such substantial participation in Greenland’s mining, China may have significant influence in Greenland if Greenland becomes independent from Denmark.
As Russia and all the small Arctic countries want Chinese investment, it is hopeful for China to become a major Arctic player gradually.
Comment by Chan Kai Yee on SCMP’s article, full text of which can be found at http://www.scmp.com/week-asia/business/article/2046117/chinas-plan-arctic-and-shipping-centre-rival-singapore.
SCMP says in its report on November 13 titled “Chinese ship opens new international trade route via Pakistani port” that Pakistani civil and military leaders went to Gwadar Port to see off a Chinese ship that exported goods to the Middle East from the port that has been newly built with Chinese investment.
SCMP says, “Pakistani army has created a special force to guard port and new trade routes”.
That marked the beginning of China’s Silk Road economic belt in Pakistan called the “China-Pakistan Economic Corridor” where China is building a network of roads and power plants to facilitate shipping of Chinese goods through the corridor to the Middle East and Africa. The Corridor will also make great contributions to Pakistan’s economic growth.
China has developed its J-20 to have air superiority in the area around it to prevent attack by the US, but its trade lifelines through the oceans, especially the Indian Ocean may be cut by powerful US navy.
According to SCMP, “Gwadar port is located on the Arabian Sea and occupies a strategic location between South Asia, Central Asia and the Middle East. The port is also located at the mouth of the Persian Gulf, just outside the Straits of Hormuz.”
The port is therefore the key to China’s 21st century maritime Silk Road. As the sea route from Gwadar to the Middle East is protected by Pakistani and Iranian air forces, China now has a safe trade route through its Southwest China and Pakistan on land and the Persian Gulf and Strait of Hormuz along Pakistani and Iranian coast instead of the Indian Ocean that may be cut by US or even Indian navy.
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/2045579/chinese-ship-opens-new-international-trade-route.
Bloomberg publishes an article by its China watchers on China’s problems in exporting its high-speed railway. The authors give the article the name “China’s Silk Road Hits the Buffers”. Obviously, Bloomberg’s China watchers are ignorant about China’s Silk Road. China’s Silk Road economic belt and maritime Silk Road (One Belt, One Road) initiative has been launched for China’s very survival.
Silk Road is the long land road through which China conducts trade of goods, mainly Chinese silk with remote Middle East and European countries. It enabled China to make money but did not concern China’s survival.
The road is no longer used now as we now use ships to conduct the trade in huge volume compared with the trade on the Silk Road in history.
Then why Chinese President Xi Jinping has launched his One Belt, One Road initiative and regards it as his diplomatic priority?
Since the US began to contain China and announced the plan to deploy 60% of its military to Asia to deal with China, China has successfully developed enough missiles, warplanes and warships to resist the attack from US military. Still Chinese leaders clearly know China’s Achilles’ heel—Powerful US navy can easily cut China’s trade lifelines to Europe, the Middle East and Africa. The cut of China’s supply of oil from the Middle East alone is enough to stifle China.
Xi’s predecessors had already begun to build China’s land connection to Europe. They have succeeded in developing close ties with Russia so that China can have links to the west through Russia and Central Asia and get oil and gas from Russia and Central Asia.
Xi believes that for China’s national security in the face of US enmity, China has to help the countries along its route to the west develop their economy to make them better cooperate with China.
What is more, the land routes to the Middle East though Russia and Central Asia may be blocked by some countries that have close ties with the US. Therefore, there is the maritime Silk Road initiative for maritime connection to the Middle East. Some people regard that initiative as focusing on having footholds in Sri Lanka, Maldives and Pakistan along China’s shipping route through the Indian Ocean. That is certainly good for China but US navy can easily block China’s way in the Indian Ocean and it takes China at least two decades to develop a navy that can rival US navy.
The major maritime Silk Road for China on the sea is from Pakistan’s Gwadar Port to Middle East oil producers such as Iran and Saudi Arabia and to Africa. As the key part of China’s maritime Silk Road, China is building China-Pakistan economic corridor for land transport to Gwadar. Certainly pipelines and railways can be built from Gwadar to Iran, but there are problems for China’s trade routes further west as they have to go though politically unstable areas such as Iraq and Yemen.
China has achieved great success in its One Belt, One Road initiative. The success of its AIIB proves that.
As for China’s export of high-speed railway, it is a way to make more money and has nothing to do with China’s survival and cannot be regarded as a part of China’s vital One Belt, One Road initiative.
The authors of the article even confused China’s transport need with China’s desire for investment. The transport facilities are vital for China’s trade but whether China is able to invest in the facilities is a minor issue that only concerns China’s ability to share the profit from the facilities.
Unlike the US, China does not have US enthusiasm to control as much in the world as possible. China wants cooperation; therefore, it sets up the AIIB to enable other countries to have their shares in the investment in infrastructures in Asia. The railways, roads and other transport facilities built and invested by other countries contribute to China’s success in its One Belt, One Road initiative as China can use those railways, roads and facilities for its trade connection to the west without incurring any construction costs.
Is China a sure loser when it loses the right to build the facilities to another country such as the Bangkok-Chiang Mai high-speed train? No one can tell as no one knows whether the facilities will be profitable. There is always risk in investment. The authors seem to forget that simple truth.
The US wants monopoly, not only in economy, but also in politics. It even wants other countries to copy its political system. That is quite a common mindset in the West. There are many things in the West that China shall learn from, but I hope China shall never have such a mindset and shall instead have the mindset of cooperation and mutual benefit.
Comments by Chan Kai Yee on Bloomberg’s article “China’s Silk Road Hits the Buffers”, full text of which can be viewed at http://www.bloomberg.com/gadfly/articles/2016-06-19/china-railway-builders-take-the-silk-road-back-home
For a long time, China could not find save investment with acceptable returns for its huge foreign exchange reserve but still continued to invest in US treasury bonds with poor return.
Now, Chinese President Xi Jinping has found a wise way to spend China’s huge foreign exchange for investment in infrastructure in other countries especially for his Silk Road Economic Belt and Maritime Silk Road project. The investment even extended to Europe and Latin America.
Some people regard China’s moves as aggressive. There is even an article on China claiming territories of 23 countries by someone who has shallow knowledge about Chinese history. The failure of Western countries’ colonialism has already proved that there is no hope for colonialism to succeed. Will China repeat their failure by taking other countries’ territories by force. I do not think Chinese leaders and people are so foolish. In addition, as mentioned in my previous posts, Chinese culture is the only ancient culture that has been able to survive for more than 4,000 years because China has never tried to conquer the world by force.
Overseas Chinese’ successes in Southeast Asia clearly tell us there is a Chinese way of success abroad, the way to become rich by making contribution to the economic development in the countries one lives in. Therefore, the said article fails to make China’s moves abroad unpopular. That has been proved by the fact that China’s Asian Infrastructure Investment Bank (AIIB) has been so popular in the world in spite of US opposition.
Over the past years, China has made and pledged lots of investment in ASEAN, India, Pakistan, Central Asia, central and eastern Europe and Latin America.
According to SCMP’s report yesterday China was Malaysia’s biggest foreign investor last year. There is certainly political influence in the investment as according to SCMP’s another report the same day, China’s purchases in embattled 1MDB helped pro-Beijing Malaysian Prime Minister to remain in power in spite of incessant calls for him to resign. The SCMP reports can be viewed at http://www.scmp.com/news/china/diplomacy-defence/article/1900064/china-becomes-malaysias-biggest-foreign-investor-thanks and http://www.scmp.com/news/china/diplomacy-defence/article/1900056/how-chinas-big-investments-malaysia-buy-it-leverage-too
China is even busy in investing in Africa, quite a risky area for investment.
In early December 2015, Xi offered US$60 billion of funding to African nations, including US$5 billion in zero-interest loans and US$35 billion in preferential financing, export credit lines and concessional loans.
True, quite some such investment may not bring any return, but it buys popularity for China, an invisible asset that will remain valuable for a long time.
Moreover, due to the risks, the infrastructures China builds in other countries may not bring any return. Even if such investments are profitable, the infrastructures can be used by other countries without taking any such risk. Why shall China take risks to benefit other countries? That shows Xi’s wisdom and confidence in Chinese people’s ability, resourcefulness and talents to prosper in other countries through hard work and tenacity in overcoming difficulties, which have been well proved by Overseas Chinese’ successes in Southeast Asia under the colonial rule of Western colonists.
Xi can be sure that the infrastructures built by China and even by other countries will mainly be used by Chinese businesses.
For example, Japanese Prime Minister Abe is happy that Japan has got the right to build a railway in India, but the railway can also be used by China for its development of the maritime Silk Road. Who will be better benefited depends on whose people are better able to prosper in other countries.
I described in my post that China owes its success to its people’s desire to climb up. Do Japanese youngsters have the enterprising spirit to explore the unknown areas abroad instead of focusing on seeking safe permanent jobs in large Japanese established enterprises? That is the question.
Like their forefathers in Southeast Asia, Chinese businessmen vigorously respond to Xi’s call for going abroad and are busy entering other countries to find new opportunities. A typical example is China’s richest tycoon Wang Jianlin’s Chinese conglomerate Dalian Wanda Group’s acquisition of US film studio Legendary Entertainment for about $3.5 billion. The acquisition has turned Wang into a Hollywood movie mogul.
Reuters’ report yesterday on the acquisition can be viewed at http://www.reuters.com/article/us-china-wanda-cinema-m-a-idUSKCN0UQ08F20160112
The railway Abe will build in India may well be used by Chinese businesses in India.
Smearing China, exaggerating Chinese threat and China’s difficulties, predicting China’s collapse, etc. cannot stop China’s rise nor can enable other countries to catch up or surpass China because they are just acting in the wrong ways. They have to encourage their people to be enterprising and go abroad.
However, those who are acting in the above-mentioned wrong ways at least understand that China has been selling off its foreign exchange reserve for its economic expansion abroad. Perhaps like Reuters, quite a few people believe that China has done so in order “to counter the damaging impact on an already decelerating economy from the surge of capital fleeing the country.” Reuters reflects their view in its report yesterday titled “China FX reserve sell-off to soon move beyond U.S. Treasuries: BAML”
China shall continue to sell its investment in other countries’ government bonds and use the proceeds for foreign investment to facilitate its future development abroad. That is precisely the wise way to use its foreign exchange reserve.
Comments by Chan Kai Yee on Reuters’ report, the full text of which is set forth below:
China FX reserve sell-off to soon move beyond U.S. Treasuries: BAML
LONDON | By Jamie McGeever Mon Jan 11, 2016 11:46am EST
The unwinding of China’s foreign exchange reserves could soon extend beyond U.S. Treasuries, with U.S. corporate and euro zone sovereign bonds among the assets most vulnerable to selling from Beijing, Bank of America Merrill Lynch said on Monday.
China sold a record $510 billion of FX reserves last year to counter the damaging impact on an already decelerating economy from the surge of capital fleeing the country.
The lion’s share of that came from $292 billion sales of U.S. Treasury debt, followed by $92 billion sales of U.S. stocks, $3 billion of U.S. agency bonds and $170 billion of non-U.S. assets, according to BAML estimates.
China increased its U.S. corporate bond investments by $44 billion last year to $415 billion, BAML strategists estimated, adding that it won’t be long before investors turn their attention to other assets Beijing could potentially sell.
“In the next two months I would still say Treasuries. But if the pressure continues beyond that, it’s non-U.S. assets, and in the U.S. space it’s definitely corporates and agencies,” said Shyam Rajan, rates strategist at BAML in New York.
Rajan and his colleagues estimate that China’s $3.33 trillion FX reserves comprise $1.15 trillion non-U.S. assets (mostly short-dated euro-denominated bonds), $415 billion U.S. corporate bonds, $212 billion in agencies, $266 billion stocks and $1.29 trillion of Treasuries.
Selling across these bonds may not automatically trigger a sharp rise in their yields though, Rajan said, pointing to the experience of Treasuries in the latter part of last year when swap spreads moved below zero.
“The way to trade the reserve flow story is through relative value trades, such as the swap spread tightening in Treasuries. I would imagine it plays out the same way in other markets too,” Rajan said.
Last year’s record unwind brought China’s total FX reserves to a three-year low of $3.33 trillion. Most analysts expect that to be depleted further this year.
JP Morgan estimates that capital flight from China since the second quarter of 2014 has totaled $930 billion, while credit ratings agency Fitch on Monday put the figure at over $1 trillion.
U.S. investment bank Morgan Stanley on Monday joined Goldman Sachs in lowering its forecast for the Chinese yuan, citing the ongoing flow of capital out of the country and need for a weaker currency to support the economy.
(Reporting by Jamie McGeever; Editing by Toby Chopra)
Reuters says in its report “India, Pakistan to join China, Russia in security group”, “India and Pakistan began accession to a regional security group led by China and Russia on Friday after two days of summits which President Vladimir Putin held up as evidence Moscow is not isolated in the world.
“The Shanghai Cooperation Organisation (SCO), meeting in the Russian city of Ufa a day after the BRICS emerging economies held a summit there, said the invitation to the two Asian nations showed a ‘multi-polar’ world was now emerging.”
Putin is certainly happy as the expansion of SCO and the intensification of the cooperation among BRICS states shows that the US has failed to isolate Russia.
It is certainly a political victory for Putin in his struggle against US hegemony.
So is it for Chinese President Xi Jinping. I may say that it is even greater a victory for him. US media The National Interest described the problems in Indian-Chinese relations in its article on Modi’s recent visit to China titled “The Chinese ‘century’ is already over”, by quoting Modi as saying to media in China, “I stressed the need for China to reconsider its approach on some of the issues that hold us back from realising full potential of our partnership,” and “I suggested that China should take a strategic and long-term view of our relations.”
I said in my post on May 29:
Everybody who has some knowledge about Chinese-Indian relations knows the problems. When I talked with ethnic Indian Hong Kong residents about Chinese-Indian relations, most of them did not think the border dispute was a great issue but had serious questions about close Chinese-Pakistani relations especially the China-Pakistan economic corridor that will go through the disputed Kashmir area.
If Modi had failed to mention those serious problems in his talks with Chinese leaders, the improvement in the ties between the two countries would have been but a diplomatic show without any true meaning.
I provide the last sentence that National Interest’ omits in its quote of Modi’s words: “I found the Chinese leadership responsive.”
What is Chinese leaders’ response? With Putin’s help, they have succeeded in bringing both India and Pakistan into their camp the SCO.
Reuters says, “The addition of Pakistan and India, two nuclear-armed neighbors who have years of tensions between them, could also lead to easing the conflicts between New Delhi and Islamabad.”
In addition, according to Reuters, the leaders of the two countries agreed in a separate meeting in Ufa that Modi would visit Pakistan next year.
That will remove India’s opposition to the China-Pakistan economic corridor through disputed Kashmir that is vital to China’s energy and trade security.
Moreover, Iran wants to join SCO earnestly but due to the existence of sanctions, SCO cannot accept it. When the sanctions have been lifted, Iran will become a member to supply oil and gas to India through Pakistan. While China’s Bangladesh China India Myanmar Economic Corridor initiative will provide a land link between China and the Middle East in addition to that through the China-Pakistan economic corridor.
Intensive cooperation between SCO, BRICKS and the Eurasian Economic Union will soon make Xi Jinping’s Silk Road economic belt a reality.
The expansion of SCO to form a vast area of cooperation together with the Euroasian Economic Union make the vast Asian land area an area of Russian and Chinese influence.
In establishing such an important area of influence with a fifth of the world’s oil and half of the global population, Russian-Chinese alliance is vital.
US media Foreign Policy says in its report today that Beijing and Moscow have overcome their decade-long competition and become partners.
It says, “Russia is instead aiming to retain its influence as the security guarantor in the region, keeping its sway in the region through military bases in Central Asia, arms deals, and the Collective Security Treaty Organization, a security bloc of former Soviet countries. This formula satisfies both China, which is wary of deploying troops beyond its borders, and Central Asian countries used to a Russian military presence.”
It quotes Alexander Gabuev, senior associate and the chair of the Russia in the Asia-Pacific program at the Carnegie Moscow Center, as saying “Under this arrangement, China would be the bank and Russia would be the big gun”.
China as the bank is richer than the US while Russia and China combined are not small as a big gun in countering the US. Russia and China have thus subdued the US by diplomacy, the second best way to subdue an enemy according to Sun Tze’s The Art of War.
Article by Chan Kai Yee in response to Reuters and Foreign Policy’s reports
Reuters and Foreign Policy’s reports are respectively available at http://www.reuters.com/article/2015/07/10/us-china-russia-idUSKCN0PK20720150710 and https://foreignpolicy.com/2015/07/10/china-russia-sco-ufa-summit-putin-xi-jinping-eurasian-union-silk-road/?utm_source=Sailthru&utm_medium=email&utm_term=%2AEditors%20Picks&utm_campaign=2015_EditorsPicks_Swiss_Jul10%20Benjamin%20Soloway
In its report “Rivals Pakistan, India to start process of joining China security bloc” today, Reuters says, “Nuclear-armed rivals Pakistan and India will start the process of joining a security bloc led by China and Russia at a summit in Russia later this week, a senior Chinese diplomat said on Monday, the first time the grouping has expanded since it was set up in 2001.”
The security bloc Reuters refers to is the Shanghai Cooperation Organization (SCO) set up by Russia and China to combine strength in countering US hegemony. It has grown in importance due to Putin and Xi Jinping’s intensive efforts to form a de facto alliance against the US and China’s increasing involvement in the economy of the four Central Asian members of SCO for its trade and energy security.
What China has been doing is in fact the initial part of Xi Jinping’s Silk Road economic belt initiative. Xi’s close friendship with Putin has enabled him to take Russia’s Euroasian Economic Union into the Belt. Now, the most important part of the belt to be taken in is South Asia where India has a leading position.
Pakistan has joined the belt to build jointly with China a China-Pakistan economic corridor, which India opposes as the corridor goes through Kashmir, an area of dispute between India and Pakistan.
Due to Russian influence, India applied for SCO membership last year while Pakistan submitted its application much earlier. There are prospects for the two countries to improve their ties if they both join the SCO. After all win-win cooperation is much better than military confrontation.
Moreover, Iran has also expressed its desire to join SCO but due to the existing sanctions, SCO cannot accept it. If the sanctions have been lifted after Iran reaches a deal with the US and others on its nuclear program, Iran will soon join SCO. Then almost all parts of Asia to the west of China will be included in China’s Silk Road economic belt.
It seems cooperation is more popular than partnership. Organization of cooperation expands quickly while that of partnership stalls.
Article by Chan Kai Yee in response to Reuters report
The following is the full text of Reuters report:
Rivals Pakistan, India to start process of joining China security bloc
BEIJING Mon Jul 6, 2015 8:43am EDT
Nuclear-armed rivals Pakistan and India will start the process of joining a security bloc led by China and Russia at a summit in Russia later this week, a senior Chinese diplomat said on Monday, the first time the grouping has expanded since it was set up in 2001.
The Shanghai Cooperation Organisation (SCO) groups China, Russia and the former Soviet republics of Tajikistan, Uzbekistan, Kazakhstan and Kyrgyzstan, while India, Pakistan, Iran, Afghanistan and Mongolia are observers.
“As the influence of the SCO’s development has expanded, more and more countries in the region have brought up joining the SCO,” Chinese Vice Foreign Minister Cheng Guoping told a news briefing.”India and Pakistan’s admission to the SCO will play an important role in the SCO’s development. It will play a constructive role in pushing for the improvement of their bilateral relations.”
India and Pakistan have fought three wars since 1947, two of them over the divided Muslim-majority region of Kashmir which they both claim in full but rule in part. Pakistan also believes India is supporting separatists in resource-rich Baluchistan province, as well as militants fighting the state.
India applied to join the regional security grouping last year and SCO foreign ministers gave a positive recommendation when they met in June. “We await further developments,” said Sujata Mehta, a senior foreign ministry official.
Prime Minister Narendra Modi will be in Moscow for a summit of the BRICS group of emerging markets and both he and his Pakistani counterpart, Nawaz Sharif, will attend a special SCO “outreach” session as part of the gathering.
Pakistan’s application is being considered, said foreign ministry spokesman Qazi Khalilullah. “We hope they will support us for full membership,” he added.
The grouping was originally formed to fight threats posed by radical Islam and drug trafficking from neighboring Afghanistan.
Cheng said the summit, to be attended by Chinese President Xi Jinping, would also discuss security in Afghanistan.
Beijing says separatist groups in the far western region of Xinjiang, home to the Muslim Uighur minority, seek to form their own state, called East Turkestan, and have links with militants in Central Asia, as well as Pakistan and Afghanistan.
China says Uighur militants, operating as the East Turkestan Islamic Movement (ETIM), have also been working with Islamic State.
“It can be said that ETIM certainly has links with the Islamic State, and has participated in relevant terrorist activities. China is paying close attention to this, and will have security cooperation with relevant countries,” Cheng said.
(Reporting by Ben Blanchard; Additional reporting by Douglas Busvine in New Delhi; Editing by Nick Macfie and Clarence Fernandez)