President Xi Jinping planning for a major new geo-political initiative?

     With the decision of the US President- Elect Donald Trump to withdraw from the Trans Pacific Partnership [TPP] on day one of his assumption of power as the next President of the US, the South China Morning Post [SCMP] from Hong Kong reports that the Chinese President Xi Jinping is planning for a major new geo-political initiative. At the heart of the proposal is to hold a summit level meeting of about 30 State leaders in China on the Chinese proposed "One Belt-One Road"[OBOR] initiative and that this summit is slated to surpass and perhaps even eclipse the G-20 summit held at Hangzhou earlier this year. President Xi sees this as an opening to give China's geo-political ambitions a "push" forward to further extend China's influence. The US decision to withdraw from the TPP is seen as the catalyst that has presented the Chinese leadership with an opportunity to fill the gap. The Chinese leadership also realizes that important states are at present beset with domestic problems and therefore the timing of the Chinese initiative is just about right.
    Connected with the OBOR proposal was the Chinese decision to establish the AIIB Bank that is slated to offer finance for infrastructure projects, particularly in Asian countries. Recently the President of the AIIB, Jin Liqun stated that the financing targets of the Bank are on track, with US$ 1.2 billion expected to be disbursed in the first year of operations. So far the Bank has disbursed US$829 million to six projects in Pakistan, Tajikistan, Indonesia and Bangladesh. It would be noted that all six countries are close to the periphery of China, where it has deep strategic interests. Only two major countries are outside the ambit of the AIIB at present--the US and Japan.
    However some significant problems for the Chinese leadership persist. The Chinese leadership is not at all sure which way its relationship with the Trump Administration is slated to go. While they are distinctly relieved that Trump has decided to "dump" the TPP and has not referred to his campaign promises of labelling China as a "currency" manipulator, nor has he mentioned about the imposition of a 45 per cent import duty on all Chinese imports into the US, yet they remain sanguine about whether Trump might push for confrontation on security and trade issues. In that eventuality, the Chinese would have a difficult time in managing their investments planned under the OBOR initiative.
   Secondly the Chinese are aware that with their shrinking foreign exchange reserves, limits to their ambitions would necessarily have to placed with a tightening of controls on the outward flow of the Renmenbi [Yuan]. Chinese investments are bound to slow down, although the Chinese maintain that OBOR projects would not be affected. It is however clear that while the Chinese currency may have depreciated against the US dollar, yet it has actually appreciated against the currencies of the SE Asian countries. The Chinese leadership does not expect that the Yuan's depreciation against the US dollar would seriously impact its proposed infrastructure projects.
    The Chinese are also conscious of the fact that two important states of Asia--India and Japan continue to remain skeptical of the OBOR and it is likely that President Xi Jinping may make one more effort to bring both India and Japan on board to see the merits of the OBOR. Should India begin to show interest, it may even receive an invitation for the proposed OBOR summit conference. Otherwise, in the fast paced evolving geo-strategic events in South and East Asia, India may just be left standing as a mere spectator! 

China-Philippines: A Case for "New" Type of Relations?

       Soon after the visit of President Duterte to Beijing, the Chinese moved with considerable dexterity to "allow" Filipino fishermen to once again resume fishing near the Scarborough Shoal/Huangyan island. The Chinese were conscious that with this move, opinion in South East Asian countries, would be considerable allayed about their aggressive intentions. The Chinese were also aware that fishing in the Philippines is an important industry, with about 1.61 million people employed in it. Although the total fish catch by Filipino fishermen is not excessively large, principally because they use only small boats with an average displacement of about three tons only, yet this industry plays a significant role in the economic life of the country. The Chinese decision has obviously gone down very well with the Filipino authorities and the ruling elites. It has certainly eased tensions in the South China Sea [SCS] area. It has also demonstrated to the South East Asian states that co-operation with China had certain positive benefits.
     However the Chinese have not rested their diplomatic initiative with this decision only. In what can be termed as a game changer, a proposal has been forwarded to the Philippines authorities for "joint exploitation" of the natural resources of the area in the SCS; claimed by both the Chinese and the Philippines governments. It would be recalled that Bloomberg in 2011 had put the crude oil reserves in the SCS area at 213 billion barrels, exceeding those of Saudi Arabia. The Chinese assessment was that the existence of such large oil reserves was one of the principal causes that triggered tension in the SCS area. It was felt that if Chinese diplomacy, by adopting very reasonable policies, could induce "co-operation" or "joint development", than this area could also become an area of peace and prosperity where the "peaceful" rise of China would not attract adverse reaction.

  It is in this context that the Chinese referred to the Power Development Plan [2009-2030] released by the Philippine Energy Department. In this plan the Philippines plans to produce 759 million barrels of oil and 2,694 trillion cubic feet of natural gas by 2030. Reaching this goal requires that, at the very least, 16 new oil and gas fields be discovered in the South China Sea region. Several years ago, the Philippine Forum Energy PLC opted for joint exploitation of oil with foreign enterprises, particularly in the Reed Bank area. The Philippine Energy Department also said that it expected China to bid for the joint exploitation. Statistics available suggest that Reed Bank has a reserve of at least 4.67 trillion cubic feet of natural gas. However, as the Chinese had claimed sovereignty over the Reed Bank, no third country was prepared to exploit this field for fear of offending China. Although this has not been confirmed by the Chinese authorities, warming Sino-Philippine relationship suggests that the two sides may be inching towards "joint co-operation"; just as the Chinese had hoped. The Filipinos know that China leads the world in offshore drilling technology and has sufficient funds to exploit the oil and gas resources of the region.

      If  the Chinese diplomatic initiative for "joint exploitation" of the oil and natural gas resources of the SCS area with the Philippines succeeds, it may also alleviate the need for the Chinese to import large quantities of oil from the Middle-East in the future. It would also mean that the Malacca "dilemma" referred to by the previous Chinese President Hu Jintao would also be adequately addressed. Perhaps this is the reason why the Chinese authorities are being so very reasonable with the Philippines!    

    

Trump SinksTPP: Road Open for Chinese Domination?

    It seems that the Chinese have had a very good day at the office. Not only has Trump scuttled the Trans Pacific Partnership [TPP], but severely left alone his campaign promise to name China as a "currency manipulator", as also his assertion that he would slap punitive tariffs of 45 per cent on Chinese imports into the US. The Chinese saw the TPP as a thinly disguised US effort to "contain" China, for as Xinhua had claimed only very recently,"the TPP was the economic arm of the Obama Administration's geo-political strategy to make sure that Washington rules supreme in the region". US supporters and allies in the Asia-Pacific region were aghast at the enormity of what Trump has done. As the Singapore PM only recently lamented, "each one of us has overcome some domestic political objection, some sensitivity, some political cost to come to the table and make the deal". PM Abe of Japan said that without the US, the TPP was dead.
   The TPP was the largest trade deal in history, involving 12 states of the Asia-Pacific region with about two-fifths of the world's GDP. The signing of the text of the TPP, on 4 February 2016, was thus seen as a US policy response to the rapidly increasing economic and strategic linkages among the Asia-Pacific states and that this effort had become the economic linchpin of the Obama Administration’s renewed strategic involvement with the region. The TPP agreement contains over 5000 pages of text, with 30 chapters covering different issues such as non-tariff barriers [NTBs], labor, environment, investment, state owned enterprises [SOEs] and some regulatory mechanisms not covered under WTO. The TPP was supposed to be designed for facilitating US business, as the US was the prime mover in the negotiations, for as President Obama himself had observed "we have to make sure that the US--and not countries like China--are the ones writing this century's rules for the world economy".
    The Chinese President Xi Jinping, while on a tour of Latin America, was not slow to see the openings for China and moved in rather quickly. Xi told his interlocutors that this was the time for "strong partnerships", for "win-win" solutions and strategic initiatives. As opposed to what Trump has been saying, Xi Jinping emphasized that China will not shut its doors, but open them even wider for facilitating trade and investment. Xi Jinping also has pushed for the Chinese sponsored FTAAP, that includes the US, but which in the context of Trump's rejection of the TPP, is hardly likely to succeed. But where the Chinese can make a considerable dent is the RCEP, where in the context of the Chinese initiatives of the OBOR, the RCEP that excludes the US, can help expand Chinese trade, investment and strategic influence in the Asia-Pacific. The RCEP is not very ambitious, for it is essentially a tariff reduction mechanism. At present Asia has 147 free trade agreements in force, up from 82 a decade ago. A further 68 free trade agreements are under negotiations.
   Trump has indicated that the US would negotiate bilateral trade agreements with individual states of the Asia-Pacific region; at best a tedious and a time consuming process. Meanwhile Chinese interlocutors would have fanned out in the region, dubbing the US as "untrustworthy" and "unreliable". If the US can renege on an important strategic initiative, albeit a trade and an investment deal, what will the states of the Asia-Pacific region make of the US security umbrella? Unfortunately, Trump has left the Asia-Pacific region wide open for Chinese influence to expand exponentially! 
   

       

  

How Does China Evaluate Trump?

    With the APEC summit due to take place in Lima shortly, most leaders of states on the Asia-Pacific rim are in the process of evaluating the likely policies that President Trump may follow and how these policies might affect them. Of deep interest for them would be the assessments of PM Abe of Japan, who became the first foreign leader to meet Trump. It is possible that PM Abe might like to share his assessments with the leaders of APEC states. It is also possible that PM Abe may not do so with the Chinese President Xi Jinping, with whom Abe has had rather frosty relations.
   Nevertheless what is the Chinese evaluation of Trump and his likely policies? The Chinese never expected that Trump would win the elections and therefore are a bit perplexed as to what policies Trump may follow. They aver that he has no diplomatic or international political experience. Thus while reading the Chinese press, the first impression gathered is that the Chinese leadership is convinced that Trump will put America first, promote US interests even ahead of those of US allies in the region and promote a US based order rather than a rules based order that President Obama promoted. In a specific context, the Chinese feel that the Trans Pacific Partnership [TPP] that President Obama promoted as the apex of his pivot to Asia is probably dead, but that the US would not give up other free trade agreements. The demise of the TPP, from which China was excluded, is music to the ears of the Chinese leadership. They also feel that Trump would not promote multi-literalism, but would prefer bi- lateral deals. The Chinese leadership is not averse to striking bilateral deals with Trump. It promotes, in a sense, their own concept of new "great power" relations.
   On South East Asia, the Chinese do not anticipate any lessening of US interest, but feel that Trump would probably promote US policies on lines of what former President Reagan advocated "peace through strength". The Chinese even anticipate that Trump would not be averse to using "force" if it became necessary to protect US interests and as such US military presence may be enhanced rather than diminished. Of particular concern for the Chinese is what policies Trump may follow on North Korea. They anticipate that the US would probably enter into negotiations with the North Koreans on the nuclear issue, but if no satisfaction is received Trump may, unlike President Obama, not be so prudent and he may even risk a confrontation. The fifth nuclear test carried out by the North Koreans has set the stage for a showdown.
    It is the firm Chinese belief that "Islamic radicalization" is the main concern for Trump, for as he has been consistently maintaining, it presents the principal threat to the security of  the US. In such an event, the Chinese believe that Trump would be heavily involved with the affairs of the Middle-East and may not pursue the South China Sea[SCS] dispute as diligently as President Obama did.  They feel that here is an issue on which grounds for "cooperation" exist between China and the US. In return for Chinese assistance in beating back "Islamic radicalization" the Chinese feel that grounds for a "bargain" exist. What should that "bargain" be has not been explicitly spelt out. China could also offer assistance as a permanent member of the UN Security Council.
    As Trump begins to concentrate on fulfilling some of his election promises, particularly those relating to economic rejuvenation of the US and to put America "first", it is bound to down- size its leadership positions in important area of the world. In the vacuum thus created, the Chinese leadership senses an opportunity. Take the case of Latin America. At the APEC meeting at Lima in Peru, the largest delegation is that of China and President Xi Jinping is present with a large number of trade, investment and other officials all to ready to fill the gap that the US might leave!    
       

Trump and China: A Trade War on the Cards?

     Every US Presidential election witnesses a high tide of anti- China rhetoric, mostly by right wing candidates. Trump was no exception. What he proposed to do, with the certainty of an evangelical preacher, was that [a] he would impose a 45 percent tariff on Chinese imports to the US [b] officially declare China as a "currency manipulator" and [c] alleged that it were the Chinese who "finished" the US manufacturing industry. Every US President in the recent past has invariably started his innings, with some such accusations against the Chinese authorities. For example, President Clinton sought to link the denial of human rights in China with trade, President Bush declared that he would "do whatever it takes to defend Taiwan", whilst President Obama pushed for a "pivot to Asia". The question is will a future President Trump push for the implementation of his campaign rhetoric or will he, realizing the realities of the case, become considerably tamed?
     Judy Sheldon, a Trump economic advisor, told Bloomberg TV in an interview after the elections, that Trump is "someone who is going to carry through what he said". If that is so, then what is the future for the Sino-US trade relationship? Is a trade war looming?
    Let us take the case of the proposed 45 per cent tariffs on Chinese imports into the US. Firstly, as per existing law, a US President can only impose a 15 per cent tariff across the board and that too only for 150 days. This limit can only be broken if the President were to declare a 'state of emergency". A proposition that is hardly likely to be enacted! But what the President can do is place tariffs on individual commodities imported from China. The last time this was attempted was when President Obama imposed a 35 per cent tariff on the imports of Chinese tires. The Chinese immediately retaliated by placing tariffs on imports of chicken and automotive products from the US. Both sides lost. But the lesson was learned and thereafter there were no more attempts at imposing tariffs by either side. The Global Times [GT] has already threatened that if Trump imposes tariffs, then China will inevitably retaliate. Orders for Boeing aircraft will be replaced by Airbus; US auto parts and I-phone imports by China from the US will suffer. US exports of maize and soybeans to China would also come under pressure. Presently, US exports of corn are up 80 per cent world wide from same period last year, as are wheat up 27 per cent and soybeans up by 18 per cent. China is a major importer of these agricultural commodities.
    As for naming China as a "currency manipulator," the Chinese maintain that the Rmb [Yuan] is already in the  SDR basket of currencies with monetization of the exchange rate. If Trump persists, there is nothing that prevents the Chinese from letting the value of their currency fall even further. Already it is trading at the lower end of the permitted range. This would make imports of Chinese goods into the US even more attractive; thus further hitting at US local manufacturing.
    Despite Trump's campaign rhetoric there are no easy solutions, if he tries to implement them. Both the US and China are deeply intertwined together and any turbulence in the relationship would cause immense hardships to both. That is the bitter lesson that Trump is going to learn when he enters the White House. A President Xi Jinping reportedly told Trump in a telephone conversation "cooperation" is the only way forward!         

The Two Faces of China

    Recently while reading the mainland China press, a startling picture of two very different Chinas emerges. The People's Daily [10 November 2016] published a report on the 'left behind' children, particularly of those in the rural areas. These are children who have been left behind by their parents, who have migrated to the cities for improving their economic prospects. The number mentioned by the People's Daily is rather large; about 9.02 million. Of interest is the fact that this phenomenon is largely concentrated in West and Central China. Of the 9.02 million children left behind, about 27.8 per cent are between the ages of 0-5 years and about 62 per cent are between the ages of 6-13. In other words, of the youngest lot very few would even know let alone recognize their parents. Some do not even have grand parents to look after them and are dependent on distant relatives. The People's Daily also estimates that about 50,000 children die each year due to accidental injury and most of them are the left behind children.
    Another startling statistic that has been published is that about 70,000 children are kidnapped annually in China by gangs indulging in illegal adoption, forced labor and often these kidnapped children are reared to become sex workers. All these heart rending stories are due to China's unprecedented and headlong march towards economic resurgence, but the cost in terms of human suffering also has been colossal. The march to becoming the world's second largest economy has not been cost free!
   Yet on the other hand, in another article the National Business Daily quoted from a report jointly prepared by the Huran Research Institute and the China CITIC Bank to say that as of May 2016 there were 1.34 million millionaires in China; up by 10.7 per cent from last year! It also quoted the same report to say that of the millionaires mentioned above about 89,000 were actually billionaires; up again by 14.1 per cent from last year. As per data released by the National Bureau of Statistics, the total population of China has reached a figure of 1.368 billion, which means that the per cent age of the multi-millionaires to the total population now stands at 0.1 per cent.
    But where do most of the Chinese millionaires live? Again according to the report mentioned above, most of them now live in Guangdung province. There are 240,000 people in Guangdung so classified. It seems that Guangdung has replaced Beijing as the favored place of residence, but Beijing still retains the distinction of having the highest density of millionaires living in the city with 1.1 millionaires per 100 people! The Huran report also detected the fact that most Chinese millionaires like to keep their wealth in foreign exchange deposits, insurance products and overseas property.
   It is not for nothing therefore that there is the existing malady of rising inequality in China. The gini co-efficient of inequality for China, the internationally accepted measure of inequality within a country, was between 0.46 and 0.49 in 2007; the highest measure for any Asian country. Presently, it may even be approaching 0.61! According to the UN, if the gini co-efficient of inequality touches 0.44 danger signals for internal stability should start flashing. This income disparity is a source of discontent and social protest and this in turn leads to public cynicism that erodes the popular support for the Chinese Communist Party[CCP]. This is also the reason why the Chinese President Xi Jinping is so adamant in pushing through his anti-corruption campaign. He has also strictly forbidden the Party officials to display their wealth. It is also the reason why the Chinese budget for internal security is larger then the budget for the PLA!
    These are the two faces of China today.
               

Is the US Pivot to Asia on the Verge of Collapse?

          

    On 3^rd November 2016, the People’s Daily in China crowed happily that “State Department Official Struggles with Facts: As US Pivots to Asia, the Region Turns to China”. In a remarkable turnaround it seemed as if every South-East Asian leader was making a beeline to China in an effort to placate the Chinese leadership. First it was the Philippines President Duterte who set the ball rolling, followed by the Myanmar Defence Chief, General Min Aung Hliang and then the Malaysian PM Razak. Not far behind was the new Vietnamese PM, Nguyen Xuan Phuc who stressed to President Xi of China that “maritime cooperation through friendly negotiations” was the best way forward. Even Singapore reportedly declined to refer to the PCA ruling and the UNCLOS provisions in a joint statement when their PM visited India recently. The Thai generals turned towards China after their 2014 coup was criticized by Washington. None of the South East Asian leaders, it seems, remembered the PCA ruling on the South China Sea [SCS] dispute. Or was it diplomatic amnesia? It was only a few months ago, July 2016 to be precise, when the ASEAN FMs had voiced “serious concern” over “land reclamation and escalation of activities” in the South China Sea [SCS]. What has changed so dramatically that has allowed China to slip away from a totally disadvantaged position to one where most of the South-East Asian States are now abjectly toeing the Chinese line? 

     A foremost factor has been that neither of the two US Presidential candidates has supported the Trans Pacific Partnership [TPP] which means that, unless there is a dramatic reversal, this pivot [the TPP] of US policy in the Asia-Pacific is doomed to pass into history. As per Chapter 30 of the TPP ‘final provisions’, all countries need to ratify the agreement within two years of signing, or it shall enter into force 60 days after expiry of this period if at least six of the original signatories which account for 85%of the combined GDP of the original signatories approve. In other words, without US ratification of the TPP as its GDP is 40% of the total, the TPP initiative is doomed. Most South East Asian leaders have duly noted US policy shenanigans, as practiced by its leaders and have ostensibly come to the conclusion that it would be extremely unwise to annoy China under the given circumstances. If there is no TPP, what would the US economic profile in the Asia-Pacific look like?

     Secondly, President Xi Jinping has very deftly used this opportunity to demonstrate that being “friendly” with China has certain distinct advantages. Take the Philippines and the Malaysian case as examples. President Duterte came away from his visit to China with loans and grants totaling US$13.5billion, a promise that the over one million illegal Filipino maids working in China would not be disturbed; and most important of all, China opened the gates to the Scarborough Shoal to allow Filipino fishermen a share of the lucrative fishing available there. China did not dilute its position on the Scarborough Shoal, but compromised on ground reality. The Philippines have a 64 year old security agreement with the US and the previous Filipino President had allowed US naval warships access to five bases for the first time since the end of the cold war.

     The Malaysian PM signed 14 agreements worth about US$34.28 billion. China is Malaysia’s largest trading partner and has replaced the US to become the largest investor since 2015. In addition, Malaysia signed the first significant arms deal with China by agreeing to purchase 4 naval vessels to operate close to the Malaysian shore. But what has buoyed the Malaysian PM considerably, was the fact that the Chinese made no reference to the on- going US Justice Department investigation into Malaysia’s Sovereign Wealth Fund; where persons close to the Malaysian PM are alleged to have siphoned off US$ 1 billion to buy personal assets in the US. Thus in a few weeks, the Chinese demonstrated that showing the cheque book could cause even the closest US allies in South East Asia to wilt and perhaps move away from their pro-US orbits.

    But it is time for caution also. The fact that the US is the world’s sole super power with the ability to reach and influence any part of the world just also cannot be wished away. The US remains by far the more important source of foreign direct investment into ASEAN. Last year US FDI into the region was US$ 13.6 billion, as opposed to China’s US$8.3 billion. But in diplomacy sometimes perception more than reality plays an important part. And the perception is that American public opinion just will not countenance any further US military engagement overseas, nor will public opinion favor that the US go to the aid of its Asian allies in their territorial disputes, until and unless the American mainland itself is under threat. The Chinese too realize this and therefore its diplomacy is orientated towards widening this drift away from the US.

    President Xi Jinping has emerged strengthened from the 6^th Plenum of the CCP, where he was designated as the “core” of the Chinese leadership. As he plans ahead for the next Party Congress due in autumn next year, the Chinese leadership has concentrated on reclaiming its “historic” rights to maritime territory as marked by the nine-dash line. China has sought to blunt the PCA ruling with a strategy aimed at “shelving” the dispute, maintaining its position; but allowing for “joint” development of resources in the disputed area. Thus both the Filipino President as well as the Malaysian PM, during their visits to Beijing, deferred to the Chinese position and did not press for the PCA ruling to be implemented in exchange for promised trade and investment deals. The stress now is on bilateral negotiations. A far cry from what was on the ASEAN table just a few months ago. China it seems is getting better at playing the geo-political game and using its very considerable economic heft for strategic gain.

      Thus as the new US President assumes office in January 2017, the US has some very pressing issues to attend to. First it would have to convince the South East Asian leaders that despite not being able to ratify the TPP, it is here to stay and that its security umbrella is for real. It is indeed a tall order what with the Syrian crisis on hand as well as the pressing need to develop a viable strategy to engage the Russians. Meanwhile it would be prudent for other regional players to watch very carefully on going developments in the South China Sea area and not commit themselves till the counters of the evolving Sino-US relationship become clear under the new US leadership.