Posts Tagged ‘Belt and Road’

Commentary: Trade war may mean total revision of US-China relations — Trump not likely to roll over and play dead

June 23, 2018

Adversarial relations between the US and China can become the “new normal” in a way that serves neither side’s national interests, says McLarty Associates’ James R Keith.

Without adept management, adversarial relations can become the “new normal” in a way that serves neither side’s national interest.


US President Donald Trump threatened on Monday (Jun 18) to hit US$200 billion of Chinese imports with 10 per cent tariffs if China retaliates against his previous targeting of US$50 billion in imports.

Some have asked, is the US bluffing? No, the Trump administration’s policy toward China reflects one of two key themes President Donald Trump has been addressing in his public life for decades: Trade and immigration.

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US President Donald Trump and Chinese President Xi Jinping. (File photo: AFP/Nicolas ASFOURI)

His focus on trade deficits is deeply held and illustrates his worldview of winners and losers in global competition.

He followed through on his self-imposed deadline of Jun 15 for announcement of tariff hikes; expect the same for the June 30 deadline on high technology investment restrictions.

Others have wondered does the US have trade goals or is this just fighting for fighting’s sake?

American business wants a productive and functional trade and investment relationship with China.

Relatively few Americans want protectionism at any cost; the majority of American businessmen and women support a hard line toward China on investment and commercial issues for a purpose: To bring China’s market access and rule-making to the levels of the American economy.

Most Americans want increasing levels of trade and investment with China with adequate corporate and consumer protections, not diminishing interaction.

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A shipping container is offloaded from the Hong Kong based CSCL East China Sea container ship at the Port of Oakland on June 20, 2018 in Oakland, California. (Photo: AFP/Getty Images North America/Justin Sullivan)


So what is the real problem? The Chinese reaction to US sanctions imposed on Chinese telecommunications firm ZTE was telling.

Tariff hikes are hugely significant for individual companies and may potentially permanently alter supply chains that matter to American farmers and companies, but tariffs are tactical, all too easily employed and, once the havoc is wrought, relatively easy to withdraw.

Both sides could declare victory and move on, albeit having destroyed a great deal of wealth along the way and perhaps permanently damaging some iconic American and Chinese firms.

But investment and trade restrictions in the high technology area are strategic. It is already the case that the majority of Chinese citizens believe America is determined to contain China’s “peaceful rise”.

Prospective US high technology-related restrictions add some substance to those charges, pointing toward truly adversarial relations, from Beijing’s perspective.

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The logo of China’s ZTE Corp is seen on the building of ZTE Beijing research and development center in Beijing, China on Jun 13, 2018. (Photo: REUTERS/Jason Lee)


So bottom line, what does the US want? To answer this question, one has to query, what does China want?

From 1992 to 2012, the answer for China was that it wanted integration into the global economy, stability on its borders to allow for steady and predictable growth in the domestic economy, and a sustained opportunity to reap benefits from the rules-based institutions overseeing the global economic order.

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In short, it wanted to industrialise and lift its citizens out of poverty just as the major industrialised countries of the global economy had done in their own times of economic transformation.

The US wanted to incentivise a China that would play by global rules, disrupt minimally as it brought hundreds of millions of people into the global economy, and gradually take decisions that were more convergent with than divergent from North American and European strategic directions.

Gradually since 2007 to 2008, and more rapidly and explicitly since 2012, that proposition has changed. Under President Xi Jinping, China wants its own world vision to be reflected in global institutions that help determine policy development in the industrialised world.

In short, China and the North American and European mainstream are diverging from each other.

If the 2015 Paris Climate Change agreement featuring co-leads Obama and Xi was the epitome of US-China cooperative global leadership, the Chinese-hosted World Internet Conference that promotes a fractured global internet governed by sovereign authorities in sovereign space is a good example of US-China divergence on a core element of the 21st century economy.

Where we go from here depends on that willingness of both sides to compromise for the longer-term benefit of their citizens.

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A sign of Alibaba Group is seen during the fourth World Internet Conference in Wuzhen, Zhejiang province, China on Dec 3, 2017. (File photo: REUTERS/Aly Song)


As evident in North Korea, where there is an ongoing debate about the necessity of continuing international economic pressure on Pyongyang until it starts to deliver on denuclearisation, it is difficult in today’s world to separate trade and security issues.

That has been the hallmark of US-China ties since the aftermath of the Great Recession at the end of 2007 and leading into President Xi’s rise to power starting in 2012.

The US has made clear its concerns about President Xi’s muscular use of China’s soft power in ways Washington sees as directly threatening US interests, for instance, in pushing the US out of the South China Sea.

Beijing has seen the rise of an adversarial approach on Washington’s part as a coordinated effort to lock in US dominance militarily in the East Asian region and politically and economically through the key economic and trade institutions created in the aftermath of the end of World War II.

The Trump administration’s pursuit of new restrictions on Chinese investment in the US and prospective new export controls directed at China is seen in Beijing in this fluid context.

The world is changing, and US-China relations are changing with it. Is the point of a trade war between China and the US to prevent China from developing the advanced technologies that will power the global economy in the decades to come?

Or is it to create more reciprocal trade and investment relations so American firms can operate as freely in China as Chinese firms operate in the US?

Or is it to reduce the US merchandise trade deficit with China over the next year or two?

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US and Chinese officials meet to discuss trade and industrial practices. (File photo: AFP/Andy Wong)


Put differently, whether we are in a rough patch in US-China relations or a more permanent and thorough-going revision is open to question. Will we continue to find sufficient common ground to support a policy of engagement that balances competition and cooperation?

Or are we headed in divergent directions that require an adversarial relationship where competition is the default and cooperation is the exception?

Chinese and American citizens are not the only ones with a stake in the answer. The alternative to the global system that China wants to replace is unbounded power politics.

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Image: Big boxes and trinkets flow from China to the U.S. while U.S. dollars (and jobs) flow out to China. Trump wants to change this dynamic.

If China, North America, and Europe cannot come together in their respective visions of the world order, what would a 21st century Hobbesian struggle look like?

It seems self-evident that America is better off in an interconnected world bound together by security partnerships and trade treaties; so is China, and so is the global economy.

By James R. Keith

James R Keith is managing director at McLarty Associates. During his 31-year career as a US diplomat, he became one of the US government’s top experts on China, serving as Deputy Assistant Secretary of State for China, among other appointments.

Source: CNA/sl



 (Trump made a deal on ZTE at the personal reuest of Xi Jinping but the U.S. Congress may undermine or destroy the deal)

Peace and Freedom Note: Donald Trump wants a “New World Order” which includes a totally new way of looking at China, free and fair trade without tariffs or government support to businesses, strong rights of nations to decide for themselves without joining international bodies like the EU, and a new balance between liberal ideology and free and fair media reporting and government. he wants a future of jobs and manufacturing in the U.S. Trump doesn’t want the U.S. to be the world’s piggy bank. He in not likely to roll over and play dead.

China wants to dominate global trade, manufactring and technology; according to Made in China 2025. What China cannot create in technology it has no qualms about stealing.


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Above: China’s stealth fighter


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See also:

Understanding China’s perpetual wars against its neighbours.


Commentary: Dangers, opportunities in China’s Belt and Road Initiative

June 22, 2018

China’s Belt and Road Initiative can be a debt trap to countries who also have to manage Chinese companies with dubious track records

In this Oct. 20, 2016 photo, President Rodrigo Duterte is accompanied by Chinese President Xi Jinping during his arrival at the Great Hall of the People in Beijing, China.

Presidential photo/Toto Lozano
Weslene Uy ( – June 22, 2018 – 2:49pm

When President Rodrigo Duterte came back from his state visit to China in October 2016, his Cabinet members touted the US$ 24 billion in investment and credit line pledges that they have supposedly secured from their Chinese counterparts. A few days after their visit, Trade and Industry Secretary Ramon Lopez disclosed a list of 26 different deals signed by the two parties.

While none of the projects from this list have progressed so far, it has alarmed pundits who pointed out that the deals had been forged with Chinese companies with dubious track records. After all, the Philippines is still smarting from botched projects—the NorthRail project and the National Broadband Network deal with ZTE Corp.—brokered over a decade ago.

During Duterte’s second visit to China this year, his preference for the country became indubitably clear as he declared that China is a very important ingredient in his infrastructure drive. “More than anybody else at this time of our national life, I need China,” he announced.

The present administration’s overtures towards China has spurred endless debate on China’s increasing role in our development agenda, especially in bridging the gap in the administration’s flagship infrastructure program.

In line with keeping the discourse alive on this subject, the Stratbase ADR Institute recently hosted a roundtable forum where Richard Heydarian, a non-resident fellow of the think tank, presented his special study “The 21st Century Silk Road: Perils and Opportunities of China’s Belt and Road Initiative.”

In his study, Heydarian observed that infrastructure development has become the new pivot of geopolitics. He commented that “power and influence is no longer measured by the military prowess or economic size,” but also by the country’s “ability to provide the necessary capital and technology for overhauling decaying or underdeveloped public infrastructure around the world.”

Under the helm of President Xi Jinping, China has committed to participating in furthering regional economic integration and in facilitating the process of building up infrastructure and connectivity. Towards this end, China launched the Belt and Road Initiative (BRI) in 2017, previously called the One Belt One Road Initiative, which seeks to connect Europe to Asia through various infrastructure projects that would encourage both physical connectivity and trade linkages.

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As far as China is concerned, Heydarian noted, BRI’s objectives are aligned with its geopolitical goals including facilitating its long-term plans of developing landlocked hinterlands and underdeveloped regions; outsourcing internal productive glut and infrastructure overcapacity; assisting and promoting troubled state-owned enterprises; developing trading partners’ basic infrastructure to reverse anemic growth in global trade; gaining foothold across strategically located nations; locking in rare commodities key to Chinese long-term development; and globalizing Chinese technological and industrial standards across emerging markets.

Of course, the BRI is not without its risks. As Heydarian pointed out, Chinese investments may further weaken the institutions of some of its beneficiaries, especially those where transparency and accountability are already lacking. For a minority of beneficiaries with low credit ratings, Chinese investments may put them in danger of falling into a debt trap.

On the other hand, for other countries like the Philippines that are trying to play catch up to fill its infrastructure deficit, the BRI will provide a necessary and much-needed support to fast-track the implementation of its infrastructure projects. Heydarian, however, warns that these investments will have to be “welcomed with cautious embrace by beneficiaries.”

So far, the National Economic and Development Authority (NEDA) Board, chaired by the president, has already approved some projects that China has committed to finance, such as the Chico River Pump Irrigation Project, the New Centennial Water Source-Kaliwa Dam Project, the South Line of the North South Railway, and most recently, the Subic-Clark Railway. China has also provided grants for the construction of two bridges across the Pasig River—the Binondo-Intramuros and Estrella Pantaleon Bridge.

To quell concerns regarding Chinese loans, the country’s economic managers, for their part, have assured us that they have heeded lessons from our past experiences and have promised us that adequate safeguards will be in place. For example, the government released a memorandum last year that Chinese-financed projects, regardless of amount, shall require approval of the Investment Coordination Committee.

As always, our top bureaucrats must exercise vigilance and due diligence in evaluating not only Chinese financing but all loans from different development partners and ensure that these are in our country’s best interest.

Weslene Uy is a senior economic research analyst of think thank Stratbase ADR Institute, a partner of


China’s Pacific Islands Push Has the U.S. Worried

June 18, 2018

In the gritty, steamy streets of Papua New Guinea’s capital Port Moresby, signs of China’s push into the Pacific island nation are inescapable.

A Chinese worker stencils a logo for China Railway Group outside the new national courthouse it’s building; China Harbor Engineering Group laborers tar roads under the searing midday sun.

“Little by little they are taking slices of our businesses,” said Martyn Namorong, who campaigns to protect local jobs and communities as China ramps up infrastructure spending in the resource-rich nation, often bringing its own workforce. “My people feel we can’t compete.”

The nation of 8 million people is the latest frontier in Beijing’s bid for global influence that’s included building artificial reefs in the South China Sea, a military base in Africa and an ambitious trade-and-infrastructure plan spanning three continents.

Advertisement for China Construction Bank outside the airport in Port Moresby.
Photographer: Jason Scott/Bloomberg

China’s thrust into the Pacific islands region, a collection of more than a dozen tiny nations including Fiji, Niue and Timor Leste scattered across thousands of miles of ocean, has the U.S. and its close ally Australia worried. The region played a key role in World War II and remains strategically important as Western powers seek to maintain open sea lines and stability. For Beijing, it offers raw materials, from gas to timber, and a clutch of countries who could voice support for its territorial claims.

“We’ve seen a huge surge in China’s state-directed economic investment and mobilization of an enormous amount of capital in the Pacific which clearly has a strategic intent,” said Eric B. Brown, a senior fellow in Asian affairs at Washington-based think tank the Hudson Institute. “The sovereignty of these nations could be compromised by these predatory economic methods. And that could create a military threat to countries such as Australia and effect the ability of the U.S. Navy and its allies to maintain freedom and order in the Pacific.”

Debt Trap

China’s lending practices related to the Belt and Road Initiative have raised concerns among the International Monetary Fund and the Trump administration that poorer countries wouldn’t be able to repay heavy debts. Sri Lanka is considered an example of what could go wrong for developing nations: China received a 99-year lease for a strategic port after the government in Colombo couldn’t repay loans.

Read more: Costly Lessons for Leaders Eyeing China’s Belt-and-Road Billions

Indeed China has overtaken Japan as Papua New Guinea’s largest bilateral creditor and by the end of the year PNG will owe it about $1.9 billion in concessional loans — almost a quarter of its total debt burden. Standard & Poor’s in April lowered the nation’s sovereign credit rating to B from B+, citing rising costs of servicing debt that’s climbed above 30 percent of gross domestic product and is expected to reach about 40 percent by 2021.

The IMF warns that other recipients of Chinese money in the region — tiny nations such as Samoa, Tonga and Vanuatu — have moderate to high risks of debt distress.

While the largess flowing into the Pacific from Beijing is a fraction of the $350 billion of Chinese aid distributed globally since 2000, it’s still big money for the nations, most with populations under 1 million. In April, the French Polynesian government approved construction of a $320 million Chinese fish farm.

Military Presence

Hugh White, a professor of strategic studies at the Australian National University in Canberra, says “there’s no doubt” China could seek to establish a military presence in the Pacific in the future, cashing in its influence with “one of these small, vulnerable states.”

“It intends to become the primary power in east Asia and the western Pacific,” White said.

Governments in the region have sought to strike a balance between accepting China’s cash and resisting moves that would raise concern among Western military powers. Vanuatu in April denied media reports that China had approached it to build a permanent military base in one of its harbors.

Peter O’Neill and Xi Jinping in July 2016.
Photographer: Mark Schiefelbein/Pool via Getty Images

The office of PNG’s Prime Minister Peter O’Neill, who’s due to meet President Xi Jinping in China later this week, didn’t reply to repeated requests for comment. When O’Neill visited Beijing in 2016, he pledged support for China’s military build up in the South China Sea. In December, a month after China promised to construct $3.5 billion of roads, O’Neill said PNG will continue to be a “staunch partner.”

Beijing’s push into the Pacific islands risks further straining ties with key trading partner Australia — which views the region as its own diplomatic backyard and has been increasingly critical of China’s economic and military muscle-flexing.

During a visit to the region this month, Foreign Minister Julie Bishop said “we want to continue to be the partner of choice for nations in the Pacific.” Her government on June 13 signed an agreement to build a new undersea telecommunications cable to the Solomon Islands, squeezing out a bid by China’s Huawei Technologies Ltd.

Papua New Guinea has traditionally looked to Australia — from which it won independence in 1975 — for a helping hand. Outside of the capital, the nation’s woeful roads network has helped push prices of food staples beyond what many can afford. It’s also struggling with an illiteracy rate of 35 percent, poor tax collection and endemic corruption.

Australia is still its largest donor, contributing more than three-quarters of total aid and loans compared to China’s 14 percent. Yet the majority is directed to improving corporate governance, while Beijing has focused on infrastructure and major works.

‘Red Carpet’

Nursing a cool drink at a sports club in Port Moresby, British-born business adviser Paul Barker said China was stepping into a vacuum left by the west.

“The government in Beijing has rolled out the red carpet and our leaders seem to be a bit intoxicated by the experience,” said Barker, who’s lived in his adopted nation for more than four decades.

Australia’s assistant trade minister Mark Coulton acknowledged the merits of China’s investment as he sat in one of Port Moresby’s few five-star hotels near the Beijing-gifted convention center where APEC leaders will meet in November.

“You can’t deny your neighbor if someone is looking to build something they really need,” he said. “Our role is to give the PNG government and people the ability” to “handle influxes of foreign aid like those that are now occurring.”

China’s foreign ministry, which didn’t respond to a request for comment, in April said Pacific island nations weren’t in the “sphere of influence of any country” and called on Australia not to interfere.

China Railway Group signage at the construction site of the new national courthouse.
Photographer: Jason Scott/Bloomberg

Wang Dong, an international relations professor at Peking University, dismissed concerns that large concessional loans leave nations vulnerable to “debt-trap diplomacy” and said China’s expanded role in the Pacific is a natural consequence of its growing economic clout.

“It’s scaremongering to think this will lead to any military design or ambition in the Pacific,” Wang said in a phone interview from Beijing. “We will see China increase its presence there and it will keep helping these countries build their infrastructure.”

China is in the region to stay, said Jonathan Pryke of the Lowy Institute, a Sydney-based think tank.

“China has entered the Pacific in a significant way,” said Pryke. “It’s upended the status quo and caused anxiety, because no-one knows what its end-game is.”

Pakistan Warned: Chinese Investment is Not A Gift

June 13, 2018

Pakistan should not take CPEC for granted, writes Dr. Jia Yu. Both public and private sectors must take ownership of the opportunities.

THE economic relations between the two countries have been phenomenal, especially since the turn of the century. Early economic cooperation was based on political and security interests, like Karakoram Highway, nuclear capability, arms trade etc. Also, it was focussed on energy and mining, but there is now a need for diversification. Pakistan has to take advantage of China’s rise on the global scene. There is a tendency towards having even better economic relations based on market forces and there is a lot of under-exploited potential.

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Dr. Jia Yu

When it comes to win-win cooperation, of course there is a lot at stake for both countries. Pakistan’s interests lie in promoting growth, private sector investment, employment, exports, technology and transfer of skills as well as in the relocation of Chinese firms. China’s interests lie in overseas production bases, new export markets, energy cooperation, and its need for production capacity relocation.

A successful execution of CPEC will ensure economic progress and stability for both the countries, particularly along the border region.

The two countries signed the FTA in 2006 which came in to effect a year later. The FTAs play a major role in the general tendency of increasing trade. Surprisingly, the trade has been relatively low compared to the other neighbours (India, Vietnam, Philippines etc.). And there is a large and widening trade imbalance that needs to be worked on.

There has been a considerable increase in FDI since 2014 which is a positive sign for both China and Pakistan. The main FDI sectors by priority are: power, construction, financial services, and communication. There is, however, very little FDI in the light manufacturing sector.

The Belt and Road Initiative (BRI) is a $900 billion investment, with finance channels targeting green development. It connects more than 60 countries, 60pc of the global population, 30pc of global GDP, and 35pc of global trade.

CPEC, a central link of BRI, cuts 10,000 miles of shipping by sea, and connects ports from Shanghai to Africa and Europe through Gwadar.


If things work out smoothly, Pakistan could use the FDI in its power and transport infrastructure and then in the manufacturing sector with the experience of leveraging SEZs to unlock this trio’s potential for rapid gains in job-rich industrialisation. This can be done without unrealistic pre-requirements as the work to lay the foundations for industrialisation has already begun.

The potentials are outlined below along with policy options needed to convert them into actions. At regional level, Pakistan has been growing steadily in terms of GDP per capita since 2010, according to the World Bank. Investors are very keen to a growing economy. Consistent growth of purchasing power (GDP per capita) really matters for domestic consumption; therefore the growth rate must be maintained to catch up with competitors.

Pakistan is one of the world’s largest reservoirs of human capital and has a tremendous potential consumer base. In 2016, the country was home to 193,203,476 people, being the world’s 6th most populous country. World Economic Forum estimates that it will be among the top five populous countries in the world by 2060.

However, a large population is necessary but not sufficient to attract investors. The population has to be equipped with adequate skills to meet industrialisation needs. Effort is also needed to attract global buyers.

Thirdly, China and Pakistan have long hailed each other as “all-weather friends”, or “iron brothers” as close as “lips and teeth” in the words of The Economist. There is already solid trust between the two countries, but the Pakistani officials need to visit China more often to convince the private investors for investment opportunities in Pakistan.

The CPEC will improve road, air, sea, and energy infrastructure. It will ensure land, sea and air security. It will enhance trade and investment facilitation and will establish free trade areas that meet high standards, maintain closer economic ties, and deepen political trust. Also, it will enhance cultural exchanges and promote mutual understanding, peace, and friendship between the people of the two countries.

Having said that, the CPEC should not be considered just a ‘gift’ from China, but the Pakistani government should also establish an FDI Advisory Board that shall promote the new image of the country. This includes visiting China more often and ensuring that investors understand the opportunities and benefits available under the CPEC.

Besides, according to the State Bank of Pakistan in November 2017, the country received net FDI worth $207 million out of which $206 million came from China. Potential investors pay significant attention to first movers, other Chinese investors may follow and eventually stay in Pakistan if the government helps the pioneers to be successful.

In terms of binding constraints, a study case of Malaysia estimates that FDI can effectively contribute to growth if it is at least 3.14pc of GDP. Pakistan should be able to compete. This requires overcoming the binding constraints by addressing security issues and risks, hard infrastructure challenges, especially SEZ-specific constraints like energy, roads to SEZs etc. Soft infrastructure challenges include corruption, rule of the law, coordination among institutions, inadequate capacity and cultural biases. Absorption capacity can be adjusted by setting yearly realistic targets of FDI amount.

There are six steps to identify the right industries, as narrated by Prof. Justin Lin. They include identifying countries with consistent growth, with GDP per capita three times as Pakistan’s or was at the same level as Pakistan 30 years ago.

Next comes investigating the existing private investment in those target industries and encourage its development by leasing the market regulations. Attracting global investors into the target industries which lack existing domestic private investment is the third step, followed by paying attention to new enterprises and supporting innovation in the target industries.

Establishing and developing SEZs to eliminate entering barriers, attracting foreign investment, and encouraging industrial cluster. And, finally, providing policy incentives for the first movers, including tax reduction, foreign exchange access, etc.


Development can start from ‘low-hanging fruit’ through SEZs. The government should attract first movers to invest and help the pioneers succeed.

CPEC should not be taken for granted. Proactive and systematic approach is needed for attracting investors, together with strong market factors.

Despite long-term and solid trust at the government level, more mutual dialogues and exchanges need to be enhanced in the private sector. Let the peoples get to understand each other.

CPEC and SEZs are open for all investors, including those from other countries beyond China.

The writer is a professor at the Institute of New Structural Economics (INSE), Peking University, China.

Our real trade enemy isn’t Canada — it’s China

June 12, 2018

Justin Trudeau may be the annoying, youthful avatar of chic progressivism — but he’s not our adversary.

After leaving the G7 summit, President Trump blasted the Canadian prime minister on Twitter as weak and dishonest, in the kind of invective once reserved for Little Rocket Man.

The Trump presidency routinely produces unprecedented events, and here is another: Never before has a president of the United States spoken as scornfully in public about the head of government of a friendly, allied country. Particularly one who has appeared in Vogue.

By Rich Lowry

Trudeau isn’t exactly a threatening figure, although his worshipful, celebrity-fueled press coverage qualifies as one of the more vexing political phenomena in all of North America. (Rolling Stone celebrated the fact that he rides a unicycle; TMZ declared him on the “clear path to hottest leader in the world.”)

It’s not clear what exactly led to the great US-Canada tiff of 2018. White House aides fanned out over the weekend to try to lend meaning and justification to the flap.

They said Trudeau stabbed the president in the back at the meeting. But Trudeau didn’t say anything after Trump left the G7 that he hadn’t signaled before — namely, that Canada finds Trump’s steel and aluminum tariffs insulting and will retaliate.

They said Trudeau risked undermining the president’s position at his imminent summit in Singapore with Kim Jung Un. But the North Korean dictator isn’t re-calibrating his diplomacy based on the statements of a leader of an inoffensive country half a world away.

The incident is a great misdirection. Canada’s trade practices are hardly above reproach. Its tariff on milk of 270 percent, highlighted by Trump officials, is stupid and indefensible. It’s guilty of subsidizing and protecting favored companies and sectors, the way most countries are.It’s nothing compared to the world’s great mercantilist power, though. China routinely steals US intellectual property, seeks to distort the entire system of international commerce to its advantage and is pouring resources into a massive military build-up, with which it eventually hopes to expel the United States from East Asia.

Trudeau is the facile democratically elected leader of a Western society; President Xi is the remorseless president-for-life of a hostile dictatorship. It’s not a remotely close call who we should be aiming our fire at.

That we’re dissipating our energies with steel and aluminum tariffs against allies and potentially alienating friends in what should be a united front against China speaks to a key mistake. Trump views the US trade deficit — with any country, friend or foe — as the problem rather than China as the unique commercial and geo-strategic competitor.

One of the advantages the United States has in the long-term conflict with China is that we border peaceable, friendly countries. This is a blessing that shouldn’t be treated dismissively or recklessly.

The flare-up with Trudeau isn’t an encouraging sign for prospects of renegotiating NAFTA, which also should be viewed in strategic terms. As Derek Scissors of the American Enterprise Institute points out, the trade agreement could extend beyond North America to Britain, which is seeking a new trade arrangement as it exits the EU, and the Philippines and Taiwan, which are pressured by China.

“A completed NAFTA 2.0,” Scissors writes, “would provide the concrete foundation for rapid conclusion of comprehensive or partial trade agreements with these and other countries, while reassuring partners that the Trump administration is willing and able to move forward on trade if they are willing to meet some American demands.”

None of this will happen if Trump is determined to pursue a protectionist policy no matter what, or if he lets his pique at friends get the best of him. The trade war — and the fight for our paramount interests — won’t be won or lost against Justin Trudeau. Beijing, not Ottawa, is our enemy.

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Trump’s Iran policy pushes Tehran into the arms of China

June 8, 2018

This weekend, Iranian President Hassan Rouhani heads to China to participate in a Shanghai Cooperation Organization summit. Will China and Iran bolster their ties in light of Trump pulling the US out of the nuclear deal?


Iranian President Hassan Rouhani meets with Chinese President Xi Jinping in Iran (picture-alliance/Photoshot/W. Ye)Iranian President Hassan Rouhani meets with Chinese President Xi Jinping in Iran — during a welcoming ceremony on January 23, 2016 in the capital Tehran

The Shanghai Cooperation Organization (SCO), a regional security bloc led by China and Russia, is set to hold its 18th annual gathering in the Chinese city of Qingdao on Saturday (June 9) and Sunday. Iran is currently an observer member of the SCO, though it has long sought full membership.

The event will be chaired by Chinese President Xi Jinping. The participants — including leaders from four ex-Soviet Central Asian republics and two new members, Pakistan and India — will discuss matters of international security and trade, with shoring up the Iranian nuclear deal likely to be on the top of the agenda. In May, US President Donald Trump announced that the United States will withdraw from the deal, which aimed to contain Tehran’s nuclear program in exchange for lifting Western sanctions on the Islamic Republic.

China, along with the European Union and Russia, also signed onto the deal with Iran. The Chinese had been ardent supporters of the agreement, according to Kerry Brown, professor of Chinese Studies at King’s College, London.

“In 2015 when the deal was signed, China was a leading party and it was one of first international collaborations that China got involved in,” Brown told DW. “It thus has a symbolic importance, because it is really the first time that China had participated in a multi-party deal. So I think that the Chinese are quite disappointed that Trump withdrew and felt that it was a squandering of diplomatic effort,” he said. Brown believes that the Chinese will reassure the Iranians of their commitment toward the deal at the SCO summit.

Read moreIran lists tough conditions for Europe to save nuclear deal

‘Advantages’ of Chinese-Iranian ties

Bernt Berger, a senior fellow at the German Council on Foreign Affairs, told DW that China actually can draw some advantages due to the US withdrawing from the deal. “With the US pulling out of the deal China has noticed a range of advantages,” Berger said. “In the past, Tehran has preferred European over Chinese technologies. However, European firms have avoided possible Iranian contracts because of the uncertainties about US policy. These uncertainties are now gone,” Berger said.

Iran and China already have a strong relationship, as China is Iran’s biggest trading partner. The Belt and Road Initiative (BRI), an ambitious project launched by President Xi aiming to link China with other parts of Asia and Europe through multibillion dollar investments in infrastructure, also plays a role in strengthening their economic partnership.

Iran is a key transport hub between Asia and Europe. According to Berger, “Iran provides maritime access to land-locked countries and if China manages to build a high-speed railway across Central Asia, the Central Transport Corridor is faster and poses less hurdles in terms of rail-track standards and customs than the Northern route via Moscow.”

Furthermore, Iran and China can trade in the Chinese yuan, which means that they can avoid US control that looms large over US dollar transactions. The SCO conference is an opportunity for Tehran and Beijing to further deepen economic ties and draw on the unique mutual advantages of their relationship.

Still, analysts like Brown contend that Tehran and Beijing are unlikely to get too warm with each other. They believe China would not like to put its economic and political relationship with the US on thin ice by getting too close with the Islamic Republic. “China is a cautious actor, and at the end of the day it needs to maintain a good relationship with the US and it would not like to jeopardize that because of Iran. Iran is not so important for the Chinese; their relationship with America is far more important,” Brown said.

Iran has ‘no choice’ but to turn eastward

According to Holly Degres, an Iran analyst and curator of The Iranist newsletter, Iran is under pressure as America renews harsh sanctions intended to “crush” the Iranian government. The Iranians therefore will have to lean on countries like China in order to make up for the economic losses due to the sanctions. “Tehran has no choice, but to refocus its economic ties on countries like China and Russia,” Dagres told DW. “These are allies that receive the same amount of scrutiny from the US government to an extent, and working together makes them stronger together,” she said. She said that Iran told Total, a French energy company, that if they don’t secure a sanctions waiver, the South Pars oil field project will go to a Chinese state-owned company.

Renewed American sanctions might also jeopardize Iran’s bid to join the SCO club, the expert said.

“The Iranian government and its people would like to be recognized as a regional power and major economy, but given that they are almost back to square one with the US withdrawal, it’s going to be hard to see it making headway any time soon,” Dagres said. “Iran will now try to push harder to join groups like the SCO, but given that they were denied entry due to sanctions in the first place, it’s hard to see Beijing changing its mind.”

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Xi, Putin meet as Trump confronts them in Syria, Iran, North Korea and on trade

June 8, 2018

Chinese President Xi Jinping treated Russian counterpart Vladimir Putin to a state visit on Friday as the neighbouring giants forge closer ties in the face of US diplomatic and economic challenges.

Putin, re-elected to his fourth Kremlin term in March, arrived at the grandiose Great Hall of the People in Beijing for talks with Xi, who could stay in power for life after term limits were lifted this year.

© POOL/AFP / by Joanna CHIU, Laurent THOMET | Russia’s President Vladimir Putin reviews a military honour guard with Chinese counterpart Xi Jinping during a welcoming ceremony outside the Great Hall of the People in Beijing

The two heads of state reviewed a military honour guard and greeted flag-waving children during the welcoming ceremony before retreating into the vast building.

The most powerful Russian and Chinese leaders in decades, Xi and Putin have built closer ties while US President Donald Trump has labelled both countries as economic rivals that challenge US interests and values.

Xi and Putin are “soulmates who want to make their countries great again”, Alexander Gabuev, senior fellow at the Carnegie Moscow Center, told AFP.

“Both share scepticism towards American hegemony and distrust US intentions, both are authoritarian personalistic rulers,” he said.

China is mired in tough negotiations with the United States to avoid a trade war, while Moscow has deep differences with Washington on multiple diplomatic fronts, including Syria and Ukraine.

Putin played up his bond with his “good friend” Xi in an interview with China’s state broadcaster CGTN this week.

He said the Chinese president was the only state leader to celebrate his birthday with him, with the two sharing vodka and sausage.

Xi “is approachable and sincere”, Putin told CGTN. “But he’s also a very dependable man to work with.”

Maria Repnikova, director of the Center for Global Information Studies at Georgia State University in the US, said China makes Russia look “stronger and more relevant” on the global stage.

For its part, Russia allows China to show the US that it has “other options” in international negotiations, she said.

“Trump’s policies justified (the) growing closeness, especially for Russia but also for China given the volatile relationship with the United States,” Repnikova told AFP.

But, she said “it’s an asymmetrical relationship with Russia more dependent on China than vice versa, especially in the economic sphere”.

After the Beijing visit, Putin will join Xi at a weekend summit of the Shanghai Cooperation Organisation (SCO) in the eastern Chinese city of Qingdao.

China and Russia lead the regional security group, which includes former Soviet states and new members India and Pakistan.

Putin told CGTN that the SCO had “small” objectives when it was founded two decades ago but that it was now evolving into a larger global force.

Iranian President Hassan Rouhani, whose country is an observer member of the SCO, will also attend the summit at a time when China and Russia are seeking to save the Iran nuclear deal following Trump’s withdrawal from the pact.

by Joanna CHIU, Laurent THOMET

Chinese government’s growing influence over Europe

June 7, 2018

The Chinese government’s growing influence over Europe is beginning to receive closer scrutiny, thanks in large part to the work of researchers such as those at the Mercator Institute for Chinese Studies () in Berlin and the Global Public Policy Institute (GPPi).  and GPPi jointly wrote a report published in February titled, “Authoritarian advance: Responding to China’s growing political influence in Europe,” which looks at how the Chinese government’s efforts to influence European societies and politics are challenging European values and interests, and offers recommendations on how individuals and institutions can counter such efforts.

Image result for merkel, in china, photos

China’s influence is especially apparent in Central and , where it competes with E.U. funding for local projects. Andrea Dudik, Misha Savic, and Gordon Filipovic at Bloomberg recently reported:

Russia asserts a strong pull from the days of Soviet influence, but China is the latest power seeking to build a footprint in the region. It has been making overtures to central and eastern European countries through the so-called 16+1 forum, which includes the Balkan states. A report on EU-China relations published by the European Council on Foreign Relations said “there is no doubt” that the program competes with EU funding and projects.

[…] As the EU dithers over further enlargement to the east, China is marching in financially. China’s investments into Serbia exceed $3 billion and are expected to more than double, according to the Construction Ministry in Belgrade. [Source]

In the Czech Republic, Chinese influence has been evidenced through the close relationship between Ye Jianming, the chairman of energy and finance conglomerate , and President Miloš Zeman, though CEFC has come upon hard times in recent months following Ye’s reported detention, leaving his and CEFC’s future in the Czech Republic in doubt. For more on Chinese influence on Eastern and Central European countries, see a CDT post written by Sinologist Martin Hála.

While Chinese overtures in Eastern and Central Europe are increasingly well-documented, Chinese official influence in Western Europe is often more subtle, operating below the surface. Yet, as the authors of the MERICS/GPPi report point out, such influence still poses a threat to European institutions and values. Kristin Shi-Kupfer, Director of the Research Area on Public Policy and Society at MERICS, and Mareike Ohlberg, a MERICS Research Associate, who co-authored the report, recently sat down with me to discuss the various ways the Chinese government is attempting to influence European politics and societies, and how individuals and institutions in Europe can protect themselves. The first part of our discussion is below; Part Two will be posted in coming days:

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Interview with Kristin Shi-Kupfer and Mareike Ohlberg of MERICS, Part One:

China Digital Times: In which European countries is Chinese influence the biggest concern?

Mareike Ohlberg: That’s kind of hard to say. Obviously a lot of people would say it’s more of a problem in Central and Eastern Europe, but I think the kind of influence is present in basically all countries, in some ways. It’s just exercised differently in different countries. As for contact at the political elite level, we see a lot of that in Central and Eastern Europe. But then Western Europe is also a target in a sense, and the U.K. after Brexit obviously has more interest in getting better deals with China. On the media side, there’s a lot more focus on Western Europe than Central and Eastern Europe. So it depends which area you want to focus on.

Kristin Shi-Kupfer: For political elites and investment, there is clearly a strong focus on Eastern and Central Europe and the neighboring countries, the Balkan countries. But concerning media, NGOs, I think the focus is much more naturally on Western Europe because we have much more liberal democracies. So the fields of influence and types of influence are different.

CDT: Have some states been more or less resistant to China’s influence than others? Which ones and why?

MO: In various states you see occasional backlash. For example, Sweden closed some Confucius Institutes. So you see some awareness boiling up eventually. But there is not one single country that would be [resistant].

KSK: The bigger and more prosperous countries–because obviously it is about financial incentives–like France and Germany, may not be resistant but they seem to be more resilient, because maybe they have different sources [of funding] and are more pluralistic, liberal democracies. So it seems to me that these two countries in particular are less vulnerable.

CDT: Has anyone (individuals, political parties as a whole, other entities) been successfully “recruited” or coopted? For example, there has been a lot written recently about the CEFC in Czech Republic and its close relationship with the president. Are there other examples, maybe not so dramatic or obvious, where you have seen the influence take hold?

KSK: Taking Germany as an example again, the most evidence we do have is with right wing AfD [Alternative für Deutschland]. China seems to have had the most visible outreach toward them. I’m not sure if [any of their members have been] co-opted, but they’ve been targeted, because, on the one hand, [of] their ideological notions of an authoritarian, conservative value system and, on the other hand, because they are marginalized within the democratic system in Germany. But they have access to a lot of [parliamentary] committees so the Chinese might consider them a good target.

CDT: How does China interact with Russia in this sphere? Is there any type of conflict between Chinese and Russian influence?

MO: They run separately still but complement each other in general criticisms of Western systems, etc so they work well together. To add to what Kristin said, you can call it compromise but for a lot of political elites it’s more like a convergence of interests. They can use Chinese talking points to push their agenda, so that’s what is going on in Germany, the Czech Republic, Hungary. European politicians use Chinese talking points to further their own political agenda.

CDT: The National Endowment for Democracy put out a report using the term “sharp power” which has now taken off. Do you think that is an accurate description of what is happening in Europe?

MO: Generally speaking, I’m not a huge fan of the term, but I was also not a fan of the term “” I suppose. Because what we are looking at is really attempts to shape how people think and feel about China, and not actual power. We know what initiatives exist, but we don’t know enough about their effects to definitely say if they translate into actual power of any sort. So both soft power and  fall short on that. What we are looking at is what is going on and what the attempts are and how that’s working out, and actually measuring power are very different things. I guess with sharp power you also hand the Chinese side ammunition for accusations of hypocrisy by labeling what Western countries do as using their natural cultural allure in the form of soft power, whereas countries like China and Russia are portrayed as abusing the openness of Western societies to attack them with more aggressive forms of “sharp power.” There are actually legitimate arguments to make why what China does is different from what Western governments do, but ultimately, it strikes me as similar to saying “they do propaganda; we provide information,” and I’m personally just not a big fan of that line of argument. I think it’s perfectly legitimate to say, [China’s efforts] have some very sharp edges. That’s just my personal opinion.

KSK: Sharp in the sense of clever, sophisticated. Comparing it to Russia, I think Russia’s influence is much more harsh or destructive and much more, at least for now, powerful in Europe. But China’s is much more subtle, much more difficult to detect and they use it much more cleverly, using the openness of democratic societies, the pluralism, the freedom of the press to really make their points.

CDT: Do you think that’s why it’s taken people a while to catch on to what’s going on?

KSK: I would definitely say so. From a very pragmatic point of view, Russia is much closer to Europe, there is huge awareness of it and the conflict of interest is more easily felt compared to China. China is still far away for most politicians. Now, of course on a national level they sense it’s an important relationship. But on a local level, Chinese influence, such as investments, plays a role only in some areas in Germany and might affect political decisions there. But still I think the awareness that China is directly influencing Germany or Europe is just slowly now [coming up] for individual politicians, the awareness that China might target Europe specifically to win over allies or secure support for Chinese interests or positions.

MO: I do agree that for Russia it’s a matter of being closer to Europe, but also I want to point to the fact that China does it very much as a frog in the water approach, when you put the frog in the water and then start boiling it instead of dumping it in the boiling water, and that way people slowly grow accustomed to it. A lot of that is intentional. And it’s working reasonably well.

KSK: They do it more cleverly. Xi Jinping’s style, a lot of people appreciate him unlike Putin who is more brutal, authoritarian, dictatorial. Xi Jinping is perceived much more softly.

MO: Friendly.

KSK: Yes. Rational. Reflective. Unlike Putin.

CDT: In your report, you discuss “overt” and “covert” methods of Chinese influence. Can you briefly describe some specific examples of both?

KSK: Overt, that’s easy: investment mechanisms, financial incentives like loans. Investment is probably a good case in point of how these mechanisms can be merged – investment into infrastructure, telecommunications, railroads. And slowly, only later on will it result in more subtle political pressure, or in calls to support Chinese positions. Often Chinese companies make these investments, and the ownership structure is not very transparent so it’s hard to track state interests. Other open measures we detect a lot: media cooperation, advertising, funding of conferences, for example. …On the covert channels, intelligence etc, we only have reports that point to what is going on below the surface. Using intelligence channels to befriend people via LinkedIn or Weixin [WeChat] and trying to befriend them and win them over to support official Chinese positions, also by inviting them to China, giving them a very generous treat, granting them free access to “positive” research topics or experts.

CDT: How does the Chinese government use cultural or educational channels to exert its influence in Europe? How effective are those methods? In the U.S. now Confucius Institutes and Chinese Students and Scholars Associations are becoming a big topic. Are there other initiatives in Europe that are similar?

MO: Obviously Confucius Institutes, even though I don’t know how [their status is] going to work out in the future. They started under the previous administration, and it’s been pursued less zealously under Xi than under the previous administration. CSSAs, we have lots of those as well. General academic cooperation, translation projects, translating Chinese academic works into English, there’s a lot of that going on. And a lot of it is legitimate. We can’t say that that’s wrong or anything, but it’s part of a central plan to push Chinese research results out there; what Xi Jinping and the CCP now call “Chinese wisdom” or the “China solution,” to get that research out there.

The CCP sees this as a more subtle form of influence through pushing out academic research. It’s actually something people inside the party believe Western countries are also doing. The CCP distinguishes between overt, blunt attempts to influence public opinion and more subtle attempts, such as promoting and spreading research that supports China’s own political system. The idea here is that the message is more subtle and may be more easily accepted as objective or academically sound by the recipients than, say, a statement made by the CCP or party media directly.

KSK: To add one thing, something we have just started to look into is how, for example in Germany, we have freedom of association as in many other countries, so it’s quite easy to form an association in Germany. So there are dozens of so-called friendship associations, professional associations, alumni associations, but also associations for engineers, technicians, accountants. In Germany, we see them organizing events, publications, and conferences, and they often are financed, as we have found, by the Chinese embassy or by the Ministry of Education, and often their websites are only in Chinese. To me it is weird that under the German law for associations this could happen because they should have a non-profit and non-official aspect. They look like friendship, alumni, professional associations, but there is also a very subtle political element in there, Xi Jinping quotes on their websites, for example.

MO: The friendship associations are a club that is centrally run from Beijing and they have all their local branches and they are very present. They organize their own stuff but they also show up at other events.

CDT: What is their purpose? What kinds of activities do they organize, at least publicly stated?

KSK: Sometimes it’s just to assemble talent or to organize exchange on research. Alumni clubs sometimes also invite German alumni to exchange and networking activities which of course could potentially be a platform to co-opt people and align them with other political interests.

MO: Even if there is just a China-focused event, someone from a friendship association will be there. They are often easy to spot.

KSK: We also have German-Chinese friendship associations run by Germans. What they do is, in a sense, harmless: tea ceremonies, movies or documentaries about China, but they don’t take a political stance on problems or human rights issues in China. [They present a] very beautiful, somehow one-sided image of China, as an ancient country and a great civilization. Also they would stress their focus is to look friendly upon another culture and not criticize other countries, but portray them in a beautiful, inspiring way.

CDT: Have there been any incidents you know about where these groups have tried to influence other China activities that people in Germany are working on that may be more political or human rights focused?

MO: I don’t know any examples where I myself was present. I’m pretty sure it happens. What I usually see is they just show up representing the CCP point of view. That’s what I see a lot.

KSK: Examples I know are mostly the Chinese embassy or political entities directly pressuring websites to take content down or pressuring German politicians to refrain from certain meetings or statements. But this seems to be done more officially, not using these associations.

MO: You don’t know how much is directly the outcome of a phone call and how much is self-censorship. In the case of the publishers [Cambridge University Press and other academic publishers] it seems to have been a case of preemptive self-censorship to comply with the regulations.

CDT: In the recommendations that open your report, you say that “European governments need to invest in high-caliber, independent China expertise.” Where would you say this expertise currently exists most effectively in Europe, and where specifically would you like to see resources go to further develop such expertise?  

MO: It’s needed everywhere. I wouldn’t say that there is a single country that would not need that at this point. Even the countries where there are some initiatives, still need more.

KSK: Talking about fields of policy, we have a lot of good expertise concerning the economy, the financial system, foreign policy. A lot of think tanks in Europe and the United States focus on China’s economic policy and foreign policy, but we don’t have so much on domestic policy and social policy. I think that’s a mistake because we need to know much more what is going on inside China, like China Digital Times is doing, following discussions in China, trying to detect the red lines of what can be said, what does the Chinese government still allow to be published –also within social media because that also gives some indication of the battles that might be going on among the Chinese political elites, the spectrum that they would allow to be published on social media and also party-state media. I think this would be a good point to put more resources into.

MO: Also at the high school level, basic education, as that is something that is becoming more prominent. How do we get China expertise to younger people? We can’t just say, let Confucius Institutes do it, which has often been how this has been done. You have a free or partially free service and of course you want to make use of it and that’s obviously not the wisest choice. You want to stay more in control of how Chinese language and culture is taught at an earlier level.  So I think there is quite an investment that needs to be done on that side as well.

CDT: How sophisticated is the understanding of China among the general public in Europe, and how is the country perceived there? Are there negative connotations? Positive connotations?

MO: In terms of negative or positive connotations, there is probably a very wide split. Some people are on the extremes; some see it very positively and view anything negative about China is part of a great conspiracy against China. There is a lot of that on commentaries on news articles but you don’t know, are those individuals? Or is that organized? You don’t really know. You see that, then you see very negative images. All the research I see points to not enough information on the side of the general public.

KSK: It’s selective. First, much is focused on official China, Chinese government, politicians. Second, it is very focused on modern cities, such as Shanghai, Beijing, Guangdong, with less awareness of differences within China, rural areas, societal aspects. It’s very selective depending on your own positions and interests. In general, I do think that, for example taking Germany, the general image of China was rather positive until maybe one and a half to two years ago, also in parallel with the decline of the image of the United States. But again it seems to be shifting now, to this sense of China influencing and being a competitor in the economic realm. I now sense a lot more anxiety, worries and doubt, especially vis-à-vis official China. I think it is important to differentiate between Chinese society in general and official China. We need to know a lot more, that China is not just the CCP and not just official China, and that’s the key message we have to bring across.

CDT: How would you evaluate media coverage of China in Europe? I imagine that point still stands, that there is not enough focus on internal societal issues, but generally when you read media coverage within Europe, would you say it’s fair?

MO: Certain topics are popular and get a lot of attention, and that’s fine, but I do find a lot is missing, as Kristin just said. Especially societal, bottom-up, everyday China. There are a lot of people that do a great job, but overall it could be a more varied picture.

KSK: But this is probably a general struggle for journalists, this focus on diseases, war, catastrophes, scandals, disasters, technological advancements. This is not China-specific. But looking at the younger generation of correspondents in China, most of them speak Chinese, they read Chinese, they make a huge effort to befriend Chinese. It also depends on the surroundings, the context, which is much more repressive within China so it’s much harder, especially for TV and radio, to get Chinese people to voice their opinions because for them often they are really directly threatened if they talk to foreign media so they censor themselves, which is understandable. Overall though I would say that journalists try to make an effort.

MO: Within the limits in general.

KSK: Right.

CDT: What about the influence from the Chinese government on the media in Europe?

MO: What’s happening in Europe has been happening in other parts of the world for a long time. In the United States it happened a lot earlier that you get paid ads, either official China takes out ads or individuals tied to the CCP take out ads in newspapers. That’s been ongoing here [in the U.S.] for a while. It’s happening in Europe now. We have the inserts, paid advertisements that look like editorial content but are edited by China Daily. That’s being inserted into more and more papers. Mostly I think at present these initiatives focus on Western Europe, at least the examples that we’ve been able to find. Part of that is getting the content out, part of that is trying to establish some financial dependence. With those inserts you obviously can’t buy the paper, but it’s getting a foot in the door and generating some financial contributions. Obviously post-2008 and 2009 a lot of papers have been struggling and everybody is trying to find new models of financing themselves and that’s obviously a huge chance. Initially there was a lot of talk in China about actually buying papers. In Europe they had one test case in the U.K. with a struggling television channel. That was just a test case but there have been more attempts to buy papers in the United States as well. The most prominent example [globally] is of course the South China Morning Post. I think there have been bids on the European media from the Chinese side, but I don’t think that they succeeded, though I may not be up to speed.

KSK: The interesting question would really be if a Chinese investor were to bid for a larger publishing house, would Europe or national governments have the tools to really counter that? That’s also why we made the recommendations in general to take into account universities and also the media as part of “strategic industries” for an investment screening because I can imagine this to be a strategy that China might pursue in the future, to try to target failing or struggling educational or media institutions and try to buy them. And what do you do against it? If it’s a seemingly private company.

MO: I think in some cases the media institutions themselves have ways to prevent that, with different shareholder structures. In the case of the New York Times, a Chinese investor talked about maybe buying it, and the New York Times said, we have an ownership structure with Class A shares and Class B shares that doesn’t allow you to just take over the paper, sorry about that. So I think in some cases that is already in place but I’m not sure how many media can do that.

KSK: It’s something you have to be able to afford to do.

MO: And also there is the lure of the Chinese market, of media companies trying to gain access to China, and again I’m not saying anyone has been compromised in that way, but for a long time, media companies have had an interest in getting a Chinese presence. But that comes and goes and right now I think not a lot of them are trying that.

CDT: The New York Times tried and were shut down pretty quickly.

MO: But after the New York Times, other media tried to build up a presence, including, I think, German media. And in my opinion that’s not worth the risk.

KSK: In Germany also we have seen media cooperation with CGTN and German state-owned TV broadcasters to have joint formats having a Chinese and German host.

MO: That’s been done quite successfully.

KSK: It has, but it’s not been totally one-sided, not just showing the positive China. But it was in English, so for just a limited, well-educated audience within China. I think they are testing the ground there and seeing how far they can go.  Clearly issues like human rights, Tibet, Taiwan won’t be mentioned. I think this is a strategy they are specifically testing now.

MO: This is going on at all levels, at German main state broadcasters as well as less prominent media.

CDT:  Has China worked to exploit divisions within Europe on societal issues such as rights advocacy?

KSK: Norway was a clear case, they got punished after standing up to the Chinese government and awarding the Nobel Prize for Peace to Liu Xiaobo.  Now it seems the relationship has turned around, and they have Norwegian-Chinese negotiations for a free trade zone agreement, but the Norwegian government made a lot of efforts to get the relations back on track. In London, after Tony Blair met the Dalai Lama, we have also seen a turnaround.

MO: It’s really hard to track, but I guess one thing that’s sort of popular in a way is in countries where public opinion is already anti-EU, to say that, “Well, the EU doesn’t care about you.”

KSK:  In Brussels, you hear a lot of active lobbying is going on within the European parliament and also the commission, all the European institutions with the goal to prevent them from raising issues like Tibet, Taiwan, or human rights, civil society, NGOs. We also see some of these activists in Brussels – Germans or other European citizens working for Chinese-funded think tanks or research institutes and even using the same language, the same terms and wording to support official Chinese positions.

MO: I think the two different issues are that on the one hand, you have European actors [adopting] CCP speak, and on the other hand you have CCP-financed organizations identifying existing sentiment in Europe and trying to exploit that. And both are going on, absolutely.


See also:

How China Skirts America’s Antidumping Tariffs on Steel

June 4, 2018

Government-backed manufacturers have avoided steep U.S. and EU levies by shutting production at home and expanding overseas

Image may contain: fire and night

Three years ago, the steel mill outside the small city of Smederevo, Serbia, appeared headed for the scrap heap.

The Serbian government, which owned the mill, had stopped subsidizing it after six straight years of losses. Hemorrhaging cash, it struggled to buy spare parts and raw materials such as iron ore.

“It was like trying to drive a car without tires,” says Siniša Prelić, a union leader at the factory.

Now production is hitting all-time highs under its new owner, Hesteel Group, a Chinese state-owned steel producer. Exports from the plant, which is backed by tens of millions of dollars from Chinese state banks and investment funds, are surging. And it has started shipping steel to the U.S.

As the Trump administration ramps up its fight against Chinese steel and Commerce Secretary Wilbur Ross ended trade talks with Beijing over the weekend without a settlement, U.S. officials are confronting a strategic shift from China’s state-backed manufacturers. For the past several years, they have been shutting production at home and expanding overseas, fueled by tens of billions of dollars from Chinese state-owned lenders and funds.

By owning production abroad, Chinese steelmakers aim to gain largely unfettered access to global markets. Their factories back in China are constrained by steep tariffs imposed by the U.S. and numerous other countries—largely before President Donald Trump took office—to stop Chinese steelmakers from dumping excess production onto world markets. But their factories outside China face few so-called antidumping tariffs.

The Trump administration in March jolted the global trading system by imposing additional tariffs of 25% on all imported steel and 10% on aluminum, a move aimed at ratcheting up pressure on China to shut domestic steel and aluminum plants. (Last week, those tariffs were extended to Canada, Mexico and the European Union.) The EU is considering its own tariffs to stop metals exports blocked by the U.S. tariffs from flooding into Europe.

Even though the new U.S. tariffs apply to Chinese steelmakers that moved production abroad, the moves are still paying off. The Trump tariff rate is much lower than existing U.S. antidumping tariffs on steel produced inside China, which often exceeded 200%.

A spokesman for Hesteel declined to comment. China’s Ministry of Industry and Information Technology, which oversees the steel and aluminum industries, didn’t respond to inquiries.

Chinese overcapacity has depressed global steel prices and wreaked havoc on China’s competitors. After cajoling Beijing to cut domestic capacity, Western officials have watched with exasperation as Chinese companies boost production around the world. And Western industry executives worry the overseas investments are helping Chinese steelmakers avoid the antidumping tariffs that governments have imposed to protect their companies against allegedly unfair Chinese trade practices.

Chinese steel production rose sevenfold between 2000 and 2013. A worker helps load steel rods at a plant in Hebei province.
Chinese steel production rose sevenfold between 2000 and 2013. A worker helps load steel rods at a plant in Hebei province. PHOTO: KEVIN FRAYER/GETTY IMAGES

China’s steel-production boom took off around the turn of the century as Beijing threw its support behind a sector seen as vital to the nation’s emergence as a global economic power. The 2008 financial crisis prompted Beijing to undertake an economic stimulus program that included the construction of hundreds of new steel plants. Chinese steel production rose sevenfold between 2000 and 2013, when it accounted for half of all global capacity.

By 2013, China’s domestic economy was slowing, leading Chinese steel and aluminum producers to flood global markets and drive down prices. The average price of Chinese steel exports fell by about 50% between 2011 and 2016.

Governments around the world responded by imposing more than 130 antidumping tariffs against Chinese metals manufacturers, mostly on steel, depriving the domestic market of an important outlet.

Beijing responded by ordering capacity cuts: a net of 150 million tons of annual steel capacity is slated to be shut between 2016 and 2020, as are aluminum plants that were built without government approval. At the same time, in 2014, the government launched a plan, called International Capacity Cooperation, that enlisted Chinese state financial institutions to help manufacturers add production overseas.

Analysts and Western government and industry officials say Chinese manufacturers are receiving hundreds of billions of dollars of state support to build and purchase plants on foreign soil, through money provided by institutions such as China Development Bank, Bank of China and funds like China Investment Corp. The overseas plants are likely to be tapped as exclusive suppliers for the “One Belt, One Road” initiative, Beijing’s trillion-dollar infrastructure plan to project economic influence across Eurasia and Africa.

“China is just moving whole industrial clusters to external geographies and then continuing to overproduce steel, aluminum, cement, plate glass, textiles, etc.,” says Tristan Kenderdine, research director at Future Risk, a consulting firm that tracks China’s overseas investments. “None of this is economically viable under a supply-demand regime without state subsidies.”

Big Steel in ChinaBeijing has sharply increased domestic steel-production capacity and has made far more steel than it hasused inside the country.Sources: World Steel Association (production, use); Group of 20 nations and the Organization for Economic Cooperation andDevelopment (capacity)
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Chinese steel companies have signed agreements to build plants in Malaysia, Pakistan, India and elsewhere.

In northern Brazil, a Chinese consortium is expected to break ground later this year on an $8 billion project to build one of the world’s biggest steel plants, expanding Brazil’s potential steel output even though the industry there operates at less than 70% of capacity.

“This is total nonsense, with all the idle capacity that we have,” says Alexandre Lyra, chairman of the Brazilian Steel Institute, which represents Brazilian producers.

Chinese companies also are building new steel mills in Indonesia. Last year, Tsingshan Group Holdings, a state-backed steel producer based in Wenzhou on China’s southeastern coast, opened a two-million-ton stainless-steel plant on the Indonesian island of Sulawesi that accounts for 4% of the world’s stainless-steel production. The mill, built using a $570 million loan from the China Development Bank, is now pushing down prices from Asia to the U.S., industry executives and analysts say.

“We are seeing tenders in the area from Tsingshan at very, very, competitive prices,” Miguel Ferrandis Torres, financial director at stainless-steel companyAcerinox , told analysts in April. Tsingshan is likely losing money on those shipments from its Indonesian plant, Mr. Torres said.

Tsingshan declined to comment.

Tsingshan’s product is entering the U.S. through a joint venture with Pittsburgh-based stainless-steel producer Allegheny Technologies Inc. The joint venture is restarting a stainless-steel rolling plant in western Pennsylvania that Allegheny had shut in 2016 partly because of pressure from inexpensive Chinese imports. The new company is importing 300,000 metric tons of semifinished stainless-steel slabs from Tsingshan’s Indonesian plant—replacing slab Allegheny made in a now-closed production line—and processing them into sheets for products ranging from household appliances to medical equipment.

That put downward pressure on U.S. stainless-steel prices last year, industry executives say. “We’re moving from being a high-cost producer, which we’ve been for a while, to being the low-cost producer in the market,” Robert Wetherbee, an Allegheny executive, told analysts in November.

The Trump tariffs that came into force in March hit the stainless steel Tsingshan was importing from Indonesia to its joint-venture plant in Pennsylvania. Allegheny has asked the Trump administration for an exemption from the tariffs on those imports.

Tsingshan is expanding its Indonesian plant, and Jiangsu Delong, a Chinese producer based in Jiangsu province, is building another plant nearby. Those projects alone will increase global stainless-steel capacity by 9% from 2017 levels, according to Michael Finch, a steel analyst at CRU Group in London, even though the stainless-steel industry has significant spare capacity.

Hebei province, a pollution-choked region near Beijing, is home to steelmaking operations like this one in Qianan.
Hebei province, a pollution-choked region near Beijing, is home to steelmaking operations like this one in Qianan. PHOTO: NG HAN GUAN/ASSOCIATED PRESS

In 2014, officials from Hebei province, a pollution-choked steelmaking region near Beijing, began hunting for overseas investments for the province’s most important company: Hebei Iron & Steel Group, renamed Hesteel Group in 2016.

When Hebei officials approached the Serbian government in 2014 about investment opportunities in the country, Belgrade immediately thought of the Železara Smederevo steel company, which had a mill on the Danube River, say people familiar with the deal.

The Serbian government had purchased the plant in 2012 for $1 from United States Steel Corp. After shutting the plant for several months, Belgrade restarted it to make it attractive for potential buyers, pumping tens of millions of dollars into it to keep it alive.

But with its public finances deteriorating, Serbia in 2014 sought a standby loan facility from the International Monetary Fund, which along with the European Commission, ordered it to stop subsidizing the steel company.

In early 2015, the Serbian government pulled the plug on subsidies for Železara, says Bojan Bojkovic, who was in charge of efforts to sell the mill for the Serbian government. “A lot of people, especially so-called economists, wanted to shut it down immediately,” he says.

Meanwhile, in March 2015, Hesteel signed an agreement with China Investment Corp., which has more than $200 billion in foreign assets, to fund Hesteel’s overseas expansion.

Beijing touted the $54 million acquisition of the steel plant in Serbia as one of China’s flagship overseas investments.
Beijing touted the $54 million acquisition of the steel plant in Serbia as one of China’s flagship overseas investments. PHOTO: NEMANJA CABRIC/XINHUA/ZUMA PRESS

During the talks with the Serbians, Hesteel pledged to invest at least $300 million in the plant over the next three years. Beijing touted the €46-million ($54 million) acquisition as one of China’s flagship overseas investments. Chinese President Xi Jinping visited the mill for the June 2016 signing ceremony.

Hesteel executives have said that they quickly turned around the money-losing plant after taking control in June 2016. Serbian corporate records show an operating loss of $34 million over the next six months. Records for 2017 aren’t yet available.

“This is all part of a huge political initiative,” says  Markus Taube, professor of East Asian economic studies at the Mercator School of Management in Duisburg, Germany. “They are extremely insensitive to losses.”

The EU for years has applied tariffs to low-price Chinese steel exports. Now, Hesteel’s Serbian plant can export tariff-free into the 28-nation bloc.

“We feel like the Serbian plant is a Trojan horse,” says Sonia Nalpantidou, a trade-policy expert with Eurofer, a trade association representing EU steel producers.

At a steel expo in Beijing last month, a “Hesteel of the World” banner hung near the company’s booth. Pins in a map marked countries where Hesteel had invested—Serbia, Macedonia, Switzerland, South Africa, Australia and the U.S. A company representative said overseas expansion is now a core strategy. The company is planning to build more plants in regions such as North America, she said, and plans to derive 20% of revenue from non-Chinese markets by 2020.

“Products made in Europe shouldn’t be subject to European tariffs,” the representative said.

Late last year, Hesteel offered $1.5 billion for a large steel mill in Slovakia owned by United States Steel, according to a person familiar with the talks. The Slovak prime minister said last month that U.S. Steel wouldn’t sell the plant to Hesteel. A U.S. Steel spokeswoman declined to comment.

After purchasing the plant in Serbia, Hesteel began selling its output onto the U.S. market.
After purchasing the plant in Serbia, Hesteel began selling its output onto the U.S. market. PHOTO: MARKO RISOVIC FOR THE WALL STREET JOURNAL

After purchasing the plant in Serbia, Hesteel began selling its output, including a sheet-steel product called wide hot-rolled coil, onto the U.S. market through Duferco, a Swiss trading company in which it owns a 51% stake.

Since 2001, China’s domestic producers of that product have faced antidumping tariffs of more than 64% at U.S. borders, effectively shutting them out of the market. Hesteel’s Serbian plant could export to the U.S. with minimal tariffs—until the additional Trump tariffs took effect earlier this year.

In March, one of the Serbian plant’s U.S. customers, Priefert Ranch Equipment of Mt. Pleasant, Texas, asked the Trump administration for an exemption from the tariff to import 28,000 metric tons of steel sheet annually made at the plant. Priefert argued that it has long relied on overseas steel mills to supply product that domestic mills don’t produce. Priefert executives didn’t respond to a request for comment. The Trump administration hasn’t yet decided on the request.

“We want to be the world’s Hesteel,” Yu Yong, the company’s chairman, said when signed the deal to buy the Serbian plant. He pledged to make the Serbia plant “the most competitive steelmaker in Europe.”

Write to Matthew Dalton at and Lingling Wei at