China policy after the election + release of Meng Wanzhou

Dear reader,

It’s done; a long election night is behind us – with the expected close result. Now the wait for the formation of a new government begins. It will be weeks or even months before we know the fundamentals of Germany’s new foreign and China policy. Even the so-called heavyweight round on election night did not bring any clarity on this. However, most experts abroad expect a stricter line from a new government, regardless of its color. Beijing, Brussels, and Washington are likely awaiting the coalition negotiations eagerly. Based on our conversations with foreign policy experts from all political groups, Finn Mayer-Kuckuk once again analyses the potential impact of possible scenarios on essential elements of China policy.

If you are interested in a dossier containing all eight of our interviews with key foreign policymakers, please email us at china@table.media. In it, you will find interviews with Nils Schmid, the foreign policy spokesman of the SPD parliamentary group; the deputy speaker of parliament Hans-Peter Friedrich of the CSU; or the Green candidate for chancellor Annalena Baerbock.

Meanwhile, Marcel Grzanna asked the Chinese-speaking community in Germany what kind of China policy they hoped for from a new federal government. He heard very different expectations – depending on the origin of the respondents.

But this weekend was not just about the German federal election – there was also a wealth of important China news. So be warned: Today’s edition of China.Table is chock-full of them.

Fabian Kretschmer, Frank Sieren, and Amelie Richter analyze the sudden end to the diplomatic crisis between China, the US, and Canada over the house arrest of Huawei CFO Meng Wanzhou and the detention of two Canadians in China. Also today, for example, British nuclear power plants without China, American security alliances in the Indo-Pacific, and security concerns from Lithuania about smartphones made by Chinese brands.

I wish you an exciting read,

Your
Christiane Kühl

After the election: Germany’s China policy before the turnaround?

By

Finn Mayer-Kuckuk

Foreign and trade policy played only a minor role in the recent election campaign. But the relationship with the EU, the US and China will have a concrete impact on the lives of German citizens in the coming years. Through questions of competitiveness and market access, trade policy influences the business of medium-sized and large companies alike.

Fortunately, the German parties agree on one point: China is no longer a distant sales market, but a rival, competitor and partner at the same time. But when it comes to the question of the best answers to these new challenges, the parties’ statements contain different concepts. At the same time, the reference to the EU seems increasingly unsatisfactory because it does not speak with one voice.

CAI: The investment agreement, also controversial among the parties

The handling of the CAI investment agreement is a case in point. The outgoing German government pushed for its conclusion last year. Outgoing Chancellor Angela Merkel makes no secret of the fact that she thinks it makes sense: CAI commits China to more honesty in opening its markets. But the agreement also became a symbol of her government’s supposedly overly lenient China policy.

The two opposition parties with a very good chance of government participation, the FDP and the Greens, now reject a revival of the CAI in their programmes, which their representatives also confirm in conversation with China.Table. The CDU/CSU and SPD, on the other hand, remain rather vague and also no longer seem to stand behind the treaty that they themselves shaped as a governing coalition.

The kingmakers FDP and Greens: more critical of China than ever before

Dabei wäre eine Kombination aus Union, Grünen und FDP durchaus eine Wunschkoalition für manches Unternehmen. Der deutsche Mittelstand hofft laut Umfragen jedenfalls auf eine Jamaika-Koalition. Jamaika wäre derzeit auch die Wunschkonstellation von FDP und CDU. Stark sozialpolitisch orientierte Wählerinnen und Wähler könnten auch die Ampel aus SPD, Grünen und FDP wünschen. Grüne und FDP können sich dementsprechend aussuchen, ob sie lieber den Kandidaten der SPD oder den der CDU ins Kanzleramt wählen. Den zwei mittelgroßen Parteien kommt daher in den bevorstehenden Koalitionsverhandlungen eine strategisch wichtige Position zu.

TheGreens and the FDP have something in common: they are particularly critical of China in their programmes and statements. While the CDU and CSU express themselves in rather general terms on foreign policy, and the SPD has little credibility to distance itself from its role as a governing party, the Greens and FDP distinguish themselves with clear demands.

“The election programmes of the current opposition parties FDP and Greens are on the whole more detailed and in many cases more concrete and also more critical in their statements on China than those of the current governing parties CDU/CSU and SPD,” the economic research institute IfW Kiel also writes. “This could indicate that the next federal government could adopt a more China-critical policy overall if the FDP and/or the Greens are in government.” After all, they are particularly tough on human and international rights violations as well as threats against Taiwan. The participation of both parties, however, is quite likely according to the first findings of the election evening.

Baerbock and Lambsdorff pose as defenders of civil rights

A critical attitude towards Beijing also emerged from the China.Table’s talks with representatives of the Greens and the FDP. In the event of participation in the government, the Green Party leader Annalena Baerbock announced that she would use the “power of the European single market to protect European values”. She named human rights, fair market access, legal certainty and a level playing field as points that were particularly important to her(China.Table reported).

The Green Party’s European politician Reinhard Bütikofer diagnoses the previous government as having “a fair amount of defeatism”(China.Table reported). He said that the government was submitting to China’s increasing claim to power without countering it with its own claim to shape the future. His party colleague Omid Nouripour draws a dramatic scenario as a consequence of Germany’s passivity. Our democracy is at stake, he says, “if we don’t pull our heads out of the sand and embrace systemic competition”. So the Greens are in favour of negotiating harder with China and strengthening their own democratic system.

Alexander Graf Lambsdorff and Johannes Vogel of the FDP express similar views, which would indicate coalition capability, at least in this area. “For us as liberals, human rights come first,” says Lambsdorff. There is no other answer to Xi Jinping’s authoritarian course from a liberal point of view, he said. “We are for economic and social freedom,” explains Johannes Vogel. His party is in favour of free trade and represents the needs of the economy. But it is also in their interest that the European states oppose China’s increasing global claim to power and its unfair practices.

The FDP and the Greens also have in common that they want to make the EU capable of acting again by leaving the principle of unanimity behind. “Some states can lead the way,” says Nouripour. Thus, groups of particularly determined countries would be enough to formulate a strong position for the bloc.

Reassuringly for Germany’s China business community, neither of the two parties that could particularly gain influence now want to see trade with China cut off. “I never thought the idea of general decoupling, which President Trump propagated, was an intelligent perspective. It is diametrically opposed to our basic European idea of multilateral cooperation,” Bütikofer told us. “We don’t want to build walls.”

The SPD: governing party reorients itself

Given the likely close result, the SPD has a good chance of being part of the government. If it leads the government, it intends to raise its own profile. Nils Schmid, the SPD parliamentary group‘s foreign policy spokesman, announced in China.Table a more suspicious course towards Chinese suppliers of infrastructure – specifically towards telecoms equipment supplier Huawei. “We have to look at who is behind these companies and how much these companies are at the mercy of authoritarian states,” Schmid said.

Schmid does not think much of the idea of making a difference in China by continuing the partnership approach. This “was always linked to the assumption that China was a developing country”. But: “That time is over. We now need to redefine our China policy and recognize that China is challenging us as well as the international system.” Beijing, he said, wants to strengthen authoritarian ideas around the world.

Schmid is specifically concerned about China’s rearmament. The country had become a “military power” and was threatening its neighbours. Despite its authoritarian rule, China is economically successful and thus attractive as a model for other countries. Germany and the EU must counteract this, Schmid said.

The Union: change or not?

The CDU and CSU went into this election with a particular disadvantage: They have governed for a long time and must stand by their policies of the past years in order not to sound untrustworthy. This also applies to the China strategy. Hans-Peter Friedrich answered our questions about this. The prominent CSU politician thus gives the least impression of wanting to be more confrontational with China in the future among the interlocutors of the China.table in the pre-election period.

Friedrich clearly rejects the sanctions with which the EU provoked a fierce backlash from Beijing at the beginning of the year. He also sees an overly critical stance as only serving little purpose for German trade interests in the Far East. For example, he sees the issue of Huawei’s involvement in telecoms expansion as settled: “We’ve gotten our act together and found a workable solution.” Germany is “happy to take Huawei’s world-class technology because it makes our economy more competitive.” However, the deal takes place “according to our rules of the game and values.” Friedrich also rejects a merger of Western powers to contain China.

As a former member of the government, Friedrich defends the Chancellor’s policies of recent years. He continues to see the middle course she has taken as a good course for Germany’s interests. Chancellor candidate Armin Laschet has now also taken a clear position on China. Like Friedrich, he too is in favour of clearly asserting Western values. But at the same time he is also in favour of a “positive agenda” in order to cooperate with China where necessary and possible.

Chinese community in Germany: more respect or more rigor?

By

Marcel Grzanna

When the results of the Bundestag election flickered across the screen yesterday evening, many members of the Chinese-speaking community in Germany also looked closely. Because the result also matters to them – regardless of whether they were allowed to vote themselves or not. Tina Zhao is interested in the election results primarily because of the future of her son. He has German citizenship; she herself has Chinese citizenship. The 37-year-old from Siegburg in North Rhine-Westphalia, who does not want to use her real name to comment on politics in Germany, wants above all security for herself and her nine-year-old. The many refugees in Germany frighten her, she says. If her son ever wants to explore the world on his own as a teenager, he could become a victim of violent acts by refugees, she fears.

If Zhao had been allowed to vote, she would not have voted for the SPD or the Greens. “The CDU would have been the most likely choice for me, but I don’t really like them either,” says Zhao, who has lived in Germany for nine years and earns her living as a project manager in a German industrial company. She describes herself as clearly ‘right of center’. But she has never found a real political home in this country. Because she is not allowed to vote in elections anyway, Liu has never seriously set out to find one.

But she is convinced that the parties in Germany are wasting too much energy, time, and money on “pointless things”. As a taxpayer, she feels that social benefits such as Hartz IV are paid out to those affected for “far too long”.

Africans more popular than people from China

However, Zhao’s favorite topic is the relationship between the Germans and her home country China. She would like to see a new German government “interfere less in things that are none of their business”. Issues such as the oppression of Tibetans, the situation of the Uighurs in Xinjiang, or China’s claim to Taiwan are Chinese affairs, she says. “After all, China doesn’t tell the Germans what has to happen in Germany either.”

She feels that Germans “don’t like China wholeheartedly,” says Zhao. Instead, they “like to look down on them”. Even Africans are more popular in Germany than Chinese, she says. “That’s probably because China has a lot of money, and the Germans perceive us as competitors,” he says. “We learn and work very quickly,” says Zhao.

Zhao believes that Europeans as a whole still have the impression that they are “better than others”. She also noticed this in Italy, where she lived for five years before moving to Germany. Yet, she said, it is the Chinese who are driving economic growth in Europe today and ensuring the prosperity of the continent’s people. “China gets too little respect,” she says.

Silence of the federal government on political cleansing

Hong Kong-born Amy Siu sees the situation differently. The computer scientist has lived in Germany for eleven years and works as a lecturer at a university in Berlin. The Chinese government cannot be criticized enough for its authoritarian policies, she thinks. She is disappointed with the outgoing German Chancellor Angela Merkel. A few years ago, she had the feeling that Merkel was really committed to improving the human rights situation in China. “Today, she only cares about the interests of the auto industry,” says the 45-year-old, who would have liked to see more support from the chancellor for the pro-democracy forces in her hometown. Like Tina Zhao, however, she is not eligible to vote.

The German government’s extensive silence on the political purge in Hong Kong is an example of how far the long arm of the Chinese Communist Party has already reached into Germany, Siu says. “There is far too little awareness here of the influence the Chinese government is already exerting in Germany today. This is happening in a very subtle way, by building up more and more pressure that politicians and business dare not resist,” Siu says. She would like to see politicians being transparent about this influence in the future. “Otherwise, at some point, it will be too late, and Germany will no longer be able to make decisions without having to consider the interests of the Chinese government.”

Hong Kong citizens fear the new security law – also in Germany

Hong Kong is a good example of how quickly Beijing forgets its promises when it sees its interests threatened – and of the drastic measures it takes to counter political dissent. The introduction of the National Security Act has made many people in the city highly intimidated for fear of punishment for trivial offenses. In the registered association “Hongkonger in Deutschland”, which campaigns for the preservation of civil rights in the metropolis, some are already afraid of being identified as members of the group, Siu says. They don’t even want to appear in photos on social media anymore. “People have family in Hong Kong or the People’s Republic and fear for the safety of their relatives,” Siu says. She, too, has family in the city. And yet she wants to use her name to speak out publicly – to stand up to the Chinese regime, she says.

One of the demands of Hong Kong citizens in Germany to a future German government is a less bureaucratic and faster issuing of visas to citizens from the city. Too much time often elapses between the application and the granting of a visa, during which Chinese and Hong Kong authorities can become aware of emigration plans and initiate possible investigations for violations of security laws. The association also wants a diplomatic boycott of the 2022 Beijing Winter Olympics.

Uyghurs in Germany: recognize human rights violations in Xinjiang as genocide

Meanwhile, the Uyghur community in Germany is hoping for a German policy “that stops treating Beijing as just another government,” says Dolkun Isa, president of the World Uyghur Congress. Isa has been a German citizen for many years. Yesterday, Sunday, he was in Canada, which is why he had already cast his vote by postal ballot last week. For whom, he prefers to keep to himself.

The Uyghurs are also fighting in Germany to have the Chinese government’s human rights violations in the Xinjiang Autonomous Region recognized as genocide. Isa is grateful for the attention that the Human Rights Committee in the German Bundestag has paid to the issue so far. But he, too, is disappointed in the chancellor. In his opinion, Angela Merkel was “until a few years ago the voice for democracy and human rights in the world”. Isa thinks that there is not much left of this commitment.

The World Congress has not issued an election recommendation to the Uyghur community in Germany. “But we have urged Germans of Uyghur descent to by all means cast their vote, no matter for whom. It is important that citizens in democracies also use their right to vote,” says Isa.

Settlement with US justice: Huawei chief financial officer Meng is free

Outwardly, Huawei founder Ren Zhengfei has always been confident about the fate of his daughter, who has been arrested in Vancouver. When the Chinese entrepreneurial mogul invited her to his luxurious mansion full of Victorian closets and Greek columns in Shenzhen in November 2019, he said without malice: “I hope she can overcome this phase”. But it would be nearly two years before he met his daughter Meng Wanzhou again: In the evening hours of Friday, she flew on an Air China plane from Vancouver, Canada, to Shenzhen.

The 49-year-old had previously negotiated a deal with the US authorities: According to the agreement, the case against her will be put on hold until December 1, 2022, as long as Meng does not publicly contradict the account of the US judiciary. However, Meng still denies Washington’s accusations – bank fraud and evading sanctions against Iran. Due to an extradition request from the government of US President Donald Trump, Canada had to hold Meng long-term. On Friday, after years of wrangling, she was released.

While still on the flight, the Huawei finance chief thanked the Chinese Communist Party for making her release possible. “The color red, the symbol of China, shines brightly in my heart,” she was quoted as saying by state media. Her arrival was broadcast live and watched by some 13 million people. Her appearance in a red dress got more than 80 million likes on social media. A red carpet was rolled out for her on the airport tarmac.

Allegations against Meng increasingly difficult for U.S. to contain

Meng had been arrested in early December 2018 during a stopover in Vancouver en route to Latin America and had been under house arrest ever since. In 2018, the judiciary under Trump had issued a warrant for Meng’s arrest. The US accused her of lying to major British bank HSBC in 2013 about the activities of a Huawei subsidiary called Skycom in Iran – putting the bank at risk of violating US sanctions against Tehran. The US also imposes sanctions on foreign companies that do business with Iran – a policy that many countries including the EU and China oppose. This aspect also lent a geopolitical component to the case from the start. As long as Trump was US president, US authorities portrayed the bank as a dupe and Meng as a fraud. Canada was caught in the middle.

However, in the spring of this year, after the new US president Joe Biden took office, HSBC had apparently decided to cooperate with Meng and Huawei: Meng’s defense was then able to present HSBC documents to the US authorities proving that the bank had been fully informed. Because of the new development, it became increasingly difficult for the US judiciary to maintain the case against Meng. Especially since, in the end, no one had been financially harmed. Meng’s defense also expressed suspicion that the Canadian Border Patrol had overstretched its legal leeway in order to obtain information for the US authorities to use in the trial. This, in turn, was firmly denied by the Canadian authorities.

“We are convinced that we are innocent,” Huawei founder Ren Shengfei told China.Table about the case. “If a court were to punish us after making a judgment, we would be able to understand that because we respect legal procedures. But the US plays by its own rules. I don’t know how to understand that.” However, the verdict now did not come at all.

Beijing celebrates homecoming as diplomatic victory

Beijing’s propaganda organs are now praising Meng’s return as a diplomatic victory for the state leadership. “We have won this battle,” reads one of the most popular comments on the online platform Weibo. Meng Wanzhou joined in the chorus. She had always felt the “care and warmth of the Party, the motherland and the people” while under house arrest, she said on her arrival, according to the state-run Global Times newspaper. “President Xi Jinping cares about the safety of each and every Chinese citizen, including me. I am deeply moved.”

Hu Xijin, editor-in-chief of the nationalist Global Times commented on Weibo, “I hope that international order will now be somewhat restored. In the future, businessmen abroad should no longer be detained for political reasons.” Yet the Chinese media purposefully conceals the fact that China’s security apparatus has done exactly the same: Just days after Meng’s arrest in December 2018, they detained two Canadian citizens in the People’s Republic: former diplomat Michael Kovrig and Michael Spavor, who organized cultural and sports delegation trips to North Korea.

Two Canadians held hostage during diplomatic crisis

Since then, the “two Michaels” have been in detention. Spavor was sentenced to eleven years in prison in August after serving time without trial in a Dandong detention center since 2018 (China.Table reported). The evidence, which was supposed to prove an alleged espionage activity of the Canadian, was more than questionable: Spavor illegally photographed military equipment at civilian airports and forwarded the documents to his compatriot Michael Kovrig.

It was clear to most observers from the start that the Canadians’ arrests were a classic form of hostage diplomacy, even if Beijing’s foreign ministry categorically denied it as recently as the beginning of the month: The cases of Meng and the two Michaels were “inherently completely different.”

This was not credible. But now China’s leadership has virtually provided the evidence to the contrary itself: Because just hours after Meng was released, the two Canadians were also deported. It’s surprising that Beijing didn’t wait at least a few weeks to preserve at least the appearance of the rule of law.

Deliberate warning not to touch Chinese nationals

But that is not the point of the government in Beijing. The message was deliberately intended as a warning. In this respect, the joy over the release of Spavor and Kovrig also leaves a bitter aftertaste: It demonstrates that China’s hostage diplomacy actually works. It sets a precedent for the international community: Anyone who is a foreigner in China can become the arbitrary victim of a deterioration in international relations at any time.

Even if China’s media continue to keep quiet about the release of the two Canadians, a number of critical comments can still be found on Weibo: “As someone who deals with the judiciary for a living, I feel very ashamed,” wrote one user on Weibo: “If it is so clearly hostage diplomacy, what sense does it make to deny exactly that? Another user opined, “He was sentenced to eleven years – and has now been released immediately. Is there a legal procedure for such an amnesty? If not, people with base motives might see this as hostage diplomacy.” For Spavor and Kovrig, the reasons for their release are likely secondary. Both, after all, have spent more than 1,000 days and nights in Chinese custody.

Meng Wanzhou, on the other hand, led a comparatively comfortable life in her luxurious villa in Vancouver: She was spotted several times in high-end restaurants, and shopping malls exclusively opened their doors to the Huawei CFO’s shopping sprees. While Meng has been allowed to move freely within a radius of around 100 miles (about 161 km) with her ankle bracelet, her greatest isolation may be yet to come: The 14-day centralized quarantine in China is significantly stricter than all the requirements Meng Wanzhou had to complete in Vancouver.

Huawei expects sales decline in smartphone business

However, the problematic diplomatic tangle surrounding Huawei and the USA will continue even after the tug-of-war over Meng, Spavor, and Kovrig has ended. In 2019, Huawei had been placed on an export blacklist by Trump – and his successor Joe Biden doesn’t seem to want to change that either. On Friday, Huawei announced that it expects a drastic drop in sales in the smartphone business in view of the ongoing US sanctions.

Revenues would slump by at least $30 billion to $40 billion in 2021, Huawei’s rotating chairman Eric Xu told reporters, several news outlets reported. He added that new growth areas such as 5G technology and artificial intelligence could not yet make up for this. Last year, Huawei’s smartphone sales were still around $50 billion. Xu said he hoped Huawei would still exist in five to 10 years. At least the chief financial officer is now back up and running. Fabian Kretschmer/FrankSieren/AmelieRichter

BSI investigates Lithuania’s warning about Chinese smartphones

Following the Lithuanian cyber defense’s warning about security vulnerabilities and built-in censorship functionality in Chinese mobile phones, the German Federal Office for Information Security (BSI) is now getting involved. The BSI is currently assessing the report from Lithuania, a BSI spokesperson confirmed to China.Table. The state-run Center for Cybersecurity in Vilnius had been particularly critical of a device made by Chinese manufacturer Xiaomi because it was technically capable of censoring certain content in its built-in web browser (China.Table reported). The censorship filter had not been active but could be switched on remotely.

Three specific smartphone models were analyzed in the report: The Huawei P40 5G, the Xiaomi Mi 10T 5G, and the OnePlus 8T 5G. The Lithuanian cybersecurity center NKSC (Nacionalinio Kibernetinio Saugumo Centro) directed the most severe accusations against Xiaomi. In the case of Huawei, the Lithuanians criticized the fact that the app store also links to sources that are classified as insecure by the agency. On the other hand, the NKSC found no flaws with the OnePlus device.

On the list of smartphone brands that can be ordered officially by federal authorities, neither Xiaomi nor any other manufacturer from China is listed, said a BSI spokesman told the German Press Agency. However, the BSI could not rule out the possibility that a Xiaomi smartphone could be in use regardless due to the use of privately purchased devices for official business. ari

Borrell and Wang Yi continue strategic dialogue

Shortly after the general election and amid choppy diplomatic waters, EU foreign affairs chief Josep Borrell and China’s foreign minister Wang Yi have agreed to hold talks. Borrell and Wang will speak for around two hours via video link on Tuesday as part of the EU-China strategic dialogue, a spokeswoman for the European External Action Service told China.Table. The talks will focus on bilateral relations, “regional issues and global challenges”. The exact agenda, however, has not yet been set.

Observers expected that Borrell would also comment on Taiwan to Wang Yi. Among other things, there are currently diplomatic disagreements between Beijing and the EU state of Lithuania, as the Baltic country supports the opening of a “Taiwan office” in its capital Vilnius. Another topic of conflict is the EU-China investment agreement (CAI) which remains on hold. The EU’s Indo-Pacific strategy should also be on the agenda, the spokeswoman said. Commission Vice-President and EU Green Deal envoy Frans Timmermans and Chinese Vice Premier Han Zheng will also participate in Tuesday’s dialogue. ari

Britain: Nuclear project without China

Die britische Regierung will offenbar den chinesischen Staatskonzern CGN aus dem geplanten Neubau eines Atomkraftwerks in Sizewell im ostenglischen Suffolk herausdrängen. Möglicherweise werde die Regierung bereits im Oktober bekannt geben, dass sie sich zusammen mit dem französischen Atomkonzern EDF an dem Bau des Reaktors Sizewell C beteilige, berichtet die britische Zeitung The Guardian. Damit würde die CGN herausgedrängt, die derzeit 20 Prozent an dem Atomprojekt halte, hieß es.

An out for CGN in the nuclear project is likely to cause new geopolitical upheavals. It is clear that CGN and also the government in Beijing will react angrily to an out for the group. London, on the other hand, has long been under pressure from the U.S. to exclude China from British nuclear projects on national security grounds, according to the Guardian. However, kicking CGN out of the Sizewell project would break a 2015 contract between the government in London and CGN.

In it, CGN pledged to fund Sizewell and another reactor at Hinkley Point nuclear power station, and then install its own reactors at a third site at Bradwell. The chances of a CGN reactor actually being built at Bradwell are slim, the Guardian expects. But Bradwell was the decisive reason for CGN to sign the contract, the paper quotes expert Stephen Thomas, professor of energy policy at Greenwich University.

Financially, Sizewell C involves an investment of the equivalent of around 23.5 billion euros – money that would have to be raised by the British taxpayer after the demise of CGN. A British government spokesman told the Guardian that Chinese nuclear company CGN is still a shareholder in Sizewell C until the government makes a final decision, however. Sizewell is expected to supply six million homes with electricity once it is completed. However, there has long been opposition to the project from local campaigners – not least because of Chinese involvement. ck

US and Quad partners want more influence in Indo-Pacific

After announcing the controversial Aukus alliance with Australia and the UK, US President Joe Biden is now pushing ahead with another security alliance for the Indo-Pacific without EU participation. At the White House on Friday, Biden met in person for the first time with the heads of government of the so-called Quad countries. Accordingly, the USA, India, Japan and Australia want to cooperate even more closely and expand their influence in the Indo-Pacific region. The region from the Indian to the Pacific Ocean forms the basis for “common security and common prosperity”, Biden said in a joint statement with Yoshihide Suga (Japan), Narendra Modi (India) and Scott Morrison (Australia) at the White House.

As always at meetings of this kind, China is not named directly, but is considered the so-called “elephant in the room.” The US and other states in the region are concerned about Chinese expansionism in the Indo-Pacific, especially Beijing’s claim to virtually the entire South China Sea, one of the world’s most important trade routes.

The Quad Alliance was long considered a toothless tiger. Now Biden wants to fill it with life – and work more closely with the partners in the future, for example, in dealing with the Corona pandemic, in the area of cyber security, in space and in the fight against climate change. They want to produce more Corona vaccine, for example. There could be a joint exercise in 2022 to prepare for future pandemics. ck

HNA top management arrested

Two senior executives of insolvent Chinese aviation and tourism conglomerate HNA Group have been arrested. This was announced by HNA – to which the airline Hainan Airlines belongs – on its official WeChat account. It said those detained were chief executive Tan Xiangdong and board chairman Chen Feng. HNA gave no details on the allegations. Ironically, Tan holds US citizenship, according to a report by Bloomberg news agency. There he is also known under the name Adam Tan.

HNA confirmed in its WeChat statement that the insolvency and restructuring process is continuing as planned (China.Table reported). Rumors that HNA was struggling and had asked several banks to defer loan payments had already emerged three years ago. Now the company is apparently to be broken up – just like a number of Chinese technology companies (China.Table reported) or, most recently, the real estate developer Evergrande, which has run into payment difficulties.

The company secured strategic investors for Hainan Airlines and the airport business in mid-September, according to Bloomberg. The HNA conglomerate includes Germany’s Hahn regional airport, for example. In the past, HNA Group also held stakes in Deutsche Bank and the US hotel chain Hilton (China.Table reported).

The financial difficulties of the Chinese problem companies are also worrying investors in Europe. However, the president of the European Central Bank (ECB), Christine Lagarde, believes that the direct impact of the Evergrande crisis on Europe is currently limited. “Right now, we see it focused on China,” Lagarde told US television channel CNBC. Nevertheless, the central bank is following the development. niw/ck

End for cryptocurrencies

China continues to ramp up the pressure on cryptocurrencies. Beijing declared all activities around cyber currencies illegal on Friday. Foreign crypto exchanges were banned from providing any services to customers in China. Offenders are to be severely punished: Transactions related to digital currencies are “illegal financial activities”, and suspects will face criminal investigations, a statement by China’s central bank on its website read.

This prohibits not only trading in digital currency but also the sale of digital assets and crypto-derivative transactions. In recent years, trading in bitcoin and other cryptocurrencies has “destroyed the economic and financial order” and “facilitated money laundering, illegal fundraising, fraud, and other criminal activities,” the central bank said. The government will take firm action against speculation in cryptocurrencies to protect citizens’ assets and the economic, financial, and social order.

At the same time, the government issued a nationwide ban on so-called crypto mining. In the summer, the Chinese government had scoured province after province for crypto miners and ultimately turned off the power to the energy-guzzling industry (China.Table reported). The new announcements caused prices to plummet on the crypto market: immediately after the announcement, bitcoin, which is considered the best-known cryptocurrency, lost value and plummeted more than six percent. The digital currency Ethereum also lost significant value with minus 10.7 percent. ari

Can Xi end China’s gilded age?

By Yuen Yuen Ang

ANN ARBOR – Within the span of a generation, a new super-rich class emerges from a society in which millions of rural migrants toiled away in factories for a pittance. Bribery becomes the most common mode of influence in politics. Opportunists speculate recklessly in land and real estate. Financial risks simmer as local governments borrow to finance railways and other large infrastructure projects. And all of this is happening in the world’s most promising emerging market and rising global power.

No, this is not a description of contemporary China, but rather of the United States during the Gilded Age (roughly 1870 to 1900). This formative period of American capitalism is remembered as “Gilded,” rather than “Golden,” because beneath the veneer of rapid industrialization and economic growth, many problems festered.

Public backlashes against the Gilded Age triggered wide-ranging economic and social reforms that ushered in the Progressive Era (approximately 1890s-1920s). This domestic revolution, along with imperial acquisitions abroad, paved the way for America’s rise as the superpower of the twentieth century.

China is currently passing through a similar – though certainly not identical – phase. After coming to power in 2012 during China’s own Gilded Age, President Xi Jinping now presides over a country that is far wealthier than the one ruled by his predecessors. But Xi also must confront a host of problems that come with a middle-income, crony-capitalist economy, not least corruption. As he warned in his maiden speech to the Politburo in 2012, corruption “will inevitably doom the Party and the state.”

Over the past few decades, China’s economy has soared alongside a particular type of venality: elite exchanges of power and wealth, or what I term “access money.” Beginning in the 2000s, the incidence of embezzlement and petty extortion fell as the government built up its monitoring capacity and enthusiastically welcomed investors. But high-stakes graft exploded as politically connected capitalists plied politicians with lavish bribes in exchange for lucrative privileges.

Along with cronyism came rising inequality. Since the 1980s, income inequality has risen faster in China than in the US. China’s Gini coefficient (a standard measure of income inequality) exceeded America’s in 2012. And Chinese wealth inequality is even wider than income inequality, because those who accumulated assets during the early growth stages realized enormous gains.

A third problem is systemic financial risks. In 2020, the finance ministry warned that local governmental debt was approaching 100% of all revenues combined. If local governments default, the banks and financial institutions that loaned them massive sums will be exposed, potentially setting off a chain reaction. And it is not just government finances that are in trouble. China’s second-largest property developer, Evergrande, is $300 billion in debt and nearing insolvency.

These simmering crises should not be viewed in isolation; rather, they are interconnected parts of China’s Gilded Age. Corruption in the form of access money spurred government officials to promote construction and investment aggressively, regardless of whether it was sustainable. Luxury properties that enriched colluding state and business elites have mushroomed across the country, while affordable housing remains in short supply. Those with political connections and wealth have easily reaped outsize profits through speculative investment.

Likewise, in the digital economy, what was once a free-for-all arena has consolidated around a few titans that can easily crush smaller players. Factory workers are being replaced by gig workers who toil long hours with scant labor protections. Fed up with excessive materialism and the rat race in society, young people are protesting by “lying flat” (ceasing to strive).

The decadence of China’s Gilded Age poses multiple threats for Xi. Corruption, inequality, and financial meltdowns can trigger social unrest and erode the legitimacy of the Communist Party of China, given its promise of equality and justice. These problems – particularly elite corruption, which enriches rival factions – all undermine Xi’s personal hold on power.

Thus, Xi is determined to take China out of its Gilded Age, both to save the CPC and to cement his own legacy as the leader who will deliver the Party’s “original mission.” Whereas Deng Xiaoping aspired to make China rich, Xi wants to make China clean and fair as well.

In the last two months, Western investors have abruptly awoken to Xi’s calls for “common prosperity.” But Xi’s socialist mission actually began in 2012, when he vowed to eliminate rural poverty and simultaneously launched the largest anti-corruption drive in the CPC’s history. Xi has maintained these campaigns despite the pandemic, and he proudly proclaimed in 2020 that his poverty alleviation targets were achieved on schedule.

More recently, these campaigns have extended into a wave of regulatory crackdowns on Big Tech companies, bans on private tutoring, caps on housing prices, and a clampdown on rich celebrities. To top it off, Xi has personally exhorted the rich to share their wealth with society.

America’s Gilded Age provides a historical lens for making sense of Xi’s actions. All crony-capitalist economies, no matter how fast-growing, eventually run into limits. If American history is any guide, the problems facing China today do not necessarily spell doom. Much depends on what policymakers do next. If the problems are tackled appropriately, China, too, can move from risky, unbalanced growth to higher-quality development.

But whereas the American Progressive Era relied on democratic measures to fight crony capitalism – for example, through political activism and a “muckraking” free press that exposed corruption – Xi is attempting to summon China’s own Progressive Era through command and control. The world has yet to witness a government successfully overcome the side effects of capitalism by decree.

Decades earlier, Mao Zedong tried to command rapid industrialization and failed disastrously. The lesson is that because top-down orders can and do backfire, they must not be relied upon as the solution to all problems. If excessively and arbitrarily applied, bans and edicts will diminish investor confidence in Chinese leaders’ commitment to rules-based markets.

Progressivism in America laid the domestic foundation for the country’s international primacy in the twentieth century. Whether Xi can order China out of the Gilded Age will determine the continuity of China’s rise in the twenty-first.

Yuen Yuen Ang, Associate Professor of Political Science at the University of Michigan, Ann Arbor, is the author of How China Escaped the Poverty Trap and China’s Gilded Age.

Copyright: Project Syndicate, 2021.
www.project-syndicate.org

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