Wenzhou Rail-Crash and Chinese Media Credibility

The involvement of Chinese Prime Minister Wen Jiabao in a crisis usually means that the government is struggling with PR and is facing popular anger and internet criticism over the problem in question.  The tragic high-speed railway crash in Wenzhou is the latest example of such a failure.

So it is that “Grandpa” Wen arrived today in a hospital where victims of the Wenzhou crash are recovering. It is clear that the government is yet again “putting out fires” as it tries to deal with popular anger – mostly fuelled by internet users – over railway safety, official cover-ups and the callous methods of the crash-clearance crews.

For China’s official media, it is clear that a lack of credibility amongst an increasingly internet-savvy and untrusting population is becoming a serious challenge to the government’s ability to shape and control public opinion.  This problem has implications whose importance could far outweigh railway safety issues and crash investigation cover ups on the high speed railways.

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Bashir to Beijing

Sudanese President Omar Al-Bashir is to visit China next week. China is not signed up to the International Criminal Court (ICC), which has issued charges against Bashir, along with several other Sudanese citizens.  China therefore has no legal obligation to arrest Bashir, and would not do so even if it did. Bashir’s visit to Beijing comes at a critical time for his country, as the already autonomous region of Southern Sudan is scheduled to formally become an independent and new country on July 9th.

Chinese Map of Sudan with Southern Sudan outlined

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China, Malacca, Canal Building and International Imperial Precedent.

The recent Japanese earthquake and Tsunami warning eventually had this writer looking over maps of the Indian Ocean Tsunami. Whilst doing so, the logic of a Thai canal – something that had struck me (along with many others) previously – once again caught my attention.

Thailand, The Malacca Strait, Southeast Asia

The logic of the canal had been considered very early on ( the earliest recorded historical reference to it dating to the 17th Century). Interest in the project has been piqued at several points since then, notably when Ferdinand de Lesseps – founder of the Suez Canal Company in 1858 and supervisor of that canal’s construction – visited Thailand in  1882 but was prevented from carrying out a detailed survey by the Thai ruler.

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$3 Trillion = “Excessive”

The PBOC’s Governor Zhou Xiaochuan is dominating headlines yet again due to his comments over the weekend concerning China’s now $3 Trillion of currency reserves.  According to a Reuters article:

“Foreign exchange reserves have exceeded our country’s rational demand, and too much accumulation has caused excessive liquidity in our markets, adding to the pressure of the central bank’s sterilization,” Zhou was quoted by the official Shanghai Securities News as saying.

Stephen Green at Standard Chartered says on a similar theme:

“It’s clearly too much, it’s clearly excess to needs, and more importantly, it’s damaging to the economy,”

Zhou’s comments suggest that the $3 Trillion barrier, breached as China accumulated nearly $200 billion in extra reserves during the 1st Quarter 2011, is a bit of a psychological trip wire. To be honest, if $3 trillion is excessive, so was $2.8 trillion, but the $3 trillion mark gives the issue added publication and a sense of urgency.

Very few analysts believe that China requires more than $1 trillion in reserves. Generally speaking, if a few months of imports (a quarter at least) and all short term foreign debt can be paid from reserves, then they are sufficient. Even $1 trillion gives China a cushion around these standards.

This chart from Stratfor demonstrates the Trade Deficit that China ran in the 1Q 2011:

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If Libya intervention is regrettable…then why no veto?

 

Beijing Evening News highlights China's regrets and the African Union's opposition to the air strikes

Thursday 17th March’s UN Resolution 1973 on Libya was notable for several reasons. It was the first Resolution explicitly authorizing military intervention in the 21st Century, it witnessed not a single “no” vote despite severe reservations subsequently being admitted  by some of the council members including both permanent and elected ones. What’s More two members which had the opportunity and right to veto failed to do so, despite expressing regret and consternation in the following days.

In the UNSC, two conditions must be met in the voting procedures in order for a Resolution to pass. Firstly, at least 9 of the 15 members must vote in favour. Secondly, none of the permanent members must use their unique “veto” power, even one of which prevents a resolution from passing. The other options are”no” votes, decisive from a  permanent member, but less so for elected members, or “abstentions” – which indicate a lack of support but an unwillingness to stand against other members.

Resolution 1973 received 10 yes votes – from the US, UK, France, Lebanon, Bosnia and Herzegovina, Columbia, Gabon, Nigeria, Portugal and South Africa. There were no “vetoes” or “no” votes but five abstentions – from Brazil, Russia, India, China and Germany.

Much has since been made of these five abstentions.  Some have argued that the BRICs are forming a new block on the global stage, that their rise in the international arena is now a fact etc. This seems an odd claim to make, considering that all the BRICs have subsequently expressed varying degrees of unhappiness with the military action resulting from Resolution 1973. If abstaining (de facto acquiescing) was the extent to which their power could run, then one must question exactly what their influence is worth. In China’s case, this is particularly important, given widely held perceptions about the “rise of China” and the country’s well known stance on “non-intervention” in other countries’ “internal affairs”.

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Exporting Unemployment

Recent events in Libya have aroused much commentary on the subject of China’s relations with the country, and indeed with the continent as a whole.

China’s interests in Africa are first and foremost related to natural resources – including mining products, energy and agricultural production. China has been making up for its late entry into the game through sheer size and generous, few-strings-attached investment. Several recent books have focused on the area, including “The Dragon’s Gift” by Deborah Brautigam, the less imaginatively titled “China in Africa” by C. Alden, the identically unimaginatively titled “China in Africa” by Waldron, “African perspectives on China in Africa” by many, “China into Africa: Trade Aid and Influence“  by Rotberg, and many others.  An illustrative, if badly captioned, photo-essay on the subject was recently published here by Foreignpolicy.com. China also has manufacturing interests and aid relationships with Africa, the latter of which being significantly large to warrant attention.

Focusing away from the Aid aspect of China’s involvement in the developing world however – which is less interesting – and instead focusing on China’s investment / resource deals, sees the frequent employment of a common model on the Chinese side. A standard deal will see China approaching a country with a complete package on offer. Chinese banks, especially but by no means exclusively, its policy banks (China Export-Import Bank 中国进出口银行, China Development Bank 中国开发银行 etc)  offer generous lending terms with the condition that it is used to pay for development projects awarded to Chinese firms. These firms are usually Chinese government owned (SOE) construction, resource extraction and transportation infrastructure developers. Thus banks, resource extractors, infrastructure developers and construction firms will form a consortium to pursue large projects.

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Gwadar – Poisoned Pearl?

Main Elements in the "String of Pearls"

Gwadar, an Indian Ocean port in the south-west corner of Pakistan is at the center of trade, economic and geopolitical competition which involves Pakistan, China, India, the Central Asian Republics, Afghanistan and Singapore.

The port at Gwadar has received heavy investment from China, especially following the perceived failure of Port of Singapore International Ltd (PSA) to properly develop the facilities as contracts had stipulated. Gwadar is also mentioned whenever China’s “string of pearls” strategy is discussed.

The “string of pearls” consists of a series of friendly ports and possibly naval facilities throughout the Indian Ocean which China’s Navy, the PLAN (confusingly called the People’s Liberation Army Navy), could rely on in the future to support any mission to protect key shipping routes between China and the Middle East or indeed Europe (via Suez). So far the “string” consists not only of Gwadar, but also the Chinese driven development of a new harbour at Hambantota in Sri Lanka along with Kyaukphyu and Sittwe in Burma. (Not shown on the map above are other ports in Lamu, Kenya, and Chittagong, Bangladesh, which are also considered to be “pearls”.)

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Brazil, China, The USA, The RMB and the G20

It has been fairly clear for some years now that China doesn’t react well to criticism about its exchange rate regime. Despite some gradual changes, China has generally resisted calls to liberalize the RMB exchange rate or to revalue significantly. It has instead sought to distract both domestic and foreign audiences with other issues ahead of key negotiations, or simply fired back criticisms (often not very well bounded in reason) and played a very slow game.

Perhaps the most significant thing about calls for RMB exchange rate reform over these few years has been the blatant fact that it has been the US which has been doing most of the calling.  At times certain EU states, and also Japan, have also put pressure on China, but the US is the only economy which has done so consistently.  The US of course runs a large bilateral trade deficit with China, which many in the former country blame on the undervalued level of the RMB.  Many in China (officially at least) blame the US for restricting hi-tech exports to China. In reality, there is little incentive for the US to stop doing so, given China’s lack of IPR protection and the tendency for companies which do move technology to China to see it copied and then to be forced into competition with it.

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Chinese inflation – 四面楚歌?

Without wanting to get into the debate about what inflation is and what causes it, and generally accepting that too much liquidity is one catalyst on top of other factors, it seems that China is getting into a situation of 四面埋伏 – 4 sided ambush,  or 四面楚歌 – the songs of Chu’s soldiers on all sides. (Chinese idioms which suggest dangers coming from all sides.)

Aside from the massive domestic injection of liquidity associated with the stimulus lending which I discussed briefly in a previous post (and on which Tom Holland at the SCMP has a much better chart available here), there seem to be other inflationary dangers lurking both within China’s economy and on the outside. Some economists argue that core inflation (ie inflation excluding food and oil prices) should be the main gauge used by policy-makers, but to ignore food inflation in China with its huge population of poor people is not really an option. Equally, whilst core inflation in China is supressed by certain structual aspects of the economy, not least the underpricing of capital through financial repression or the lack of any effective trade union organisation, prices are rising anyway.

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China facing a crisis?

Today Bloomberg published a piece titled “China Will Face Crisis Within 5 Years, 45% of Investors in Global Poll Say”. The whole piece is here, but as a summary, the story is basically reporting the results of a Bloomberg poll  in which 1,000 Bloomberg Customers were questioned on when they believed China would face a financial crisis. 42% answered “within the next 2 – 5 years”, and with a further 3% answering “within one year”, we arrive at the 45% of the article title. On top of this, a further 40% answered that it would happen “after 2016″.

Many argue that there is not much point worrying about surveys like these, and indeed the fact that 7% answered that China would “never” (a strong term!) face a financial crisis throws some doubt onto the whole affair.  However, it interested me to see the article at all, and if the survey results are indeed indicative of more widely held opinions, then it could spell some trouble for the country.

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