CHINA’S WéiQí

Game that Unravels Dragon's Strategy to Dominate the World

A country, which started building a wall 300 years ago which is 21000 km long 20 ft wide and 20ft high and they kept on building it for 200 year, whatever that country says and does cannot be taken lightly.

China has been a crucial actor in international arena since at least 1950s.  Primary reason for global community to have been shuddered into re-evaluating China’s importance for the future of the international system was its levitation to a major economic powerhouse since the mid-1990s.

Phenomenal Rise

If Western world was overwhelmed with the feeling of widespread shock and anxiety due to the rise of China, it was not without any reason.  It was not so long ago that China was considered almost irrelevant to the functioning of the global networks of trade, finance, and production. 

It seems even more bewildering that despite this giant being a relative newcomer to the intensely competitive global economy, has attained a status of having “made in China” stamp on most of the toys, clothing and electronic equipment being sold world over.

Stock of China Moving Northwards

No one who has keenly observed post-Mao Zedong China would have missed its inexorable rise.  Mammoth expansion of investments abroad, the measured development of military power and the staggering growth of its economy are simply spellbinding.   Dragon’s GNP, has surpassed of both Germany and Japan, and now ranks above every country in the world except the United States.

It is quite an achievement that China has taken its place on the global stage without firing a single bullet (except on its own people). Its big-picture approach, the grand strategy resembles their classic board game, WéiQí(围棋).  China’s modus operandi has a great deal in common with canons of WéiQí, the world’s oldest and most sophisticated board game. There is no denying the fact that even the most complex board game could never replicate the complexities of geopolitics, but understanding this game may help one to develop insights into the dynamics of world politics.

Chess and WéiQí

WéiQí epitomizes Chinese strategy which is different from the US and western premise of grand strategy based on the game of chess.  In chess, there are 16 identified pieces of known capabilities with each side on a playing board with 64 squares. 

The contest is for total victory, through checkmate.  Translated into military strategy, chess identifies the adversary’s centre of gravity and seeks decisive point to eliminate the opponent through a series of head-on clashes.  Both the intent and capabilities of each side are on the table.

Tenets of the Fascinating Game

The game’s Chinese name translates roughly as “The Game of Encirclement,” though it is better known in the West by its Japanese name, “Go”. It is believed to have been invented 4,000 years ago and is now played by millions around the world.Played on a square grid with 19 intersecting points along each axis,WéiQí (pronounced Way-Chhi) involves two players taking turns placing white or black stones (all of equal value) on the grid. The objective is to encircle and capture enemy stones, overshadowing the board.  A single game can take an entire day to complete.

WéiQí has an expansive playing board with 361 squares.  Each player is given a total of 180 stones of equal capabilities.  Unlike chess, where a game starts with all the pieces fully displayed on the board,WéiQí starts with an empty board.  The players take turns placing stones at a point on the board, building up positions of strength while working to encircle and capture the opponent’s stones.

Analogy with Military Strategy

WéiQí’s guiding ethic is in consonance with the central theorems of The Art of War.  Multiple contests take place simultaneously in different portions of the board.  At the end of the game, the board is filled with an interlocked area of strength.  The margin of advantage at each point is small; only a WéiQí expert can assess victory through a multitude of contests.

In military terms, WéiQí is about strategic encirclement and demands enormous patience and single-mindedness of purpose through strategic flexibility to achieve objectives.  This strategic thinking is in consonance with Sun Tzu’s famous treatise on ‘The Art of War’, where the premium on victory is through psychological advantage and by avoidance of direct conflict. 

Strength, Weakness, Opportunities, and Threats (SWOT)

Chinese military theory and this game are both manifestations of the same philosophy. Sun Tzu’s The Art of War postulates that waging the war should be the last resort.  The preferred and superior approach is to convince the enemy, by whatever means, about own invincibility.  Any subsequent battlefield encounter thus becomes a mere solidification of results envisaged.

Cases in Point:

String of Pearls: This strategy is a clear reflection of their WéiQí game.  Their dominance in Gwadar port in Pakistan and acquiring the lease of Hambantota port for 99 years by getting Sri Lanka in debt trap exhibits dragon’s hegemonic ambitions.

Taiwan – Consider Taiwan, a chronic sore in Sino-American relations. China endeavors to capture Taiwan whole and intact.  It aspires to do so without resorting to force.  It has economic, military and diplomatic levers in its toolkit.  To obviate any Taiwanese attempt toward independence, Beijing in recent decades has encouraged trade and investment flows across the Strait of Taiwan (now worth tens of billions of dollars), kept missiles in readiness state on its eastern coast to target the island.  It also exhorted the American administration to oppose any unilateral move that would alter the status quo.

Doklam – The stand-off in Bhutan should be seen in the larger perspective of China’s strategy in the region was also seem to be following the tenets of its ancient game of ‘WéiQí’ an ‘encirclement game. This game aptly sums up their strategy and operational art.  The game advocates ‘multiple battles’ over a wide front, while concurrently ‘balancing the need to expand’ with the need to ‘build protective clusters’.The incidents of border incursion amply indicates China’s new found confidence and willingness to assert itself without any provocation perhaps to drive home the point that in Asia it is the lone dominant player. 

China seems to be blazing the trail on multiple fronts in the South China Sea (Nine Dash line claims), economic push in ASEAN, South Asia and Central Asia (BRI), and countering a ‘Rising India’.   It is keen to develop its ‘protective clusters’ to its soft under-belly in these regions, even as it attempts to expand beyond the ‘first island chain’ to its west.  As such, this stand-off in Bhutan seems to be orchestrated to show India as an undependable ally in the region, thereby pushing these small nations into its ‘protective cluster’ and facilitate in isolating India and the West. 

Viewpoint

WéiQí is a living reflection of Chinese culture – its strategy, thought, philosophy and operational tactics.   One can assimilate The Art of War and then play it on the board,” a virtual replica of the Earth. Sun Tzu’s key stratagems, the appropriate use of deception, flexibility and sudden, unpredictable moves gradually creating situations that best achieve political objectives have fundamental differences from the American paradigm of warfare.

In the Western tradition, there is a heavy emphasis on the use of force; the art of war is largely limited to the battlefields; and the way to fight is force on force.  The corresponding board-game metaphor is chess a zero-sum, kill-or-be-killed confrontation, premised on deploying overwhelming power to achieve total victory. Comparatively speaking Chess appears primitive compared to WéiQí. The game is so popular in Cuba that they have opened an academy to teach WéiQí.  The game enthusiasts vouch for it stating that this prepares one for challenges.  WéiQí very deservingly earns for itself the sobriquet “The Martial Art of the Mind’.

08 Jul 19/Monday                                             Written by Napisha

CHINA’S HUKOU SYSTEM

Demystifying Dragon’s Population Registration Mechanism

户口 pronounced hukou literally translates into a registered residence.  China’s Hukou system was introduced as an important tool of the economic and social reforms of the initial years of the communist regime.  It came across as a family registration program that also serves as de-facto domestic passport.  It is meant to regulate the population distribution and rural-to-urban migration.  Household registration record hukou used to be issued per family, and normally annotated the births, deaths, marriages, divorces, and moves, of all members in the family. 

Genesis of Hukou

China’s hukou system was introduced as a modern means of population registration.  It was formalized as a permanent program in 1958.  The system was created to confirm social, political, and economic stability.  China’s economy was mostly agricultural throughout the nascent days of the People’s Republic of China.  In order to give impetus to industrialization, the government gave preferential treatment to heavy industry adhering to the tenets of Soviet model. 

To facilitate the finances for this expansion, the state undervalued agricultural products, and overvalued industrial products to create an anomalous exchange between the two sectors.  This amounted to paying farmers less than the market price for their agricultural goods.  In order to sustain this artificial imbalance, the government had to create a system which restricts the free flow of resources, especially labor, between industry and agriculture, and between city and countryside.  

In 1985, the hukou system was substantiated through the provision of personal identity cards.  It is a tool for social and geographic control that unfortunately ends up enforcing an apartheid structure.  The manifestation denies farmers the same rights and benefits granted to urban residents.  

Effect of Hukou

Individuals became categorized by the state as either rural or urban, and they were required to stay and work within their designated geographic areas.  Traveling was permitted under controlled conditions, but residents assigned to a certain area would not be given access to jobs, public services, education, healthcare, and food in another area.   

The repercussions of such an anti-egalitarian approach were felt by a quintessential rural peasant who chose to move to the city without a government-issued Hukou.  He would essentially ironically have the same plight that of an illegal immigrant in the United States.  Obtaining an official rural-to-urban Hukouchange is extremely difficult.  The Chinese government has tight quotas on conversions per year.  

Functionality of Hukou

In its current version, the hukou fulfills three main functions:

  • Control of internal migration,
  • Management of social protection
  • Preservation of social stability.

The control of internal migration is the first objective of the system of hukou.  Each citizen must be registered at birth, similar to a census.

What Does a Hukou(Card) Contain?

The register, which is the hukou itself, contains every individual’s fundamental demographic information such as:

  • Status, ie urban or rural
  • Legal address
  • A sector of activity
  • Religion
  • Physical description

Evolution of the Hukou System

After 1958, the rural exodus was punctiliously controlled by authorities. Since the 1980s, however, restrictions on mobility have been largely enforced. Currently, individuals who intend to stay more than three days in a location that is not their residence are compelled to apply for a temporary residence permit.

This rule was enforced as a tool for geographic, economic, political and social control.   It however metamorphosed in an apartheid structure.  The structure which denies farmers the same advantages and rights as those granted to the residents of the urban areas.

Calculus of Agriculture and Industry

Contextually, the People’s Republic of China in its early years was hugely agrarian. To hasten industrialization, the government emulated the model of other countries and prioritized heavy industry. To be able to finance such an expansion, authorities not only encouraged overpricing of industrial goods but also under-priced agricultural ones.

Therefore, the two sectors experienced unequal exchange where peasants’ agricultural products were paid less than their market price.  The Chinese government wanted to sustain such an unjustified imbalance by hook or by crook.  In a desperate attempt to attain its objectives, it put in place a mechanism that imposes impediments in the free flow of relevant resources.  Labor flow between agriculture and industry in the city and the countryside is a case in point.

Urban vs Rural Residents

The mechanism gave rise to a class system,   urban and rural residents. The state wanted these two categories of the population to continue residing and working within their geographical locations.  Although traveling was allowed, it was subjected to government scanner and was allowed only after fulfilling certain conditions.  They were denied access to education, employment, food services, healthcare, and other public services.  It is mandatory to obtain a government-issued rural-to-urban Hukou.

It would not be an exaggeration if the predicament of the rural farmer shifting to a city without the necessary Hukou is compared with an illegal alien in America.  Moreover, owing to the stringent requirements and conditions implemented by the government relating to the issuance of Hukou, acquisition of one is next to impossible.

Adding Insult to Injury

The overall scenario of acquiring a Hulu is further worsened by the strict conversion quotas enforced by the government.  The urban population was the beneficiary of the hukou system throughout the history of early China.

The great famine of China (1959-1961)  was a tragic development, the genesis of which lies in social pressure, economic mismanagement, radical agricultural changes in regulations imposed by the government organs, and of course natural disasters.  In the second half of the 20th century in general and during the Great Famine in particular, those with rural hukous were subjected to collective farming.  

Benefactor was Punished

The agricultural produce of Rural dwellers was collected by the state as tax and given to urban dwellers.  As a result, rural populace underwent massive starvation.  The government was shaken from deep slumber only when there was mayhem in urban areas as well.  While residents of the urban areas benefited from various socio-economic advantages, the marginalization of rural citizens remained even after the Great Famine.

Ironically, even today, Farmers pay taxes three times bigger than urban dwellers but continue to be denied a reasonable standard of life, education, and healthcare, if at all.  China’s hukou system solely served to limit increased mobility, and in the process enabling the emergence of caste system within the society.

Voice of Suppressed

In the 1970s, where there were capitalist reforms, about 260 million rural residents traveled to the cities illegally, with the intention of accessing the development in the economy enjoyed in the urban areas. Many suffered discrimination and even imprisonment.

Increased unemployment and criminality are blamed on them.  Yet, they continued to live in the urban areas, but in street corners, shantytowns and railway stations.

Advantages of  Hukou

Early on, urban hukou made it possible to provide every urban household with access to housing, food, and other necessities based on their rights and finances. Despite a reduction in public subsidies during the economic liberalization in the 1980s, the urban hukou was upheld as a license  for accessing employment, education from the best universities and the purchase of the real estate in the urban areas.

Numerous social security benefits also come with a government-issued hukou including the following:

  • Health insurance 
  • Retirement allowances
  • Unemployment insurance
  • Maternity benefits
  • Work insurance
  • Housing fund as provided by the employer

Drawbacks of Hukou

The benefits constituted the “mandatory benefits” provided to all Chinese workers, subject to exceptions, ie only to those working within their locality where they are registered and not within the place of residence.  However, with the rise of internal migration towards urban centers at the beginning of the economic opening in 1978, the urban hukou has become a bone of contention within Chinese politics.

By the 1990s, these benefits extended even to the relatives of hukou holders by virtue of the reforms implemented during the period.  This included spouses of holders, but only those who are buyers of large real estate assets or those working with special qualifications.  Also at the time, a number of migrant workers were given residence permits, giving entitlement to limited benefits.

By 2001, those residing in small towns and areas, ie outside the built-up areas, can be issued hukou as long as they meet certain criteria, eg income.  Another method for rural residents to acquire hukou is paying a predetermined amount of money.   Those living in larger towns are imposed with stricter criteria in order to limit the soaring costs related to the increased speed of urbanization.

Saving Grace

Currently, the hukou reforms remained decentralized, modest and progressive.  These reforms were prioritized by the State Council of China in 2010 up to 2012.  The objective was to relax criteria for migrants’ access to a second rank hukou while keeping a status quo with regard to prevailing rules within cities.

This reworking was carried out to enable migrants having a fixed address and stable job in a small town to acquire an urban hukou.  The local authorities are empowered to determining the minimum eligibility period of residence.

In medium-sized cities, migrants will be eligible to get an urban hukou if they obtain stable employment for three years and have participated in the social security scheme for a number of years.  These new rules also limit the scope of rural land exchange programs against an urban hukou.

Contentious Issues with the Current Hukou System

The current hukou system continues to impose an economic-political differentiation between holders of an urban hukou and rural hukou.  It is deemed to restrict numerous privileges for migrants, an eg quota of slots in universities, facility access to certain jobs, and unemployment benefits.

No Standardization

This is in the exception of Guangdong, where reforms have been introduced that aim to extend such benefits to migrants, including access to the housing fund, public housing, and higher quality public service.

Elsewhere, it is mandatory to be in possession of an urban hukou to be able to buy city housing. In rural areas, rural citizens have their own advantages, ie right to exploit the agricultural land, allocation of residential land, and flexible application of the Single Child Act for those whose first child is female.

Anomaly in Public Spending

China’s decentralized system has created imbalances in public spending between cities and the countryside.  These disparities resulted in unequal access to goods and services, and variability in the quality.  Therefore, there are inequalities in employment, with the citizens of certain regions being better equipped for the labor market.

This discrimination in favor of urban dwellers has contributed to rising inequalities in China, which have been growing steadily for two decades. However, there is a possibility for this to slow down in the future given the economic growth experienced in central and western China, eg enhanced wages of migrant workers leading to diminished variation in financial gains between migrants and natives in cities. This reversal of the trend would continue to take place depending on the hukou reforms.  The development would enable all citizens to seize existing opportunities with equal ease.

Viewpoint

Since the larger cities have reserved the delivery of new hukou to households with high income or high level of education, there is currently a large group of urban residents being restricted from getting social protection and health insurance.  This translates into only 35% of city dwellers being in possession of urban hukou although more than half of the Chinese populace now lives in cities.   It is tantamount to Majority of inhabitants in the cities being without full social protection in their city of residence.

No doubt, Hukou mechanism is a  powerful deterrent for migrant workers wishing to settle permanently in the city. On the flip side, due to the hukou registration system, at least 250 million migrant workers have no access to social payments, whether for their children’s education or medical assistance.

These urban disparities, coupled with sometimes archaic rural regulations, constitute a particularly important macroeconomic obstacle. It is the goal of the CPEC to rebalance China’s economy in order to increase domestic consumption and reduce inequality.  In the countryside, farmers do not usually own their land, which is lent to them by the authorities for periods of thirty years. In addition, user rights do not seem to be clearly outlined.

Without urban hukou, migrant families, therefore, tend to visit their native rural areas at regular intervals to cultivate their land, to maintain usufruct, and guarantee a minimum level of social protection.  These dynamics is definitely detrimental to agricultural productivity.  The registration system has, therefore, become a major cause of inequality, an obstacle to economic transition and a source of many social problems.

02 Jul 19/Tuesday                                           Written by Naphisa

PREDICTING CHINA

As President Xi tries to tighten his grip on power, China’s 19th Party Congress (19PC) will answer some key questions that will shape future course of China:

Will Xi Jinping stay on as President? And how centralised will power become? In nutshell the future course of China will become clear what to expect during the coming weeks.

On October 18th, the 19th Party Congress (19PC) of the Communist Party of China (CCP) will open in the Great Hall of the People in Beijing. . Held every five years, the Party Congress features the election of the new Central Committee (205 members and 171 alternate members), which in turn elects a new Politburo (25 members) and Politburo Standing Committee (5-9 members). Nearly 3,000 delegates, who collectively represent almost 90 million Communist Party members across China, have been chosen to attend the highly coveted event. Judging from the list of military and police delegates to the forthcoming congress where China's future leaders are to be unveiled, the largest turnover of senior officers in the history of the People's Republic of China (PRC) is set to occur.

An extraordinary 90% of the 300 military delegates will be first-time attendees.

At most, only 17% (seven of 41) of the military representatives with full membership on the 18th Central Committee will retain their seats.

This would constitute the largest-ever turnover of military elite in the history of the PRC.

China watchers are following the event with baited breadth with an eye on following issues

Xi Jinping’s to attempt Longer Hold on Power

Chinese law stipulates that a President of China cannot serve more than ten years, or two consecutive terms. There are, however, no legal limitations on how the length of service of a General Secretary or Chairman of the CMC.

Though, Xi Jinping is expected to stay on as President, Commander-in-Chief, General Secretary of the ruling CCP, Chairman of the Central Military Commission (CMC) and “core” leader for at least another term, he is likely to consolidate his hold on power for longer duration. However, it is also likely that he will attempt to consolidate his position in order to stay on beyond 2022 and serve a third term. The model likely to be followed by him on the same lines as previously used by only Mao Zedong. The title of Chairman will earn him a third term also.

Who will be In-Who will be Out

In all probability loyalists will be retained and followers of Deng Xiao Png camp will be weeded out beside a compromise candidates being retained.

Li Keqiang – the current Premier is likely to stay on, although there are rumours that Li could leave his post but stay in the Standing Committee by becoming Head of the National People’s Congress. Li Zhanshu, the current Director of the CCP’s General Office, has the best cut shot of going up, most likely as Chairman of the Central Commission for Discipline Inspection – assuming, of course, that Wang Qishan definitely leaves. Vice-Premier Wang Yang also has a good chance of going up, probably as Chairman of the Chinese People’s Political Consultative Conference, although Wang maintains a low profile and claims to have no aspirations for the Standing Committee.

At the Standing Committee, four members are mandated to retire. These are Zhang Dejiang, Chairman of the National People’s Congress (NPC); Yu Zhengsheng, Chairman of the Chinese People’s Political Consultative Conference; Liu Yunshan, Secretary of the Secretariat and Leader of the Propaganda Leading Group; and Zhang Gaoli, Vice-Premier.

There will also be a significant shake-up further down. As a result of the anti-corruption drive, 150 ‘tigers’ (senior officials) have been purged, including 17 full members of the Central Committee. Adding those who were purged to the 90 members who are due to retire, it is clear that 107 seats out of 205 total will be empty.

The most important Ministries to watch where personnel will change are the General Office, Ministry of Public Security, Central Commission for Discipline Inspection, Ministry of State Security, Organisation Department of the CCP, and the military.

The final thing to look out for will be the number of seats in the Standing Committee, which could change depending on who rises or falls. Historically, it can be anywhere from 5 to 9 and there were murmurings at the beginning of 2017 that Xi might reduce the number of seats in the Standing Committee from 7 to 5. However, the majority of 19PC projections now believe it will be 7. This would be consistent with the fact that in 2002 and 2012 the number of seats has changed, but in 1997 and 2007 it stayed the same.

Constitutional Amendments

The current constitution upholds ‘Mao Zedong Thought’, ‘Deng Xiaoping Theory’, the ‘Three Represents’ (Jiang Zemin’s legacy) and the ‘Scientific Outlook on Development’ (referring to Hu Jintao). Only Mao and Deng are explicitly named.

Xinhua News, the PRC’s official press agency, confirmed that the constitution will be amended to “include the key theories and strategic thoughts” – making it likely that Xi and his “Chinese dream” will be immortalised. In the arcane hierarchy of the CCP,  semantics matter: if Xi is mentioned by name, and if his contribution is referred to as ‘Thought’ (like Mao) rather than ‘Theory’ (like Deng), this will be a strong indication that Xi has consolidated power.

Changing Retirement Age

The “67 up, 68 down” rule is likely to be bent during the upcoming Congress. The rule, introduced in 2002, stipulates that officials who are 68 or older cannot serve a new term on the Politburo Standing Committee – the most powerful decision-making body in China.

By this logic, five of the current seven members of the Standing Committee are due to retire. At least three of these five are opposed to Xi, who will benefit from their departure. However, the rule also serves as a potential check on his ability to serve a third term, as Xi will be 72 in 2022. If Xi bends the rules by keeping 69-year old Wang Qishan, the current head of the anti-corruption campaign, on for another term, this will be a sign that Xi himself may seek to stay in power.

If Xi does not sidestep existing age-related measures and find a ‘special arrangement’ to keep Wang on, he will likely find him a different prestigious role. There are even suggestions that Wang could even replace Li as Premier.

So the biggest question will be whether or not Xi Jinping unites the party establishment by forming a team of rivals and deepening China's political institutionalisation.

Abiding by established rules and norms and respecting the peaceful transition of power all carry profound implications for the future direction of the country.

 

‘We cannot afford this’: Malaysia pushes back on China’s big projects

In the world’s most vital maritime chokepoint, through which much of Asian trade passes, a Chinese power company is investing in a deepwater port large enough to host an aircraft carrier. Another state-owned Chinese company is revamping a harbor along the fiercely contested South China Sea.
Nearby, a rail network mostly financed by a Chinese government bank is being built to speed Chinese goods along a new Silk Road. And a Chinese developer is creating four artificial islands that could become home to nearly three-quarters of a million people and are being heavily marketed to Chinese citizens.
Each of these projects — along with many more — is being built in Malaysia, a Southeast Asian democracy at the heart of China’s effort to gain global influence.

But where Malaysia once led the pack in courting Chinese investment, it is now on the front edge of a new phenomenon: a pushback against Beijing as nations fear becoming overly indebted for projects that are neither viable nor necessary — except in their strategic value to China or use in propping up friendly strongmen.
Malaysia’s new leader, Mahathir Mohamad, wraps up a five-day trip to Beijing on Tuesday in which his aim has been to free his country from some of its $250 billion of debt, some of it owed to Chinese companies. His message in meetings with officials, and in public comments, has been unambiguous.
“We do not want a situation where there is a new version of colonialism happening because poor countries are unable to compete with rich countries,” Mahathir said Monday at the Great Hall of the People in Beijing after meeting with Premier Li Keqiang of China.

For a time it appeared China’s standard playbook for gaining favor was working in Malaysia. It had successfully courted Mahathir’s predecessor, Najib Razak, with easy loans and showcase projects, and secured deals that were of strategic value for its ambitions.

But in May, disaster struck for Beijing when Najib was voted out of office by an electorate tired of the corruption scandals swirling around him, some of which involved China’s highest-profile investment deals in Malaysia.
Mahathir, 93, was voted into office with a mandate that included getting the country out from under its suffocating debt.

From Sri Lanka and Djibouti to Myanmar and Montenegro, many recipients of cash from China’s huge infrastructure financing campaign, the Belt, and Road Initiative, have discovered that Chinese investment brings with it less-savory accompaniments, including closed bidding processes that result in inflated contracts and influxes of Chinese labor at the expense of local workers.
Fears are growing that China is using its overseas spending spree to gain footholds in some of the world’s most strategic places, and perhaps even deliberately luring vulnerable nations into debt traps to increase China’s dominion as U.S. influence fades in the developing world.

Mahathir’s government has suspended two major Chinese-linked projects amid accusations Najib’s government knowingly signed bad deals with China to bail out a graft-plagued state investment fund and bankroll his continuing grip on power.
On the chopping block were a $13.4 billion contract for the China Communications Construction Co. to build the East Coast Rail Link and a $2.5 billion agreement for an arm of a Chinese energy giant to construct gas pipelines.
“The Chinese must have been thinking, ‘We can pick things up for cheap here,’” said Khor Yu Leng, a Malaysian political economist who has been researching China’s investments in Southeast Asia. “They’ve got enough patient capital to play the long game, wait for the local boys to overextend and then come in and take all that equity for China.”

“The ‘Belt and Road Initiative’ (BRI) is intended to develop strong economic ties with other countries, shape their interests to align with China’s and deter confrontation or criticism of China’s approach to sensitive issues,” said a Pentagon report released Thursday. “Countries participating in BRI could develop the economic dependence on Chinese capital, which China could leverage to achieve its interests.”
Malaysia’s new finance minister, Lim Guan Eng, raised the example of Sri Lanka, where a deepwater port built by a Chinese state-owned company failed to attract much business. The indebted South Asian island nation was compelled to hand over to China a 99-year lease on the port and more land near it, giving Beijing an outpost near one of its busiest shipping lanes.

“We don’t want a situation like Sri Lanka where they couldn’t pay and the Chinese ended up taking over the project,” Lim said.

In a recent interview with The New York Times, Mahathir made clear what he thought of China’s strategy.
“They know that when they lend big sums of money to a poor country, in the end, they may have to take the project for themselves,” he said.

“China knows very well that it had to deal with unequal treaties in the past imposed upon China by Western powers,” Mahathir added, referring to the concessions China had to give after its defeat in the opium wars. “So China should be sympathetic toward us. They know we cannot afford this.”

STRATEGIC LOCATION
Malaysia has long served as a prize of empires, with a geopolitical importance that belies its relatively small size. The Portuguese, Dutch and British flocked here, eager to control a fulcrum linking the Pacific and Indian oceans. China is the latest power to try to share in the riches.
Kuantan, a Malaysian city nestled on the South China Sea coast, had never been a hot spot. But then China began adding military heft to its territorial aspirations in the sea, where five other governments, Malaysia’s included, have competing claims.

Chinese financing began washing over Kuantan five years ago. Guangxi Beibu Gulf International Port Group, a state-owned firm from an obscure Chinese autonomous region, won a contract supported by the Malaysian government to build a deepwater terminal and industrial park. Nearby was a planned stop on the East Coast Rail Link that would mostly be financed by the Export-Import Bank of China, a government institution.

Presiding over the official launch for the Malaysia-China Kuantan Industrial Park in 2013, Najib conferred on the project a global import.

“China and Malaysia remain closely connected at a time when the balance of global trade is tilting in Asia’s direction,” he said. “On economic cooperation — and diplomatic — I am proud to say that Malaysia is ahead of the curve.”

Kuantan residents, though, have long worried that the city could be saddled with white-elephant projects.

“We welcome foreign investment and development, but we question the huge price that we will have to pay,” said Fuziah Salleh, a Kuantan lawmaker for Malaysia’s new governing coalition. “Who is the real beneficiary of all this financing? The Malaysians, or the Chinese?”

“I am worried that our sovereignty has been sold,” Fuziah said.

Mahathir, however, is not averse to standing up to the superpower of the day. He was prime minister before, from 1981-2003, and back then he railed against the United States and other Western countries for what he said was a plot to hold back developing nations like Malaysia.
“Mahathir thinks China is a hegemonic force that can control economies like Malaysia,” said Edmund Terence Gomez, a political economist at the University of Malaya in Kuala Lumpur, Malaysia. “He’s always been worried about powerful forces. Before it was the U.S., now it’s China.”
Mahathir’s administration has been in power for little more than 100 days. In that time, Malaysian officials say, they have discovered that billions of dollars in inflated Chinese contracts were used to relieve debts associated with a Malaysian state investment fund at the heart of a graft scandal that led to Najib’s downfall.
The U.S. Treasury Department has accused Najib and his family and friends of plundering billions of dollars from that fund, 1Malaysia Development Berhad, or 1MDB. When the indebted fund began a fire sale of assets, two Chinese state-owned giants, the China General Nuclear Power Corp. and the China Railway Engineering Corp., moved in, prompting speculation that Beijing was happy to keep Najib’s cash-strapped government afloat.
Sitting at his desk during an interview after the election, Mahathir pointed to a sheaf of papers before him. It was a proposal from a Malaysian construction company that he said contained evidence that the East Coast Rail Link could have been developed by a Malaysian company for less than half the $13.4 billion contract won by the China Communications Construction Co., a state-owned Chinese firm with extensive operations overseas.
Notably, the rail tender process was closed.

Last week, Lim, the finance minister, told parliament that Malaysia would not be able to cover the operational cost for the railway, much less the capital expenditure, which he estimated at nearly $20 billion rather than $13.4 billion.
Neither the Chinese company nor its Malaysian partner responded to requests for comment.

“It looks like not all the money is being used for building the railway line,” Mahathir said of the East Coast Rail Link deal. “The likelihood is the money has been stolen.”

Malaysian investigators are looking into whether an associate of Najib’s stepson may have brokered the rail deal to alleviate the debt accrued by 1MDB or to fund Najib’s re-election campaign.

BUILDING BIG PORTS
While the role of Chinese money in bailing out Najib’s indebted administration has received the most attention, another Chinese megaproject raises even sharper questions about Beijing’s geopolitical aims.

The Malaysian city of Malacca was once a conduit for spices and treasures that flowed from Asia to Europe. The strait named after the city is still the channel through which much of Asia’s seaborne trade — and most of China’s oil imports — flows.

But Malacca’s port silted up centuries ago and is now a backwater. Instead, nearby Singapore, which sits at the southern end of the Strait of Malacca, ranks as the world’s busiest transshipment hub.

A $10 billion development project — backed by PowerChina International, a major Chinese utility, and two Chinese port developers — is supposed to propel Malacca back into global significance, as a vital stop on a maritime trade route that stretches from Shanghai to Rotterdam, Netherlands.
The plan for the project, Melaka Gateway, includes three artificial islands and an expanded natural islet, which will hold an industrial park, cruise terminal, theme park, marina, offshore financial hub and self-styled seven-star hotel.

And there will be a new deepwater port, with berths large enough to host an aircraft carrier. The port operator was given a 99-year lease for the deepwater terminal, rather than the more common 30-year time frame.

The local partner in Melaka Gateway is KAJ Development, which counts among its previous accomplishments building the local zoo and bird park.

To explain how a little-known company was able to partner with Chinese firms to transform such a strategic spot, locals have remarked on the close ties between the head of KAJ Development and Najib’s party machine. The company did not respond to a request for comment.
“We have so many questions about the project but no answers,” said Sim Tong Him, a former lawmaker from Malacca. “How did KAJ get the contract? What might happen if the Malaysian side can’t pay up? The Chinese are so secretive about this. It leaves us with a very bad feeling.”

Beijing has funded the building of ports across the Indian Ocean, a strategy known as the string of pearls. Military experts have raised the possibility that these ports could one-day welcome Chinese warships and submarines.

“You look at a map, and you can see the places where China is plotting ports and investments, from Myanmar to Pakistan to Sri Lanka, on toward Djibouti,” said Liew Chin Tong, Malaysia’s deputy defense minister. “What’s crucial to all that? Our little Malaysia, and the Malacca Strait.”

 

22 Aug 18/Wednesday.

Source    https://economictimes.indiatimes.com/news/international/business/we-cannot-afford-this-malaysia-pushes-back-on-chinas-big-projects/articleshow/65485101.cms

MEET THE MAN WHO TRUMPED XI

During his 15 years in office, Zhou Xiaochuan has freed up China’s financial markets, established the renminbi as a global currency, expanded capital flows and presided over generally strong growth and low inflation.

But as he prepares to retire as governor of the People’s Bank of China(PBoC), Zhou, 70, knows his legacy is not yet secure.

Unlike in the West, the powers of China’s central bank governor are limited. The PBoC comes relatively low down in the bureaucratic pecking order. The bank is not independent. It executes monetary policy, but the big decisions on the level of interest rates and the value of the currency are made at the highest echelons of the ruling Communist Party.

These constraints make Zhou’s achievements even more remarkable.

Take the renminbi. Until 1994, foreign visitors were forbidden to possess the Chinese currency and had to use foreign exchange certificates, a form of Monopoly money worthless outside China. Yet by 2015, under Zhou’s nurturing, the renminbi had won the International Monetary Fund’s stamp of approval as one of the five main global currencies.

Zhou set the ball rolling in 2005 when he persuaded the leadership in Beijing to scrap the renminbi’s longstanding fixed peg to the dollar so it could float, to some degree, in response to economic conditions. As a reform-minded economist, Zhou knew that allowing market forces to play a greater role in determining the exchange rate and interest rates was critical to improve the allocation of capital inside China and thus raise economic efficiency.

In the same vein, Zhou has overseen the modernization of China’s money and capital markets. Once derided as casinos, the markets are still carefully monitored by the state. But their transformation is such that Chinese bonds and equities are likely to be added soon to global indexes, making them much more attractive to foreign investors.

Zhou has long championed easier inflows and outflows of capital – alongside a freer-floating exchange rate – as a means of galvanizing China’s lumbering state-owned banks to raise their game and adapt to market signals instead of blindly carrying out state orders.

Speaking of his reform agenda, he told an interviewer last year: ‘There’s an English saying: We’ve passed the point of no return.’ But recent history shows that’s not necessarily true.

Xi Jinping appears to have no great interest in economics. But he is determined to strengthen his own power and that of the Communist Party. To that end, economic and financial policy decisions must serve above all to cement political and social stability. So when China’s stock market crashed in 2015 and the country was haemorrhaging foreign exchange reserves, the politburo clamped down on capital outflows and took a tighter grip once more on the renminbi. Efforts to promote the international use of the currency were put on hold.

The episode was an undoubted blow to Zhou and fellow reformers. Xi is set to rule for as long as he chooses once China’s parliament rubberstamps the party’s proposal to scrap the 10-year limit on the president’s term of office. So further economic liberalization as urged by the central bank chief will continue to depend on which way the political winds are blowing. Right now, the state is strengthening its control of the economy, not loosening it.

A second reason why a question mark will remain next to Zhou’s legacy is that he must share the blame for not having offered greater resistance to the credit boom ordered by the leadership to bolster growth after the financial crisis of 2008. Even if the economy is now back on a firm footing, critics say debt has risen so sharply that a wave of defaults and bankruptcies is inevitable at some point, with serious repercussions for the global economy.

Perhaps with an eye on his place in the history books, Zhou recently warned that China might indeed be enjoying the calm before the debt storm. Don’t blame me if things go wrong from here, he seemed to be saying.

A fluent English speaker comfortable with foreign journalists, Zhou could have been contemplating the reputational fate of his peer, former US Federal Reserve chairman Alan Greenspan. Once hailed as the ‘maestro’, Greenspan is now faulted for sowing the seeds of the financial crisis by keeping interest rates too low for too long.

So it is too early to pass definitive judgment on Zhou.

10 Mar 2018/Saturday.

afsana159630@gmail.com

IS CHINA REALLY FED UP WITH NORTH KOREA?

  In a shocking bombshell interview, an academic with close ties to the Chinese government has warned that war with North Korea was on the table, if it continues with its missile and nuclear tests. Chong Sho-Hu, who is a professor of international relations at the Renmin University, in Beijing, said North Korea was "seeking death". He also confirmed the long-lasting era of Chinese friendship with North Korea has ended. Despite historic ties between the two countries, president Xi Jinping has reportedly become "fed up" with the erratic behaviour of the North Korean dictator Kim Jong-Un. Speaking to the BBC, the professor warned that one more missile test would be the move "to push the country off the cliff". President Jinping was said to be "boiling with fury" after North Korea recently tested a missile just as China was gearing up to host a pivotal global economic conference.  The former US ambassador to China Max Baucus recently claimed the only time he saw the Chinese leader use "undiplomatic language" was in relation to Kim Jong-Un. Professor Sho-Hu, who has ties to China's defence and foreign affairs establishment, suggested that the time may have come for a military solution to the problem.

The question being asked by the international community is that whether Xi Jinping will sacrifice its long term friend North Korea, in order to bolster its image. The continued backing of North Korea has put China into a tight spot as it is being pressurised by world powers to reign in Kim Jong Un. China considers North Korea more of a liability now. The timing of the interview also coincides with  the 19 National Congress in China, where President Xi Jinping is likely to declare himself as the lifelong Chairman of the Communist Party Of China. The changed position on North Korea is likely to be advantageous to his image, which has been criticised by the US, which has accused China of going against the established world order.