China's Military May Be Preparing For A Change In The Nation's Leadership

Note the 'may'. I don't know for a fact but there are observations that point in that direction.

First up, the New York Post, June 28:

Is Chinese President Xi Jinping on his way out?  

Over the past few months, unprecedented developments point to the potential, and potentially imminent, fall of China’s “Chairman of Everything” Xi Jinping. Chinese Communist Party elders — including Hu Jintao, Xi’s immediate predecessor, whom Xi humiliated at the 20th Party Congress in 2022 — are now running things behind the scenes.

Xi is in poor health and likely to retire at the CCP Plenary Session this August or take a purely ceremonial position.

Xi’s downfall has been rumored before. But never have we seen the recent purges (and mysterious deaths) of dozens of People’s Liberation Army generals loyal to Xi; all replaced by non-Xi loyalists.

Zhang Youxia, with whom Xi had a major falling out after helping Xi secure an unprecedented third five-year term, is now the de facto leader of the PLA. 

Also, the “un-naming” of Xi’s father’s mausoleum last month was unprecedented. The mausoleum, which Xi has built to honor his late father, was larger than the mausoleums of either Mao’s or Deng’s.

Meanwhile, Xi’s personal protective detail has recently been halved. What world leader cuts his own security? 

There was no explanation for Xi’s disappearance for almost two weeks in late May and early June while foreign dignitaries were hosted in Beijing by other CCP Leaders. Xi has also been conspicuously missing from the pages of the People’s Daily, the CCP organ that until recently ran fawning front-page stories on Xi daily....

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From the Jamestown Foundation, June 24:

PLA Purges Provide Opening for Xi’s Rivals 

Executive Summary:

• New evidence suggests that a faction within the Chinese Communist Party (CCP) aligned with former president Hu Jintao and former premier Wen Jiabao could be exerting influence on the direction of the Party.
• Three party elders—all of whom were Hu Jintao allies—reportedly criticized General Secretary Xi Jinping at Beidaihe in August 2023, while subsequent purges have eroded Xi’s base of support in the military.
• More recently, signs that Xi’s erstwhile successor Hu Chunhua is regaining prominence following a demotion from the Politburo in 2022 could indicate that this “Tuanpai” faction is gaining ground. These signs include Hu leading an overseas delegation and visiting the Vietnamese embassy to convey his condolences for the passing of its former president—a role usually reserved for a politburo member.
• Xi also recently made a speech referring to “scientific, democratic, and law-based policymaking,” a key phrase associated with his predecessor, Hu Jintao. This could be interpreted as a concession to the Tuanpai faction.

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New evidence suggests that a faction within the Chinese Communist Party (CCP) aligned with former president Hu Jintao (胡锦涛) and former premier Wen Jiabao (温家宝) could be exerting influence on the direction of the Party. Earlier this year, we speculated that CCP General Secretary Xi Jinping’s power was being curtailed following purges that eroded his bases of support in the military (China Brief, March 15). Now, the return to prominence of Hu Chunhua (胡春华), alongside reporting about events that took place at the leadership’s summer retreat in Beidaihe in August 2023, could indicate that the “Hu-Wen faction” is resisting Xi Jinping to some degree.

The Fall of the Hu-Wen Faction

When Xi became paramount leader of the PRC in 2012, he blunted the power of Hu Jintao’s supporters. Hu’s base of support within the Party was known as the Communist Youth League or “Tuanpai” (团派) faction—also referred to as the “Hu-Wen” faction to reflect the involvement of Wen Jiabao, who was never a part of the Youth League (Brookings, April 29, 2009). On ascending to power, Xi had officials aligned with the Tuanpai faction arrested, like Ling Jihua (令计划), or sidelined, like Li Keqiang (李克强) (New York Times, August 4, 2016; Reuters, October 26, 2022). Xi also stymied the rise of Hu Chunhua, who was Hu and Wen’s preferred candidate to succeed him, by demoting Hu Chunhua from the Politburo in 2022 (Xinhua, December 18, 2012, accessed June 17). [1] In so doing, Xi rejected a soft norm known as “skipping a generation to designate a successor” (隔代指定接班人), whereby each former leader selects the leadership candidates who will follow their own successor (DW, July 28, 2017). [2]

The final blow to the Tuanpai appeared to come in the form of public spectacle, when Hu Jintao was unceremoniously removed from the closing ceremony of the 20th CCP National Congress (Reuters, October 26, 2022). During the ceremony, Hu Jintao attempted to confirm a rumor that Hu Chunhua was missing from the Politburo list but was stopped and dragged away (VOA, October 31, 2022; Radio France Internationale, November 10, 2022). Xi also appeared to break precedent by allowing Wang Huning (王沪宁) to remain on the Standing Committee while Li Keqiang and Wang Yang (汪洋) had to step down. This violated another soft norm—that of “seven up, eight down” (七上八下), whereby cadres aged 68 or more are expected to step down (Liberty Times, October 23, 2022, [1], [2]; China Brief, January 17). Since then, the Tuanpai have been largely impotent as a faction within CCP politics.

The Hu-Wen Faction Returns?

Hu Chunhua, Xi’s erstwhile successor, recently has regained a degree of prominence. In April, he led a delegation of the Chinese People’s Political Consultative Conference (CPPCC), of which he is a senior official, to West Africa (Xinhua, April 17). This was his first such mission since his demotion. The following month, Hu was again tapped to represent the PRC, visiting the Vietnamese embassy to convey his condolences for the passing of former President Trần Đức Lương (Báo Quốc Tế, May 25). Vietnam, a fellow socialist state, is an important partner for the PRC (China Brief, July26, 2024). The significance of this visit is underscored by the PRC’s “funeral diplomacy” (葬礼外交) norms, whereby representatives attending the mourning of a former head of state are usually at least a deputy national-level official and a Politburo member (The Paper, April 6, 2015). Hu’s attendance, especially in a country like Vietnam with close Party ties, signifies a subtle increase in his stature within the CCP. [3]....

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"Iron Ore Hits Five-Week Low as Traders Fret About Chinese Demand"

One of the most basic measures of manufacturing/industrial health and probably a necessary component of  any future version of the Li Keqiang index.*

From Bloomberg, December 26: 

Iron ore sank to the lowest in more than five weeks — dipping below $100 a ton — as poor industrial profits in China highlighted the nation’s economic weakness, although mills’ performance did improve.

Futures fell toward $99 a ton in Singapore, on course for a second weekly loss. As a whole, China’s industrial firms saw profits drop in November for a fourth month, putting them on track for the sharpest annual decline since records began in 2000. Still, steelmakers’ profitability ticked higher last month.

Iron ore has slumped 29% this year, hurt by the prolonged slowdown of China’s economy, particularly its property sector, despite repeated attempts by the authorities to draw a line under the crisis. At the same time, supplies from miners in Australia and Brazil — the biggest exporters — have been rising....

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*If interested see March 2024's "How to measure China’s true economic growth: In search of a successor to the Li Keqiang Index"
Last week, in a post on the conflicting messages about China's economy being sent by iron ore, copper and the smaller "teapot" oil refineries, I mentioned "We need a new Li Keqiang index."

It turns out The Economist was at least a year ahead of me....
*****
Premier Li was very sharp and we grew rather fond of the old boy....

"China’s Economy: Cassandra vs. Pollyanna"—George Magnus

From the China Books Review, January 25:

Some analysts are performing an autopsy on the Chinese economy. Others say it has never had more potential for growth. Who will win in this cage fight of the economists?

The untimely passing of Li Keqiang at age 68, in late October, marked the end of an era of reform in China’s economy. Li was associated with that reform, but delivered next to nothing to achieve it. Instead, he was sidelined as Premier by Xi Jinping, and as a result a deeply troubled economy has emerged, along with a malaise that is hanging over society and business. This leaves us asking: what has gone wrong in China? And what, if anything, can be done to put it right?

Throughout his career, Li was a leading advocate of economic reform, favoring less regulatory red tape, restrictions on the role of the government and greater use of market mechanisms. Prominent among extensive reform proposals, unveiled at the Third Plenum of the 18th Party Congress in November 2013, was the elevation of the role of markets in China from having a “fundamental” to a “decisive” role in the allocation of resources.

Those reforms never saw the light of day. Following the Chinese financial crisis of 2015-16 (in which the stock market tumbled, the yuan came under significant pressure and China lost about $800 billion from its international reserves), they were extinguished in the wake of an increasingly state-centric and Party-oriented governance. The delayed Third Plenum of the 20th Congress, expected later this year, could illuminate the Party’s thinking about how it will address the nation’s mounting economic headwinds — but there is no flag-carrier for liberal reform anymore.

A deeply troubled economy has emerged, along with a malaise that is hanging over society and business.

It is against this backdrop that a debate over who killed the Chinese economy has raged in Foreign Affairs. Adam Posen, of the Peterson Institute, argued that during the last few years, Xi Jinping’s Zero-Covid policies and reversion to state control have stymied the confidence of private firms and entrepreneurs, undermining the dynamism of China’s economy. Responding, Zongyuan Zoe Liu of the Council for Foreign Relations, and Michael Pettis of Peking University, argued that China’s economic problems pre-dated Covid and Xi by a considerable margin. Xi inherited a systemically flawed economic development model when he came to power, they posit, along with stunted population growth and low productivity; his failure was to exacerbate this by becoming reliant on centralization, keeping the old dysfunctional model on the road.

These alternative versions of what went wrong are, in some ways, mutually supportive. All analysts agree on the principal flaws and problems in China’s economy, which I outlined in my book Red Flags (2019). These include: excessive levels of debt in local government, state enterprises and real estate; under-consumption; over-investment and misallocation of capital; the consequences of rapid aging in demographics; weakness in productivity growth; a more controlling and repressive governance; the subjugation of private firms and entrepreneurs; and, most recently, commercial and business decoupling, now rebranded as de-risking.

Yet the rival diagnoses of China’s weakening economy carry profoundly different policy implications. If, as Posen argues, China’s economic problems are attributable to recent policy errors made by Xi Jinping (notably state intrusion into day-to-day commerce), then the treatment is simple: Xi should simply back off, re-set, and encourage private firms and entrepreneurs. Yet Posen is not optimistic that the autocrat who caused China to catch “long economic Covid,” as he terms it, can cure the disease.

Pettis retorts that this gets the causality backwards: the shift towards greater control and repression is the result, not the cause, of China’s faltering economy. While China was ripe for economic reform in the mid-2000s, powerful constituencies and beneficiaries in its political institutions persisted with a state model that gave rise to capital misallocation, inefficiency and imbalances. Managing these systemic problems, while trying to keep the political model intact, necessitated a strengthening of the role of Party and government at the expense of households and private firms. Pettis thinks Posen’s solution — to reduce government intrusion — might have a marginal effect, but China’s model really needs a total overhaul, involving extensive political as well as economic reform. The chances of this happening on Xi’s watch are essentially zero....

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Also at China Books Review, February 1:

Sunset of the Economists
Two decades ago, China’s reformist economists walked the halls of power and dictated policy. Now, they have been side-lined in favor of a new priority: national security. What happened?

"How to measure China’s true economic growth: In search of a successor to the Li Keqiang Index"

Last week, in a post on the conflicting messages about China's economy being sent by iron ore, copper and the smaller "teapot" oil refineries, I mentioned "We need a new Li Keqiang index."

It turns out The Economist was at least a year ahead of me. March 9th 2023:

When Li Keqiang, China’s prime minister, gave his final speech at the National People’s Congress on March 5th, it was already clear who would succeed him. But a successor has yet to be found for the “Li Keqiang index”. This unofficial proxy for China’s economic growth was inspired by a leaked conversation between Mr Li, when he was party secretary for the province of Liaoning, and an American diplomat. Mr Li confessed that the province’s gdp figures were “unreliable”. Instead, he focused on electricity consumption, rail cargo and bank lending. Taking our cue from Mr Li, this newspaper thought it would be fun to see what the three indicators, bundled into a single index, revealed about China’s economy at a national level.

The index has had a good run since its introduction in 2010. A version has its own “ticker” on Bloomberg. It inspired a similar index for India. Teams of researchers at the Federal Reserve Bank of San Francisco and separately at the New York Fed have tested the usefulness of Mr Li’s preferred indicators. A paper published in 2017 by Hunter Clark and Maxim Pinkovskiy of the New York Fed, together with Xavier Sala-i-Martin of Columbia University, calculated that the best combination of the three indicators gave roughly 60% weight to loans, 30% to electricity and 10% to rail cargo. In a subsequent paper, Mr Clark, Mr Pinkovskiy and Jeff Dawson of the New York Fed suggested replacing lending with m2, a measure of the money supply, because bank-credit figures failed to capture a government crackdown on shadow lending.

Critics argue that the declining energy intensity of China’s economy undermines the index. But that is not quite true. As long as electricity follows an identifiable trend, deviations from the trend are revealing about economic upturns and downturns. What really broke the Li Keqiang index was the covid-19 pandemic. The decline in retail sales, air travel and the property market was far more dramatic than the slowdown in industry, electricity use or rail freight. Meanwhile, m2 grew quickly at the end of last year as people hoarded cash.

What are the alternatives? Those sceptical of China’s data yearn to escape its statistical system altogether. Perhaps the brightness of lights at night, recorded by satellites, could offer a truly independent guide to growth? But this measure has its own problems. The newer satellites do not have a long track record and the older ones struggled to distinguish between the bright and very bright lights of cities. Coverage is also patchy from month to month....

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Premier Li was very sharp and we grew rather fond of the old boy:

January 2019

"China must ‘expand domestic demand’ as economy shrinks"—Premier Li
The Premier is the technocrat's technocrat. 

June 2019
...In the Government Work Report presented to the National People's Congress in March, Chinese Premier Li Keqiang underlined the importance Beijing places on adopting clean-energy vehicles. The premier has repeatedly stressed this point....

July 2022
Chinese Premier Li Keqiang Seems To Take Grains Very Seriously
Two from the State Council of the Peoples Republic of China:

October 2022
"China's Premier Li Keqiang dropped in leadership shuffle"
Although the public shaming of China's former president Hu Jintao is the story that went viral, the ouster of Li Keqiang is probably more important....

"China’s Teapot Oil Refiners Slash Output as Industrial Demand for Fuel Fizzles"

Following on yesterday's "Copper Surges on Supply Threat as Iron Ore Shows Economic Risks" which highlighted the divergence between copper, approaching an 11-month high, and iron ore, collapsing on China's continued failure to launch its economy (to put it starkly, most of China's efforts have ended up going into the stock market*) we have another indicator of the current state of China's economy. From Bloomberg via Yahoo Finance, March 13:

China’s uncertain economic prospects are stressing the oil refiners that produce diesel, the fuel that powers much of the country’s industrial activities.

Operating rates at smaller, private refineries clustered in Shandong province — dubbed teapots — have fallen to a two-year low. Strip out the Shanghai lockdown and the start of the pandemic, and runs haven’t been this feeble since 2016. Diesel is the teapots’ main product.

The pressures on refiners are familiar across commodities markets, and revolve around a collapse in demand from the housing market. But Chinese manufacturing has also been in contraction since September, while policy support has been sluggish. The government’s annual policy-setting meeting that concluded this week hasn’t fostered much optimism that its 5% growth target for the year can be met without additional stimulus.

Trucks, diggers and power lifters all run on diesel, which is also often used by factories for backup generators. Prices have dropped to their lowest since July. By cutting production, teapots are trying to keep margins respectable — they’re hovering around their 10-year average, according to Mysteel OilChem — but volumes are being sacrificed as a consequence.

“Downstream demand for diesel, from mining to infrastructure, is seriously lagging expectations,” Zhang Xiao, an analyst at Mysteel OilChem, said at a briefing on Tuesday. Consumption from the logistics sector is the one exception, she said, although liquefied natural gas is rapidly displacing the fuel in trucking....

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 The last couple times the teapots cut back Beijing said it was because of...aahhh..carbon, yep, that's it, carbon. But they didn't tear the smaller refineries down, just cut production or put them on care-and-maintenance until the next upturn.

We need a new Li Keqiang index.
*We've looked at the probable results of China's attempts to reflate a few times, usually coming down to the Cantillon effect. Here Mssr. C. and his effect show up in a June 2023 discussion of pork:

"What's that Got To Do With The Price Of Pork In China?"

....The negative spin on the rate cut would be the one we used on Tuesday, that it's classic "pushing on a string" i.e. the problem isn't the cost of money but rather the lack of demand for money.

In this sort of situation, if the money isn't going into domestic demand in will go into financial assets. In the West the Central Bankers say about that reality "We meant to do that, it's the Wealth Effect' whereas it's actually the Cantillon Effect where the people who get the money first get to take advantage of prices that haven't yet moved and are thus lower for them than for those who follow them in. 

Unfortunately for us, this time it is tougher to distinguish between a real demand driven move and a speculative "close-your-eyes-and -bet-on-higher" than it was in January, for another very basic reason: We had the Chinese lunar New Year on January 22 to tip us off....

And then again four months later:

October 10, 2023
"China Considers Stimulus, Higher Deficit Spending To Counter Property Bust"

I smell Oscar Cantillon. 

In which case the thing to do is determine who will get the money first and be that person. If it is not possible for you to quickly become a member of the Chinese nomenklatura determine how to make a portfolio bet on those who are already members of the privileged class. As noted a few years ago:

One of the rules of politics is "if your country goes communist you want to be as far up the apparatchik totem pole as you can get."
Preferably a commissar or above, putting you and yours closer to the commissary.

In a socialist paradise all pigs are equal but Hugo Chavez's daughter is a billionaire. 
(actually $4.2 billion)

"China’s Xi goes full Stalin with purge"

Continuing the theme of the post immediately below: "Beware anything that makes a superpower unpredictable". 

Hat Tip up front to Izabella Kaminska who stopped by The Blind Spot on Friday (Spot Markets Live, 08/12/23 (Japanese YCC, Candles as commodities, Glapinski)) and dropped off the link below with the comment:

...Anyway, lots of people seem reluctant to believe this. But I urge you to do some research on who our editor-in-chief is and where he spent a substantial chunk of his career. If anyone has the journalistic expertise to publish such a thing it is he....

From Politico.eu, December 6:

In a sign of instability in Beijing’s top ranks, foreign policy and defense officials are vanishing as Xi roots out perceived enemies. 

Something is rotten in the imperial court of Chairman Xi Jinping. 

While the world is distracted by war in the Middle East and Ukraine, a Stalin-like purge is sweeping through China’s ultra-secretive political system, with profound implications for the global economy and even the prospects for peace in the region.

The signals emanating from Beijing are unmistakable, even as China’s security services have ramped up repression to totalitarian levels, making it almost impossible to know what is really happening inside the country.

The unexplained disappearance and removal of China’s foreign and defense ministers — both Xi loyalists who were handpicked and elevated mere months before they went missing earlier this year — are just two examples.

Other high-profile victims include the generals in charge of China’s nuclear weapons program and some of the most senior officials overseeing the Chinese financial sector. Several of these former Xi acolytes have apparently died in custody.

Another ominous sign is the untimely death of Li Keqiang, China’s recently retired prime minister — No. 2 in the Communist hierarchy — who supposedly died of a heart attack in a swimming pool in Shanghai in late October, despite enjoying some of the world’s best medical care. Following his death, Xi ordered public mourning for his former rival be heavily curtailed....

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And if wary yet curious reader should wish to follow the breadcrumbs that Izzy was dropping:

Editor-in-Chief, Politico.eu

"China’s economic troubles will have global consequences"

George Magnus at Prospect Magazine, December 8:

Beware anything that makes a superpower unpredictable 

In the years leading up to and especially after the financial crisis, international relations experts would often predict that China was on course to dominate the global system. Since Xi Jinping came to power more than a decade ago, he has propagated just such a narrative. He has articulated China’s pursuit of modernity, power and global status as purposeful and strategic, and embedded that pursuit in what he calls the “Chinese dream of national rejuvenation”. He wants to transform China into a powerful, respected and socialist country and to re-frame the global system of governance and values in China’s interests, to create a China-centric world order by 2049, the centenary of the founding of the People’s Republic. 

Yet, here we are, almost 11 years after Xi came to power, and it is not uncommon to hear some of those same people talking about Peak China (even if the term Plateau China may be a better, if less catchy, description for the trajectory of the country’s economic power). A malaise has become a feature of the young, the middle class and of private firms and entrepreneurs. Such low levels of confidence or even pessimism are typical of an economy going through an important transition to slower growth, and in which accumulated problems of over-investment, misallocation of capital and economic imbalances have been allowed to accumulate.

The mood was captured briefly, in October, by the untimely death of former premier Li Keqiang, who was mourned not only in the customary fashion for a departed leader, but also as the symbolic end of an era that began with the promise of extensive liberalising reform and delivered almost nothing. Li, who was associated with reform, was side-lined by his boss Xi Jinping for much of his decade in office. Meanwhile Xi, who is certainly no reformer, became the architect of a more state- and party-centric governance system in which control, stability and repression have prevailed, reflecting China’s faltering development model. This week, Moody’s, the international ratings agency, downgraded its outlook for China’s credit rating from “stable” to “negative”, while maintaining the country’s A1 credit rating for now. The agency expressed concern about the weakening economic outlook and rising debt capacity problems. 

Economic growth started to slow well before Xi took charge in 2012

The governance of Xi may have exacerbated China’s economic problems, as did Covid, but neither was the cause. Economic growth started to slow well before Xi took charge in 2012. China’s economic development model began to show weaknesses before the financial crisis which have only been exacerbated since. Think about them as the six Ds. Excessive debt that has now exposed low debt servicing capacity; the demographics of rapid ageing; loss of dynamism, or productivity growth; the return of decree-type governance in which, for example, private firms and entrepreneurs are stigmatised or coerced; distributional issues of who will pay, and how, for the real estate bust and for the public goods and services provided by local government; and decoupling, as China confronts the harshest external environment it has faced—partly self-made—since the Mao era.

In the summer of 2023, as China’s disappointing recovery from Covid was revealed, some excited commentators wrote headlines predicting the country’s imminent economic “collapse”. That proved to be hyperbole. Even so, whatever is going on in the Chinese economy merits close scrutiny. Whether the economy has peaked or is plateauing, the implications are not trivial inside China or for the rest of the world....

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If interested see also the post immediately following this one:

"China’s Xi goes full Stalin with purge"  

South China Sea: China Appears Uninterested in Code of Conduct Talks

 From the Diplomat, November 18:

A South China Sea Code of Conduct Cannot Be Built on a Foundation of Bad Faith
There’s an obvious reason CoC talks haven’t progressed: China isn’t interested. 

Last month at the conclusion of talks with senior Association of Southeast Asian Nations (ASEAN) officials in Beijing, China’s Foreign Ministry spokesperson optimistically announced that the parties had agreed to “accelerate negotiations so as to strive to reach at an early date an effective and substantive” Code of Conduct (CoC) to govern their activities in the South China Sea. 

This statement came eight months after a similar proclamation at the start of 2023, and served to bookend yet another year of the diplomatic kabuki theater that surrounds these perpetual deliberations.

Just one year ago, all 10 ASEAN leaders gathered together with then-Chinese Premier Li Keqiang in Phnom Penh, Cambodia to mark the 20th anniversary of the “milestone” Declaration on the Conduct of Parties in the South China Sea (DoC). There they reaffirmed “the purposes and principles of the Charter of the United Nations, the 1982 UNCLOS [U.N. Convention on the Law of the Sea], the Treaty of Amity and Cooperation in Southeast Asia, the Five Principles of Peaceful Coexistence, and other universally recognized principles of international law which shall serve as the basic norms governing state-to-state relations.”

Like the initial 2002 DoC, last year’s reaffirmation was a soaring, aspirational document, filled with pledges of mutual respect, self-restraint, adherence to international law and the freedom of navigation under UNCLOS, and the peaceful resolution of disputes “without resorting to the threat or use of force.”

And yet, like the DoC itself, this reaffirmation carried with it an element of farce. Every nation gathered there in Phnom Penh knew very well that the South China Sea now exists under the persistent threat and occasional use of force. It is a place where many disputes are not resolved peacefully, but rather by the application and threat of violence by China, the Declaration’s most powerful signatory, which has set itself up as police officer, judge, jury, and jailer over all the others. 

Far from respecting international laws, China has brazenly ignored and discarded both the central features of UNCLOS and the 2016 arbitral tribunal ruling that clarified UNCLOS’ application the South China Sea. China has ignored the clear statements contained in UNCLOS in favor of a sweeping and unilaterally declared “indisputable sovereignty” over waters that are fairly apportioned to its neighbors. 

Beijing now acts as the sole arbiter of national rights and jurisdictions, enforcing its rule by the constant presence of its naval, coast guard, and militia ships....

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As Japan's Prince Kanenaga wrote to China's Hongwu Emperor in 1382:

Heaven and earth are vast, they are not monopolized by one ruler.
The universe is great and wide, and the various countries are created each to have a share in its rule.
Now the world is the world's world; it does not belong to a single person.

—The Chinese Journal of International Politics, Vol. 5, 2012, 129–153
doi:10.1093/cjip/pos006
Advance Access publication 19 March 2012 

Also pp 94:

Chinese Hegemony
Grand Strategy and International Institutions in East Asian History, 2015

Capital Markets: "Anti-Climactic Return of China"

From Marc Chandler at Bannockburn Global Forex:

Overview: The re-opening of China's mainland market amid reports of strong activity during the holiday, was relatively subdued. The CSI 300 rose less than 0.5% and the Shanghai Composite eked out less than a 0.2% gain. The 0.5% gain in the yuan was largely in line with the performance of the offshore yuan. Indeed, it seems like a bit like "buy the rumor sell the fact" type of activity as Hong Kong's Hang Seng tumbled 2.75%, to give back most of last week's gains. The same is true of the index of mainland shares that trade in Hong Kong.

The Federal Reserve, European Central Bank, and the Bank of England are expected to hike rates and this anticipation has seen equity markets stumble today. Europe's Stoxx 600, which rose almost 0.7% in the past two sessions is off 0.6% today. The UK’s FTSE 250 is off a little more than 1% today after rising about 1.15% last Thursday-Friday. US futures are trading sharply lower, as well. The bond markets are also under pressure. European yields are mostly 7-9 bp higher and the 10-year US Treasury yield is up four basis points to nearly 3.55%. March WTI initially extended its pre-weekend loss but has recovered to nearly unchanged levels around $79.60. In the currency markets, the euro is the strongest of the G10 as it tries again to establish a foothold above $1.09. The Australian dollar, the best performer last week (2%) is the weakest on a bout of profit-taking.

Asia Pacific
Until there is a clear policy change, it is difficult to take seriously China's outgoing Premier Li Keqiang's claim the government desires more robust consumption. It may be one critical way the Chinese Communist Party can renew its "social contract" of limited political participation in exchange for rising living standards. Yet, at the same time, those foreign critics calling on China to boost consumption often talk in abstractions. Consider autos. Per 1000 people, the US has 800 cars, and the EU 600. China has around 200. Another example is meat consumption. The US per capita consumption is about 222 pounds. Europe's consumption is closer to 170 pounds of meat per person. China's meat consumption is a little less than 100 pounds. What is the environmental and health impact if China consumed like Americans or Europeans?  

Separately, reports suggest China is considering a ban on cutting-edge technology used to make solar wafers. These are very thin silicon pieces that are assembled into solar panels, and China accounts for an estimated 97% of global production. China's efforts in this space, which it practically monopolizes, have seen the cost of solar power fall by an estimated 90%. In efforts to decouple from China, the US, EU, and others are trying to build domestic capacity, which is hard to call restoring if they never had in the first place. If it does come to pass, some narratives will put it in the context of "typical" Chinese protectionism, while others may link it to the US "Inflation Reduction Act" that offers subsidies for green tech that is manufactured in the US....

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It Seems The World Economy Is Counting On China Stimulus

If so, here's hoping Beijing gets it right.

First up, Singapore's Business Times, January 4:

China’s pledge to lift consumption sparks debate on cash handouts 

CHINA’S policymakers have made it a top priority to boost consumption in the economy in 2023. Yet beyond broad pledges, they have provided little detail on specific steps to achieve that goal. 

Unlike in the US and elsewhere, China is shunning the stimulus checks and consumer subsidies that fuelled post-pandemic recoveries in those economies. The government’s support has focused mainly on helping businesses cope with the slump and preserve jobs – it fears that free cash may give rise to welfare dependency and lower productivity.

The only clues so far on possible policy measures this year have come from a key economic meeting in December, where top officials listed better housing, new-energy cars and elderly-care services as areas where consumption will be encouraged. They also pledged to increase household incomes “through multiple channels”, without elaborating.

Several government-linked economists – some of whom are advisers to senior leaders – have now weighed in with their own recommendations on how best to spur spending after three years of strict Covid rules battered consumer confidence. 

Some argue that consumers will feel empowered to spend only when they know their jobs and incomes are secure. Others say cash handouts are the most immediate and effective way to drive consumption when sentiment cannot be lifted quickly. 

Liu Yuanchun, president of the Shanghai University of Finance and Economics, argues that although subsidising households directly with cash and coupons would stimulate consumption in the short term, there are indirect implications that could be negative for the economy.

Consumer vouchers could cause so-called consumption displacement, he wrote in December, implying reduced demand for goods that cannot be bought with the coupons, resulting in a muted effect on spending. Cash handouts in the US and Europe also led many workers there to quit their jobs and live on the payouts, pulling down economic growth, he said. 

Liu previously advised the Politburo, the Communist Party’s top decision-making body, in April on how to regulate capital. He has also attended several economic seminars led by President Xi Jinping and Premier Li Keqiang.

Government aid should be targeted towards businesses this year, Liu argues, while more should be done to help the beleaguered housing market as well, given its outsized impact on the broader economy. The property sector could drive household demand on everything from home decorations to appliances, he said.

“Greater support and subsidies must be given to medium and small-sized firms in 2023, as protecting market entities is the core pre-condition of stabilising consumption and investment,” Liu wrote. 

He also suggested the creation of a special employment fund targeting migrant workers and university graduates. Investment should be made in food-for-work projects that focus on job creation and can address both unemployment and insufficient investment, he added.

Jia Kang, a former head of a research institute under the Ministry of Finance, said that boosting consumption comes down to job creation, which in turn hinges on effective investment....

....MUCH MORE

And from China watcher Michael Pettis:

2/7
This is a major worsening of China's already bad internal imbalance, driven largely by Beijing's continued focus on supply-side policy stimulus.

The article cites Nomura's Lu Ting: “It is certain that China’s economy will rebound in 2023. The question is how much”.

— Michael Pettis (@michaelxpettis) January 2, 2023

If I'm reading this correctly, we have three economists and three different policy prescriptions. With more on the other side of the BT jump.

Good luck to all of us.

"Why is China so Obsessed With Food Security?"

From N.S. Lyons' The Upheaval substack, September 1:

And what does that say about the world’s future?

China is obsessed with food security. You might not realize just how obsessed: stockpiling rapidly, by the end of the year China – with its 20% of the world’s population – is projected to have accumulated and stashed away some 65% of the world's corn and 53% of the world's wheat.

As far as China’s leaders are concerned, this is insufficient. In June, China’s State Council released emergency measures aiming to further shore up food supplies and drive down prices, pledging huge agricultural subsidies and massive logistics investments, and pushing local governments to accumulate even greater state grain reserves. Premier Li Keqiang (China’s #2 leader) went on record to threaten that “every level of government” must work to maximize agricultural yield this year, and that those officials who fail to do so “will be held accountable.” A national Food Security Law is about to be published, reinforcing the decision that food production and agriculture protections is now a top national security imperative (a national Energy Security Law will also soon be published). 

Why the single-minded urgency? Now you, not being an idiot, might say, “No shit Sherlock Holmes: thanks to the war in Ukraine, sanctions on Russia, and the tragic lasting consequences of covid-lockdowns, the world is entering what the head of the UN World Food Program recently called the worst two-year period of food crisis since WWII, with some 49 million people now at imminent risk of starving to death and at least 323 million in a state of such ‘acute food insecurity’ that they are ‘marching toward starvation,’ so of course the Chinese are reasonable to be worried about food.”

You would of course be right about that; and in fact China, having already suffered first historic flooding and then historic drought, is this year also facing a wheat harvest that the country’s minister of agriculture described as being in the “worst condition in history.” There is all that.

But Chinese President Xi Jinping’s paranoia about food security dates to well before the current crisis began. In August 2020 Xi launched a nation-wide campaign to reduce food waste (dubbed “operation empty plates”), while stressing “the need to maintain a sense of crisis regarding food security.”

Then China’s all-important 14th Five-Year Plan for 2021-2025, released in March 2021, described food security as a “prerequisite” for national security and set a national food security target for the first time, at 650 million tons of grain per year. Protections to strictly maintain a “red line” of 120 million hectares of minimum farmland (first set in 2007) were enhanced. While Dutch authorities have been shooting protesting farmers to seize their farmland and build apartment buildings, China has been busy bulldozing half-built suburbs and dismantling ill-considered solar farms that threaten productive agricultural land and water resources.

In August 2021, the Party approved a new action plan for the seed industry. According to Xi, China’s “seed sources must be independent and under better control, and seed industry technology must be self-reliant.”

In December 2021, China initiated ambitious plans to set aside arable land to grow soybeans, a crop it had almost completely abandoned after its 2001 entry into the WTO, with a target of raising output by 40% over the next four years, including by utilizing (domestically) genetically engineered crops for the first time. “The Chinese people’s rice bowl must be firmly held in their own hands at all times, and that rice bowl must mainly contain Chinese grain,” Xi told a top-level officials at a meeting related to the plan.

Then, in March of this year, China’s the National Development and Reform Commission published orders to begin rapidly stockpiling fertilizer supplies. Xi devoted an entire speech that month to berating cadres to “not slacken our efforts on food security” in the least, while Premier Li insisted that, “We must address uncertainty in the external environment with the certainty of stable domestic [agricultural] production,” saying, “This is critical to stability of prices, of the economy, and of all of society.”

And they’re still at it this summer and fall. But what prompted all this, exactly?....

....MUCH MORE

Previously:

December 11, 2021
"China snaps up large volumes of French, Ukrainian feed grain"
December 30, 2021
ICYMI: "China Panic-Hoards Half Of World's Grain Supply Amid Threats Of Collapse"
"China’s wheat harvest “worst in history”, says agriculture minister"
That Time The CIA Completely Missed A Soviet Crop Failure And Allowed The Sovs To Buy American Wheat On The Cheap
China and Food Prices: "One reason for rising food prices? Chinese hoarding"
WSJ: "Food Hoards Can Ease Inflation, but Only Some Governments Are Prepared"
Rabobank: "What Possible Disruption Is Coming That Requires China To Start Massive Stockpiling Of All Possible Commodities?"
China May Be Facing Food Shortages, Launches "Clean Plate" Campaign to Cut Waste
"China Cites U.S. Agriculture for Why It's Chosen Not to Invade Taiwan"
"Global food insecurity and famine from reduced crop, marine fishery and livestock production due to climate disruption from nuclear war soot injection"
China, Taiwan, Pigs and Sanctions 

"China's Premier Li Keqiang dropped in leadership shuffle"

Although the public shaming of China's former president Hu Jintao is the story that went viral, the ouster of Li Keqiang is probably more important.

From the AP via Taiwan News, October 22: 

Chinese Premier Li Keqiang, the nation's No. 2 official and a proponent of economic reforms, is among four of the seven members who will not be reappointed to the nation's all-powerful Politburo Standing Committee.

They were not on the list released Saturday of the ruling Communist Party's new 205-member Central Committee, which means they cannot serve on the Standing Committee.

The others dropped from the list were Shanghai party chief Han Zheng, party advisory body head Wang Yang, and Li Zhanshu, a longtime ally of leader Xi Jinping and the head of the largely ceremonial National People's Congress....

....MUCH MORE

Premier Li has made a number of appearances on our little blog, here's the introduction to one from 2019:
"China must ‘expand domestic demand’ as economy shrinks"—Premier Li
The Premier is the technocrat's technocrat.

Chinese Premier Li Keqiang Seems To Take Grains Very Seriously

Two from the State Council of the Peoples Republic of China:

June 22  Premier stresses ensuring grain security, energy supply

SHIJIAZHUANG — Premier Li Keqiang on June 21 urged efforts to ensure grain security and energy supply to maintain the stability of the economy and prices.

Premier Li, also a member of the Standing Committee of the Political Bureau of the Communist Party of China Central Committee, made the remarks during an inspection tour in North China's Hebei province.

While inspecting a wheat field in Fangguan town, Gaobeidian city, Premier Li learned that there was a bumper wheat harvest this year. He stressed efforts to ensure that grains are harvested in time and stored in good conditions.

The sufficient supply of grains serves as an anchor for price stability, Premier Li said, noting that China's bumper wheat harvest not only satisfies its own domestic needs but also contributes to the stability of the international grain market.

Seeing that farmers are sowing corns, the Premier said it is important to ensure that sowing is done in time and on as many lands as possible to ensure good harvest in the autumn, further contributing to the country's grain security....

....MORE

And:

BEIJING — Premier Li Keqiang stressed work on flood control and disaster relief to guarantee the safety of people's lives and property.

Chairing a State Council executive meeting on June 22, Premier Li also urged efforts to secure a bumper harvest for the whole year and step up support for automobile consumption.

A bit tricky there, what with the bumper and the automobile harvest consumption.

"Stocks Soar On Optimism Omicron Is A Dud As Traders Focus On Growing China Stimulus"

 China, China, China.

The S&P is up 79 points, the DJIA is up another 429, bringing the two day total to 1076 points

From ZeroHedge, 07:59 AM EST:

U.S. index futures rallied, led by gains for Nasdaq 100 contracts, amid waning omicron worries and a booster shot of Chinese stimulus lifted world stock markets and oil on Tuesday and left traders offloading safe-haven currencies and bonds for the second day in a row. Emini S&P futures were up 61 point to 4,650.75 or about 120 points higher then where Gartman said "stocks are headed lower" some 24 hours ago. Nasdaq futures were up 1.8% and Dow futures rose 1% in premarket trading. In fact, futures are now just 50 points away from where they were below the Black Friday Omicron panic plunge. 

The FTSEurofirst 300 index was on track for its first back-to-back run of plus 1% gains since February while Asia saw record bounces from some of China's biggest firms such as Alibaba which soared by the most since its 2019 listing in Hong Kong, leading a rebound in Chinese tech stocks, as bargain hunters piled in amid improved sentiment following Beijing’s move to bolster the economy. The MSCI Asia Pacific Index climbed 1.7% while Japan’s Topix index closed 2.2% higher. The VIX dropped for a second day, sliding below 24, but remained above this year’s average..... 

***

....The gains also came after China's central bank on Monday injected its second shot of stimulus since July by cutting the RRR - or the amount of cash that banks must hold in reserve. Then on Tuesday, the PBOC said that the Interest rate for relending to support rural sector and smaller firms will be cut by 0.25 percentage point, effective from today, with 3-mo, 6-mo and 1-yr relending rates will be cut to 1.7%1.9% and 2%.

After pretending it would let the economy falter for months, Beijing is finally firmly in pro-growth mode with the Politburo stating that stability is the top priority ahead of next year’s Communist Party congress. Premier Li Keqiang also said China has room for a variety of monetary policy tools after yesterday’s reserve ratio cut. As a result, the beaten down financial and property stocks were the biggest winners amid the change in tone from policy makers. In Hong Kong, Alibaba Group Holding Ltd. soared by the most since its 2019 listing. Global markets are also getting a lift from the easing policy pivot in world’s second-largest economy which we first flagged more than a weeks ago....

....MUCH MORE

Capital Markets: "Softer Yields = Softer Dollar "

 From Marc to Market:

Overview: The surge in consumer prices reported on Wednesday saw rates jump and the dollar push higher. Stronger than expected producer prices yesterday, and news of wage increases (average 10%) at Mcdonalds and for 75,000 people Amazon wants to hire, saw rates ease and the dollar's upside momentum stall. Before the week draws to a close, the US reports April retail sales and industrial production figures. US stocks recovered smartly from the stomach-clenching sell-off on Wednesday, which helped lift sentiment in Asia and Europe. The largest markets in the Asia Pacific advanced mostly 1%-2.3%. New social restrictions in Singapore as the contagion reached a 10-month high saw the Strait Times Index drop 2.5%. Europe's Dow Jones Stoxx 600 recovered yesterday, though finished off less than 0.2%, and helped by stronger gains in consumer staples and financials, is posting modest gains today. US future indices are trading broadly higher. The US 10-year yield briefly poked above 1.70% yesterday for the first time in a month but pulled back to around 1.64% now, shrugging off a lukewarm 30-year bond auction (despite higher rate, low bid coverage). The softer US yields were are doing little to European benchmark 10-year yields, which are extending yesterday's push to the year's highs. As go US interest rates, so goes the dollar. After rallying on Wednesday, its gains were pared against most of the major currencies and remains under modest pressure today, with the Norwegian krone leading the way (~+0.85%), while sterling, yen, and the Australian dollar lagging (~+0.1%). On the week, only sterling is higher (~+0.50%), while the Antipodeans and Scandis led the decline (~-0.8% to -1.3%). Emerging market currencies are also trading higher today, led by eastern and central European currencies. After falling in the first half of the week, the JP Morgan Emerging Market Currency Index is extending yesterday's minor gains and for the week is off about 0.65%, after gaining nearly 1.8% last week. Gold is extending its recovery after dipping below $1810 yesterday and is near $1833 near midday in Europe. Crude oil prices are stabilizing in yesterday's trough after June WTI slid 4.3% yesterday. Near $64.50 a barrel, it is off a little less than $0.50 this week.

Asia Pacific
China's Premier Li Keqiang called for measures to address the surge in commodity prices yesterday, and the market took it to heart. The materials sector underperformed in the Chinese equity rally today. Iron ore prices, for example, had risen by nearly 18% in the five sessions through Wednesday. Prices for the September futures contract fell by nearly 3.6% yesterday and another 6.4% today. Copper prices are off for the third consecutive session today. It is off 2% this week after a five-week, 19.5% rally. Steel rebar futures had rallied nearly 12% in the five sessions through the middle of the week, and the cumulative decline between yesterday and today is around 5.5%. The resumption of US pipelines that was hacked and indications that some 700 barges on the Mississippi held up by cracks in a highway bridge may able to continue their journey over the weekend also contributed to the 2.4% decline in the CRB index, its largest fall in nearly two months, and will likely snap a five-week advance of nearly 11%....

....MUCH MORE

China: "The 'dual circulation' strategy announced at the National People’s Congress could shift global economics and politics."

 From the Lowy Institute's The Interpreter blog:

Endorsing “self-reliance”, Beijing raises the geopolitical stakes

China’s yearly National People’s Congress (NPC), which convened last week in Beijing, generated more attention than usual. Most of the headlines focused on the confab’s decisions to impose additional electoral restrictions in Hong Kong, a predictable but nonetheless dismal further deterioration in that city’s political vitality.

But amid the news about Hong Kong, economic growth targets for 2021, and self-congratulation for weathering the Covid-19 pandemic, the NPC also approved an ambitious economic agenda for the next 15 years. In particular, the assembled delegates endorsed the new “dual circulation” strategy – comprising “domestic circulation” and “international circulation” – a framework first coined by Xi Jinping last year. More than mere economic tweaking, this strategy, if successful, will have profound implications for global economics and geopolitics.

One the one hand, the strategy will encourage greater reliance on China’s enormous internal market (“domestic circulation”) for growth and technological innovation, rather than on capital-intensive growth, low-value exports and imported technology which spurred the country’s economic success in the past.

The other half of the strategy, “international circulation”, will double down on China’s long-standing effort known as “Made in China 2025” (MIC 2025). The aim will be to upgrade its manufacturing base through the integration of information technology to improve productivity, increase the indigenous content of higher-end technology products, reduce reliance on foreign inputs and become more self-sufficient technologically.

As Premier Li Keqiang declared in his work report to the NPC:

We will give priority to domestic circulation, and work to build a strong domestic market and turn China into a trader of quality. We will leverage the flows of the domestic economy to make China a major magnet for global production factors and resources, thereby promoting positive interplay between domestic circulation and international circulation.

The dual circulation strategy, and MIC 2025 in particular, ultimately aim to position China as the leading source of critical technologies and industrial outputs of the future across the value chain – in design, manufacturing processes, technology and material inputs, and finished products – in high-priority sectors including next-generation information technology, robotics, aerospace, high-speed rail, green energy, biopharma and new materials. Analysis by Chinese think tanks and foreign counterparts estimates that the MIC 2025 plan hopes to capture 40–80% of the global value chains in these sectors between 2020 and 2030....

....MUCH MORE

"Rabobank: How Does Hong Kong Continue To Function As A Financial Center?"

Readers will be relieved to know I figured-out why one might prefer "Russia, Russia, Russia" versus "China, China, China."
It's that the fricative 'sh' is easier to pronounce repetitively than whatever kind of consonant the 'n' in "China, China, China" is. [it's a voiced alveolar nasal—ed]

From ZeroHedge:
Submitted by Michael Every of Rabobank

"Great Uncertainty"
If there are two things markets hate today they are a lack of central bank liquidity and uncertainty. Well, we have lots of the latter.

The National People’s Congress (NPC) that just kicked off in China has seen Premier Li Keqiang admit “We have not set a specific target for economic growth this year.” China economists will have to actually try to predict what growth will be in 2020 for the first time in a generation. This is because China “will face some factors that are difficult to predict in its development due to the great uncertainty regarding the Covid-19 pandemic and the world economic and trade environment.” But China has beaten the virus, hasn’t it? We are all rolling back lockdowns elsewhere, aren’t we?

Of course, this being China there were some hard targets of the Panglossian variety. There will be 9 million urban jobs created and every effort will be made to stabilize employment. This is clearly the new policy goal – not growth. Certainly not productivity given it means massive labour-intensive public investment in what is no longer a low-wage urban economy, or propping up failing firms to save jobs.

The fiscal deficit, reported by Bloomberg with a straight face as usual, is going to widen from 2.8% of GDP to 3.6%. This despite nobody pretending to know what GDP will be, and that too many pretend this covers ALL the public-sector deficit when the IMF says it is 10% if you include local governments, which you must unless you want to imagine vast defaults ahead. There is talk of issuance of CNY3.75 trillion in “special” bonds, up from 2.15 trillion in 2019, and CNY1 trillion in sovereign bond issuance. Yet that is a drop in the ocean compared to what the US or even the UK are spending relative to GDP. Indeed, the South China Morning Post yesterday ran a story suggesting a larger fiscal stimulus is coming soon than was seen post-GFC. If so, as we keep saying, watch CNY very closely.

Monetary policy will remain “prudent” and “flexible” and “appropriate”. At the same time, steps will be taken to “ensure enterprises can secure loans more easily and promote steady reduction in interest rates” and money supply will be guided “significantly higher” as loans to SMEs now have to rise 40% in 2020 after mandated 30% growth in 2019. Has this rhetorical left hand ever met the right hand? Again, watch CNY - because boosting local money supply that fast, and to struggling firms, and with no FX reserve gains, means one thing and one thing only.

On which front, Li also stated that the phase one US-China trade deal is going to be stuck to. Really? Because it is way behind target already, and we already saw news this week of a vast digital Keynesian plan to push ahead with local chip development to replace those of the US. (Australia is also experiencing the odd trade-related issue as well.) Nonetheless, the markets got the headline they wanted – which I doubt was a coincidence.

Meanwhile, one key China problem is not based on uncertainty but on certainty. Beijing will be directly imposing a draconian national security law on Hong Kong, bypassing the local legislature entirely. Many voices are calling this a fatal blow to One Country, Two Systems despite the NPC saying otherwise; one local law-maker is quoted as saying “This is the end of Hong Kong.” Moreover, it comes just as the US concludes its mandated --and specifically delayed-- annual appraisal of Hong Kong’s autonomy, which is now guaranteed to generate a swift response, something US President Trump has already publicly promised.

Indeed, bipartisan legislation has just passed the US senate to impose sanctions on Chinese individuals and entities in Hong Kong responsible for implementing this law, and for any banks who deal with them. Yes, it needs to get through Congress and be signed by Trump: but that seems easily done based on past record and present atmosphere. Then we would have to see who the US would hold responsible: token individuals or the entire arm of the Chinese state?....

....MORE

"...The fact that Beijing is prepared to push ahead with such a step
knowing what the response will be, and what that could mean for
Hong Kong --and for US relations with Taiwan-- should
be of deep concern to markets...."

Yesterday: 

"US investors weigh Beijing’s power play in Hong Kong: ‘If they’re not careful, they will kill the financial golden goose’"

China May Not Be Bouncing Back As Fast As They Would Like

From Plastts via Hellenic Shipping News, May 6:

Central Asian countries discussing shared cut in gas supplies to China: Uzbekneftegaz

Central Asian gas producers Turkmenistan, Kazakhstan and Uzbekistan are discussing a shared cut in gas supplies to China, as a result of the coronavirus pandemic’s impact on demand, Uzbekneftegaz CEO Mekhriddin Abdullaev told S&P Global Platts Tuesday.

“China requested a cut, but indicated that any reduction in gas supplies would be carried out proportionally between Turkmenistan, Kazakhstan and Uzbekistan,” Abdullaev said in emailed comments.
“A coordinating committee of the three Central Asian countries that supply gas to China is discussing exact volumes. A decision has not yet been made,” he added.

Chinese demand for gas has fallen this year as a result of measures introduced to combat the spread of the coronavirus. In March Kazakhstan said it cut natural gas supplies to China by 20%-25% after PetroChina issued a force majeure notice on imports.

The three Central Asian countries ship gas to China via the Central Asia–China gas pipeline network, which has a design capacity of 55 Bcm a year.

Uzbekistan supplies around 10 Bcm/year of gas to China, UNG said. Chinese Customs data indicated that in 2019 Kazakhstan exported 7.1 Bcm, and Turkmenistan 33.2 Bcm....MORE

As Li Keqiang, these days Premier of the State Council of the People's Republic of China said, you can't trust the official Chinese econ numbers. As relayed by U.S. Ambassador to China Clark T. Randt, Jr. back to the State Department in 2007 and leaked by Wikileaks:

...(C) GDP figures are "man-made" and therefore unreliable, Li said. When evaluating Liaoning's economy, he focuses on three figures: 1) electricity consumption, which was up 10 percent in Liaoning last year; 2) volume of rail cargo, which is fairly accurate because fees are charged for each unit of weight; and 3) amount of loans disbursed, which also tends to be accurate given the interest fees charged. By looking at these three figures, Li said he can measure with relative accuracy the speed of economic growth. All other figures, especially GDP statistics, are "for reference only," he said smiling....

At the time Mr. Li was "only" the Party Secretary of Liaoning province but he had already been highlighted as potential President material before Xi Jinping moved in.
If you've ever wondered why every China watcher talks electricity when talking China GDP Mr. Li's observation is the reason why.
Western analysts should probably include natural gas as well.

"How the Coronavirus Made Globalization a Deadly Threat"

Considering how much of Germany's economy is export oriented it's a bit surprising to see major German media even raising the issue of the downside to globalization.
From Der Spiegel, February 4:

The new coronavirus in China has spread at an alarming rate, unsettling citizens and epidemiologists alike. It poses substantial challenges for our modern way of life – and threatens our globalized world where it is most vulnerable.

On the evening of Dec. 30, a young doctor in the Chinese city of Wuhan sent a short text message to a group of colleagues. "Seven cases of SARS have been confirmed at the seafood market in Huanan," he wrote. SARS, the viral disease that broke out in November 2002, claimed 774 lives.

"It was clear to me that we were dealing with a public health issue," the doctor said.
The name of the doctor and the hospital where he works have not been made public. But the story that he told the Beijing Youth Daily newspaper has been shared tens of thousands of times online in China. At 1:30 a.m. on Dec. 31, the municipal health commission summoned the doctor and questioned him several times throughout the day.

Where did he get his information, officials wanted to know? Did he realize he was breaking the law? Did he understand that spreading that kind of information was a punishable offense? "Understood," he wrote on a form, signing his statement with his fingerprint.

But the doctor never got punished. Instead, he got sick.
"On Jan. 10, around noon, I began to cough. The next day, my fever rose. That was when I knew I was in trouble," he said. On Jan. 16, he started having trouble breathing. On Jan. 24, he was transferred to the intensive care unit. From there, he typed out his story on his phone on Jan. 27. He couldn't speak and could only breath with the help of a respirator.

Extreme Measures
The coronavirus, the viral disease the doctor had warned about at the end of December and which he ultimately contracted himself, has spread from the Chinese city of Wuhan around the world. As of Tuesday, Feb. 4, there have been more than 20,630 confirmed cases in 24 countries, according to the World Health Organization (WHO). China has reported more than 420 deaths so far. That's more than during the SARS outbreak in 2002 and 2003, which claimed 349 lives in mainland China.

The epidemic is worrying scientists, politicians and entrepreneurs alike. Chinese markets reopened Monday after being closed since Jan. 23 for the Lunar New Year and stocks immediately plunged. The virus has also begun to change people's everyday lives, the way they do business and how they travel. The fear of new infections has made its way around the world. Sports events have been postponed. British Airways and Lufthansa were the first airlines to cancel all flights to China. Cathay Pacific stopped handing out pillows, blankets and magazines in its aircraft to prevent the virus from spreading. What's next?

China, the world's most populous country and its second-largest economy, is facing a "complicated and serious" crisis, according to a group of Chinese officials headed by Prime Minister Li Keqiang. The country exports more than $2.3 trillion worth of goods annually and is responsible for about one-third of global economic growth.

What if, now that the first airports have been closed, China also shutters its ports? This would disrupt countless supply chains around the world, both big and small. And what if, after the initial coverup and subsequent quarantine of cities with populations in the millions, the Chinese lose confidence in their government?

The epidemic has already shown just how vulnerable our interdependent 21st century economy really is. China boasts the world's largest manufacturing industry. Yet many of the assembly lines aren't running. The government extended the Lunar New Year holiday by a few days in an effort to combat the spread of the virus. Meanwhile, preschools, schools and universities remain closed indefinitely. This suggests that factories in China will also remain closed for the time being.

A Globalized Virus
Experts are divided on when the virus will reach its peak. China's best-known epidemiologist, Zhong Nanshan, has said he expects new infections to reach their high point in early February, whereas experts in Hong Kong and London say they think it will be closer to April or May. Manufacturers of everything from electronics to textiles are likely facing shutdowns of several weeks.

Tech giant Apple, which has a production facility in Wuhan, quickly began looking for alternate suppliers "to make up any expected production loss,” CEO Tim Cook said last week. The French carmaker PSA, which has several factories in Wuhan, is facing a similar situation.

China exports more than 80 percent of that which it produces -including industrial and consumer goods, raw materials and food – by sea. If the ports were closed, it would lead to a massive disruption of global trade comparable to a stop in oil deliveries from Saudi Arabia. To a certain extent, China has "swing capacity" in the manufacturing industry. An interruption in production could bring a large part of the global economy to a standstill, although this still seems a long way away.

Globalization has lifted millions of people in countries like China, Indonesia and Vietnam out of poverty. It has provided people in industrialized nations with cheap televisions and laptops not to mention clothing and textiles, yet at the same time, it makes the world more vulnerable to all sorts of disruption, from terrorist attacks to natural disasters – and epidemics.

A panel of experts from the World Bank and the WHO wrote of a "world at risk" when they examined the economic consequences of a serious global health emergency last year. A pandemic like the Spanish flu, which killed as many as 50 million people between 1918 and 1920, would depress global economic output today by around $3 trillion (2.7 trillion euros), the experts calculated. Even a comparatively mild epidemic could cause damages adding up to more than 2 percent of GDP. "The world is not prepared for a fast-moving, virulent respiratory pathogen pandemic," the report states....

....MUCH MORE

"No sweet spot for Singapore in US-China tensions"

An interesting view of the eagle and the dragon from the Straits Times, May 30:

The United States and China are settling into a protracted struggle over trade, technology and geopolitics. Singapore will come under special scrutiny, as an ethnic Chinese majority society with strong ties to both.

On May 20, China's President Xi Jinping, during a tour of Jiangxi province, said: "We are now embarking on a new Long March, and we must start all over again."
Jiangxi was the start point of the best known of several retreats by the Red Army that came to be collectively known as the Long March.

Mr Xi did not explicitly mention US-China relations. But 10 days earlier, what was supposed to be the final round of trade talks ended without agreement and the Trump administration raised tariffs on Chinese exports from 10 per cent to 25 per cent. It was clear enough what Mr Xi was referring to.
A week before, an editorial in the People's Daily had described United States-China tensions as a "People's War".

This is highly charged political rhetoric, infused with deep symbolism that drew on the founding myths of the Chinese Communist Party (CCP).
Not all the symbolism may, however, have been as Mr Xi intended.

In October 1934, mistakes by its inexperienced Military Commission led the CCP's First Army to the brink of encirclement and annihilation by Kuomintang (KMT) forces. It narrowly escaped by embarking on a desperate strategic retreat. A year later, only about a tenth of the Red Army that left Jiangxi reached sanctuary in Yan'an in Shaanxi province.

CHINA'S MISREADING OF THE US

Today, Beijing has clearly misread the direction of US-China relations. It underestimated the Donald Trump administration's determination to confront China, despite the 2017 National Security Strategy and the 2018 National Defence Strategy having labelled China a "strategic competitor".

After the 2009 global financial crisis, China seems to have begun to believe its own propaganda about the US' inevitable decline. After the 2012 Scarborough Shoal incident, Beijing may have mistaken the Barack Obama administration's reluctance to stand up to China as a new norm of American foreign policy. China may also have been misled by the contempt for President Trump that its usual interlocutors in the American foreign policy establishment did not bother to hide.

Towards the end of the Hu Jintao administration, and far more insistently under Mr Xi, China began to pursue its economic and strategic interests with increasing assertiveness. Chinese foreign policy took on a triumphalist tone. By the time of the 19th Party Congress in 2017, Deng Xiaoping's approach of "hiding light and biding time" had clearly been abandoned.

Hubris is not an American monopoly, and these were serious mistakes. Since the trade war started, Mr Xi has been subjected to muted but nevertheless pointed criticism within China.

Among the clearest criticisms was one by Mr Deng Pufang, Deng Xiaoping's son. In a September 2018 closed-door speech that was reported by Mr Jack Ma's South China Morning Post, he said: "We must seek truth from fact, keep a sober mind and know our own place." And that: "We should neither be overbearing nor belittle ourselves... The most important thing at the moment is to properly address China's own issues."

Mr Deng Pufang's criticism was all the more powerfully poignant because he was speaking at a meeting of China's Disabled Persons Federation. He himself had been crippled during the Cultural Revolution.
It was to prevent the reoccurrence of such excesses that his father had introduced the two-term limit that Mr Xi discarded.

Xi Jinping is not Mao Zedong. But the concentration of power on Mr Xi's watch, and the severe penalties for perceived disloyalty, may have reintroduced something akin to a neo-Maoist single point of failure into the Chinese system. There is good reason to wonder what is being reported upwards and how accurately.

In March 2017, I met an American friend who heads a major US corporation in New York. He is a senior member of the US-China Business Council that had just met Vice-Premier Liu He, who was on a visit to try and head off a trade war.

"What did you tell him?" I asked. The friend replied: "We told him it is all of us and not just Trump."
I was surprised. The disenchantment of American businesses with China had been building up since the George W. Bush administration. Surely, he already knew, I said. He didn't seem to, my friend replied.

China's growth was already slowing when Mr Trump raised tariffs. By the time of the annual lianghui or the "two sessions" of the National People's Congress and National Committee of the Chinese People's Political Consultative Conference in March this year, the serious pressures and uncertainties confronting China could not be concealed.

Premier Li Keqiang's report to this year's lianghui was a sober assessment of the dangers China was facing. Earlier, in January this year, Mr Xi outlined seven "major risks": politics, ideology, economy, science and technology, society, the external environment and party-building.

None of this is intended to suggest that China is going to fail. The CCP is an extremely resilient and adaptable organisation and I do not think that China will fail. Corrections have already been announced, for example to Mr Xi's signature Belt and Road Initiative. It remains to be seen how the adjustments to policy will be implemented....MUCH MORE

HT: Marginal Revolution

As noted last month:
Not to take anything away from Xi's accomplishments but Xi is not Deng, or even Hu.