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MEDIA COMMENT ON CHINA# 500

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GOOD MORNING FROM LONDON

25 FEBRUARY 2024

ISSUE #500

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#1  STATEMENT OF POLICY

#2  DENG’S LEGACY UNDER ATTACK?

#3   CHINA AFFIRMS POLICY ON TAIWAN ISSUE

#4   INVESTMENT IN CHINA FALLS BUT…

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#1    POLICY STATEMENT

        GRAHAM PERRY STATES;-

The starting point was not 1965 – my eight week first visit to China – but earlier in 1954 when I first met Dr Ji Chaoting when he came to my parents’ home for dinner. Dr Ji had been instrumental in suggesting to my father, Jack Perry, in 1952 that he starts an Import/Export company to promote trade between the UK and China. Dr Ji used a phrase which has been recalled many times “Today China has a small trade with the West but tomorrow it will become a big trade”. Dr Ji had been appointed by the then Foreign Minister Zhou Enlai – later Prime Minister – to assess the development of foreign trade and to find partners in the West that could be relied upon to treat China with greater respect than the Hong Kong based trading companies who had soiled their hands with Opium trading during China’s Century of Humiliation.

No question, I was fortunate to have access to China at such an early stage of its development – five years into the new Peoples Republic of China. And the experience has taken in the anti-Landlord ‘Speak Bitterness’ campaign, the Commune Movement, the Great Leap Forward, the Sino-Soviet rupture, the Cultural Revolution and the Reform era initiated in 1976 by Deng Hsiaoping and pursued by Xi Jinping. China has experienced highs and lows but it has succeeded in moving almost 1 bn people out of poverty and made available USD1 trillion to 100 + countries to assist in their economic development.

Over the years, media comment on China has increased substantially China is often portrayed, incorrectly, as a threat to world peace; a dictatorship that imposes its will on a reluctant 1.4bn population; as a practitioner of a coercive policy of oppression on its neighbouring countries and an overall and important major obstacle to progress and development.

Increasingly countries of the world are realising that this portrayal of China is unbalanced and misleading and it is against this background that this Column – now celebrating its 500th issue – provides a balanced comment on the coverage by the media of events and developments regarding China – domestic and international

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#2   IS CHINA CHIPPING AWAY AT THE LEGACY OF DENG HSIAOPING?

SOUTH CHINA MORNING POST

China’s former paramount leader Deng Xiaoping died on February 19, 1997. The country’s mourning reached a peak a week later when a memorial service was held in Beijing. As a high school student watching the live broadcast on a tiny classroom television, I saw then Chinese president Jiang Zemin tearfully deliver Deng’s eulogy.

Twenty-seven years have passed since Deng’s death, but it seems that today there are different interpretations about his legacy. It is disappointing and worrying to see the true legacy of Deng being chipped away in recent years.

While “reform” is enshrined as a politically correct word, it seems to have lost its original meaning, to become a facade used to describe anything the central authorities are trying to do. Some of these so-called reforms are merely power sharing arrangements among different bureaucratic agencies, or even veiled attempts to enhance state controls.

At a time when China’s economic growth is losing its momentum, it is worth reminding people that the true meaning of Deng’s economic reforms were about privatisation and liberalisation. China has to follow that path to empower its own consumers and businesses so that the country can navigate through the “3D economic headwinds” – demographics, debt and decoupling.

The Chinese government hates the word privatisation and is always proud that it did not follow Russia’s shock therapy approach of selling state-owned assets. But China’s tolerance and support of the private sector is a more gradual and controllable form of privatisation, and the private economy now contributes the bulk of the country’s output, tax payments and jobs. The concept of private property rights is deeply ingrained among Chinese people.

In the Mao Zedong era, almost everything belonged to the state, and in extreme cases, having hens in your backyard could even be seen as inappropriate. The result was absolute poverty, and only when China began to recognise individuals’ rights and entitlement to wealth did the economy start to take-off. In rural areas, peasants abandoned collective farming after Deng and his reform lieutenants supported their desire to decide what they could grow. Deng also allowed private businesses to thrive and rolled out the red carpet for “capitalists” from Hong Kong and Taiwan.

China should have continued along the path where the idea of “public ownership” would gradually fade into an ideological backdrop. But Beijing has started to emphasise the role of state enterprises, promoting the idea that the state sector can look after the public interest better than profit-chasing private capitalists. Thus, “irrational” expansion of private capital must be curbed. If that’s the case, what was the point of dismantling China’s command economy in the first place?

Another hallmark of China’s economic reform is liberalisation, which means the state has minimal intervention in economic activities. Unlike the Mao days where peasants were tied to their land and urban residents were under the supervision of their state employers, Deng’s reforms made it easier for people to move around, to choose different jobs, and start their own businesses. But the process has seen a reversal in recent years.

Private tutoring is a prime example of this in play. The sector was a vibrant and dynamic services market before the central government killed it with a regulatory notice issued in the summer of 2021. In general, the Chinese state has become more intrusive in economic activities in the past couple of years, and the damage to growth and confidence is already visible.”

GRAHAM PERRY COMMENTS;

The above article in the South China Morning Post is included to pinpoint the repeated errors made by some commentators on China. It is not published because it is approved. On the contrary it is published because it is a good example of confused and negative thinking about China. The following extracts are evidence of the mistaken approach by the writer;-

“It is disappointing and worrying to see the true legacy of Deng being chipped away in recent years…it seems [Reform has lost] its original meaning, to become a facade used to describe anything the central authorities are trying to do…The Chinese government hates the word privatisation and is always proud that it did not follow Russia’s shock therapy approach of selling state-owned assets… China should have continued along the path where the idea of “public ownership” would gradually fade into an ideological backdrop… In general, the Chinese state has become more intrusive in economic activities in the past couple of years, and the damage to growth and confidence is already visible.”

2024 is not 1976, the year the Cultural Revolution ended and Deng Hsiaoping’s Reform was ingtroduced. The difference of 48 years has seen great changes in China’s economy and much of it is due to Deng’s recognition of what needed to be done to revive both China’s economy and the spirit of the people which had been badly damaged by the extreme Left policies of the Gang of Four.

The population needed to taste something of the good life and the biggest achievement in the near half century has been to improve people’s living standard by taking almost a billion people out of poverty and offering the choice when it comes to work, accommodation, travel, entertainment and choice of clothes and restaurants.

Deng responded to the crisis post Gang of Four and looked to capitalist enterprise and initiative to assist the improvement in living standards. There was always going to be a corrective. It was inevitable that Capitalists, including the 800+ Billionaires would seek political influence and power but , as Deng made clear, the priority was to give opportunity to commercial enterprise knowing that a corrective would come later. And when Jack Ma stepped out of line and tried to dictate to the Party the shape of China’s future, he was put in his place by Xi Jinping in the same way Deng would have done. Remember it was Deng who fell out with Premier Zhao Jiyang in June 1989 and then gave the order to the PLA to clear Tiananmin Square of protestors.

Public Ownership was never going to yield to the Capitalists. The essence of Deng’s thinking – maintained and pursued by Xi – was to utilise the commercial skills of the billionaire capitalists and enable them to contribute significantly to the improvement in the standard of living of the Chinese people and to help provide the USD1 trillion to finance the Belt and Road Initiative but never at the expense of the leading roe of the Party and the building of a Socialist Society with Chinese characteristics.

China needed Deng in the post Cultural Revolution era and China also needed Xi in the Socialist Modernisation era. There must always be a role for the Capitalists and National Bourgeoisie but in harmony with, and not at the expense of, the Party. The failings in the property sector will focus on the property speculators who began to gamble with people’s homes and accommodation. There will be a corrective – which Deng would have implemented had he been been alive today. He knew when to relax and when to impose controls. Xi is in the same mould. The key is the Party. It must remain centre stage  – alert, self-critical, and ahead of the game. The real error in life is not to make mistakes but to repeat them.

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#3    CHINA POLICY ON TAIWAN

        SOUTH CHINA MORNING POST

“China’s former ambassador to the US Cui Tiankai said Beijing will not fall into a trap of “someone” starting a war in the Taiwan Strait. “We certainly don’t want to see a situation where Chinese are killing Chinese,” he told the Asia Spotlight conference.

In a panel discussion on the geopolitical outlook, as part of the Asia Society Policy Institute event in Washington on January 25, Cui said China’s first priority in foreign policy “is always relations with the United States”.

In footage posted online on January 30, Cui did not comment on the possible election of Donald Trump, but said he hoped Washington would take into account the interests of Asia-Pacific countries, including China.

Cui, who is now an adviser to the official Chinese People’s Institute of Foreign Affairs, also said that Asia-Pacific countries should work to stop tensions in the region worsening to Cold War levels or run the risk of a “dangerous decade”.

Cui was China’s longest-serving ambassador to the US since the two countries established diplomatic relations in 1979, spending more than eight years in the role before stepping down in 2021. He concluded his remarks with mention of Taiwan, which Beijing regards as part of its territory, to be brought under mainland control by force if necessary.

GRAHAM PERRY COMMENTS;-

At the end of World War II, Mao Tsetung developed his theory that the US revved up fear of the USSR as a means to extend its power and influence over Western Europe. Today the US revvs up fear of China for the purpose of extending its control over Asia. China, says the US, is “coercive” and uses its “economic muscle” to bully smaller countries into submission. The US uses Taiwan to instil fear in the South China Sea that China will overrun the region. This is the “domino theory” at work again. Remember the context – if Saigon falls the whole of South East Asia will collapse. Saigon did fall, the US suffered a big defeat but S Korea, Indonesia, Malaysia, the Phillipines, and Taiwan have not fallen. But the #1 country in the world keeps brandishing fear of China in the hope that it will strengthen US’s role in the region. The US military is everywhere in the region as the late John Pilger pointed out with its 500 military bases and the AUKUS submarine initiative to come

China does not want war but as with every one of the 14 countries with whom it shares a common frontier, China reserves the right, as does every country in the world, to prevent any part of its territory from breaking away and becoming independent. Taiwan is a part of China – not an independent country.

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#4 FOREIGN DIRECT INVESTMENT IN CHINA FALLS

NIKKEI ASIA

Investment in China by companies based abroad has sunk to the lowest level in 30 years, according to official data released on Sunday, in a sign that foreign corporations are leaving China due to tougher crackdowns on spying and U.S. sanctions.

China’s foreign direct investment totalled $33 billion on a net basis in 2023, according to the State Administration of Foreign Exchange, down about 80% from 2022. The figure was positive as new investment surpassed outflows. But FDI declined for the second straight year and is less than 10% of the peak of $344 billion marked in 2021.

China has been working to attract investment, personnel and technologies from abroad under the “reform and opening up” policy spearheaded by Deng Xiaoping starting in the late 1970s. FDI is at its lowest point since around the time Deng pushed for accelerating that policy during a tour of southern China in 1992.

Foreign companies have been scaling down their Chinese operations after the Chinese government focused more on protecting national security, including a crackdown on spying. Authorities tightened their grip on research companies conducting market analysis and other activities, and there have been reports of workers of foreign companies being detained.

Gallup, the American research company, decided last year to withdraw from China, according to the Financial Times.

U.S. and European companies often conduct extensive research on business conditions before investing, but this work is said to have been delayed at many research companies due to revisions to the anti-espionage law that took effect in July.

“We have been unable to sufficiently conduct research” needed for new investment, said an executive at an American company.

Japanese businesses have similar concerns. In a survey of Japanese companies operating in China conducted in November and December, several respondents expressed concern about their everyday lives due to uncertainties over the anti-spying law, and noted that headquarters are not approving investment proposals.

With the U.S. restricting China’s access to advanced semiconductors, chip-related businesses are clearly shifting away from the country. China accounted for 48% of global chip-related FDI in 2018, but this figure plunged to 1% in 2022, according to the Rhodium Group.

American chip-related FDI surged to 37% from 0% during that time span, while the combined share of India, Singapore and Malaysia rose to 38% from 10%.

U.S. company Teradyne, a major manufacturer of testing equipment for chip fabrication, has relocated its key production facility from China’s Jiangsu province to Malaysia, according to Chinese media. Britain’s Graphcore, which develops chips for artificial intelligence applications, has reportedly laid off most of its employees in China.

Meanwhile, automakers have been forced to change as Chinese players become more competitive. Mitsubishi Motors said in October that it will stop producing autos in China. Toyota Motor and Honda Motor are reducing staff at their Chinese joint ventures.

The prolonged slowdown in China’s economic growth is another reason foreign companies are refraining from investing. Domestic demand is weak due in part to the real estate market slump, and there are warning signs for deflation.

Although Chinese companies have started to gain a technological edge in some fields, such as electric vehicles and surveillance cameras, they still need the support of foreign companies in areas such as advanced chips. China’s improvements in productivity could slow down if foreign corporations continue to pull out or scale down their operations there. This, along with the shrinking of the labor force, could hurt China’s economic growth over the medium to long term.

Aware of these risks, the Chinese government last month eased the revenue requirement for companies subject to screenings before joint ventures can be approved under antitrust laws. By making it easier to conduct acquisitions, including those involving foreign companies, the government hopes to make the Chinese market more attractive.

However, foreign companies are concerned because of uncertainties over how China will implement its policies regarding national security and other areas, as well as structural reasons for the slower economic growth. Whether the government’s efforts to open up will lead to new investment by foreign companies remains to be seen.

GRAHAM PERRY COMMENTS;-

The drop in foreign direct investment in China, as the Nikkei article makes clear, is not linked to current China problems in its property sector. With an annual growth of 5.2% in 2023 there is ample evidence of China’s positive forward progress. That is not to make light of the Evergrande/Country Garden created slump in the property market – that remains a problem which China is addressing and will resolve, not immediately or in the short term but in the medium to long term – the recent interest rate cut is a start but there is more to come.

The reduction in foreign investment is a political issue and needs to be seen in the context of the changing nature of relations with the US. Biden and Xi Jinping may shake hands and exchange smiles in San Francisco but the reality is that China is implementing crackdowns on spying and U.S. sanctions for reasons that are political and not economic.

The US is being challenged by the rising China and does not like it. Empires rarely yield without a fight and the reality of 2024 is that Washington, the Pentagon, the US Joint Chiefs of Staff know that China’s world progress needs to be restrained. China has no Empire ambitions – no Chinese soldiers or military bases outside China – but economic progress especially with the Belt and Road Initiative does warn the US that it will slip to #2 as a world economic power.

Both countries – China and the US – prefer peace but prepare for war. China wants to continue to grow economically and increase its capacity to create win-win options in its dealing with the emerging economies of the newly named Global South. But it is realistic and fully aware that China’s progress is a challenge to the US and the US pursues a policy of containment – hence tariffs and customs duties and obstacles placed in the way of China’s growing economic achievement. The biggest criticism of the US as regards the Ukraine War is that Russia is not the US’s main problem and yet resources are being devoted to fighting Russia when China remains the #1 challenge for the US.

China is on notice that the US has China in its sights and it takes protective action to crackdown on US spying and sanctions. These measures may damage China’s trade and economic performance but that is China’s choice and that reflects China’s confidence in the future and not its lack of confidence. “China hopes for peace but prepares for war”. It is on its guard and it has been on its guard since 1 October 1949. Macarthur during the Korean War pressed President Truman to take on China  and again at the height of the Vietnam War the US considered a pre-emptive strike against China. The same issues now confront Biden and Washington. What to do about China? War or Peace?

GRAHAM PERRY

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