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Friday, July 19, 2024

MEDIA COMMENT ON CHINA ISSUE #505

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Graham Perry
Graham Perry
Experienced Arbitration Lawyer | China & Chinese Business Affairs | Public Speaker/Lecturer.

GOOD MORNING FROM LONDON

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#1   CHINA AND THE NETHERLANDS –    SEMICONDUCTOR TENSIONS

#2   REDS UNDER THE BEDS

       EDWARD LUCAS IN THE TIMES

#3   CHINA LEAD ROLE IN CONSTRUCTION OF NEW INDONESIA CAPITAL

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#1    CHINA AND THE NETHERLANDS – TENSIONS

         SOUTH CHINA MORNING POST

        “China’s commerce minister spoke with his Dutch counterpart this week in a bid to dissuade the European country – exporter of the world’s top chipmaking equipment – from hi-tech decoupling, which would hurt Chinese efforts to develop their own advanced semiconductors.

Wang Wentao and Geoffrey van Leeuwen, the Netherlands’ acting foreign trade minister, met in Beijing on Wednesday for “in-depth exchanges of views on issues such as exporting lithography machines to China and strengthening cooperation in the semiconductor industry”, Wang’s ministry said in a statement. Lithography is a chipmaking process.

Washington has asked third countries with US business interests to avoid selling sensitive tech-related gear to China as part of the two superpowers’ wider economic rivalry that has intensified since a trade war broke out between them in 2018.

Dutch lithography equipment maker ASML has been restricted from selling its most advanced line of extreme ultraviolet (EUV) tools in China for the past five years but has insisted that the chip-export policy is not the result of pressure from the US.

Tightened export controls on advanced chipmaking systems reduced ASML’s sales to China last year by 15 per cent. But ASML, which holds a monopoly in the world’s most advanced chipmaking equipment, still has 13 offices in China. Chips run critically important modern devices such as smartphones, computers and vehicles.

The Dutch company continues to ship China equipment that spins out less-advanced chips. China-based customers made up 29 per cent of the firm’s total system sales last year, more than in 2022.

China is “basically saying, ‘Don’t follow the US, and we can be a valuable trade partner’,” said James Chin, a professor of Asian studies at the University of Tasmania. “In terms of chips, China is very worried. That’s why China tries so hard to develop its own.”

Wang called the Netherlands a “trustworthy economic and trade partner” and said China hopes the European country will support companies in fulfilling contractual obligations and “ensure the normal conduct of lithography machine trade”, according to the ministry statement.

GRAHAM PERRY COMMENTS;-

So here is the context to readers of this column.  The US is fighting hard to retain its position as the #1 economic and political power. It successfully beat off the challenge from the USSR who could not compete with the US policy of “Guns and Butter” The US was now the world’s only superpower. China did not feature in US strategic thinking because it was struggling with the consequences of the internecine Civil War that was the Cultural Revolution.

But the US took its eye off the ball. China was changing and rapidly so but it did not impact upon the White House or the Pentagon or the Senate. After all the US had seen off the USSR and they could do it again in the unlikely scenario that China could ever rise to the level of the US. But the US strategists read China wrong and in the late 1990s they began to wake up – China was on the move. Instead of isolating China, the US and its allies would embrace the 1bn+ people and seek to buy off its determination to be independent, strong and successful.

The doors of the WTO were thrown open. China was brought in from the cold and would prosper from increased contact, trade and cultural exchanges. China would change. PRC businessmen/women would enjoy fraternising with the Western counterparts, seek more of the good life and return to China determined to press for more economic and political rights. China would be bought off. The world was safe for the US. But was it?

This brings us back to semiconductors. The US is trying to squeeze China into submission. Trump started this and Biden has continued it. Apply increasing pressure and China will wilt and the world will be safe. But China is not for turning. It can provide “Guns and Butter”. The US misread China politically and underestimated China economically. The battle is on.

China has economic strengths – rare earth minerals, the highest number of STEM graduates and quite startling progress with Huawei, Electric Vehicles and High Street Fashion but it also has vulnerabilities and semiconductors is one of them. Hence the focus on tensions between Holland and China. China is experienced in fighting its corner – it adopted a hard line with Australia but coal and wine exports to China  have done a U turn and tensions have eased.

You can be sure that China is burning the midnight oil as it searches for a solution to its lack of semiconductor capacity. It out-manoeuvred Washington re Huawei – red cheeks in the White House. A brave person would bet against China finding its own solution to semiconductors with a blend of a surge in domestic production and increased imports as the US efforts to ban sales to China falters.

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#2    REDS UNDER THE BEDS

        THE TIMES

        GRAHAM PERRY INTRODUCES

Edward Lucas self-describes himself as “a best-selling author, journalist and security expert who wants to fight for democracy, justice and the environment.” And I re-produce an abridged version of an Essay that appears in the weekend Times of 30 March 2024.

Mr Lucas has become known as a stern critic of China.

“The Chinese Communist Party wants to be the most powerful political organisation in the world. Britain is in its sights. And we squirm and dither…

Cyber-snooping is the electronic equivalent of a burglary, with every element of your private and professional life open to exposure, distortion impersonation and interference. Unpleasant though that is, the four victims should take it as an accolade. As members — with scores of lawmakers from two dozen other countries — of the Inter-Parliamentary Alliance on China, which highlights the menace posed by Beijing.

Russia assassinates Kremlin critics, Iran targets dissidents, and Islamist terrorists punish blasphemers. But only China aims for hegemonic control of discourse. The most blatant attack is on our decision-making. While bullying those who stand up to China, whether on human rights, Taiwan, Tibet, Hong Kong or any other supposedly off-limits topic, the party-state also schmoozes its allies. Retired politicians are particularly vulnerable to this. Our former prime minister Lord Cameron of Chipping Norton was for a time promoting a $1 billion UK-China investment fund, specifically criticised in a report by parliament’s intelligence and security committee (ISC). Later he promoted a Chinese-backed port project in Sri Lanka — just the sort of infrastructure scheme critics say puts emerging economies into debt-dependency with Beijing.

The aim of China’s carrots and sticks is to curb the exercise of political freedom in other countries. In the eyes of the party-state in Beijing, any criticism of China, anywhere in the world, is by definition impermissible interference.

Examples of successful Chinese pressure on our decision-making abound. The City of London booted Taiwan out of the Lord Mayor’s Show on Chinese instructions…twisted the late Queen to give tea to the visiting Chinese premier in 2014:

The damage to our credibility and our interests is not just symbolic. Fees from Chinese students — 150,000 of them — keep our failing universities afloat, affecting academic freedom there and the safety of staff and students. We commissioned China to build nuclear power plants. This week an arms-length government body signed a multimillion-pound contract with Lenovo, a Chinese electronics firm, to install a supercomputer at its research centre in Cheshire

China’s ravenous appetite for our data also makes every commercial, political, military and intelligence secret in every Western country vulnerable. So too is every facet of our personal privacy, creating new opportunities for blackmail and bullying. The advent of quantum computing will make what were once well-encrypted private messages and data open to Chinese investigation.

The underlying reason for our inaction is simple. China is too difficult a problem — and difficult because we made it so. We are paying the price for our naivety, greed and complacency during the so-called “Golden Age” of Anglo-Chinese relations, pioneered from 2010 onwards by George Osborne as chancellor and Cameron as prime minister. In the headlong scramble for trade, investment and cultural ties, lubricated in many cases by lavish hospitality, consultancy fees and other boondoggles, all worries about national security and the preservation of our political freedoms and others were cast aside.

All this reflects our astonishing lack of a published China strategy: one that lays out the threats and opportunities posed by this vast, powerful country, with a plan containing priorities and trade-offs. In Whitehall, parliament and in China-watching circles, impatience at government silence on this is at boiling point. Two ministers complained about the lack of a strategy at a private think tank meeting last week.

True, a highly classified and narrowly focused document sets some priorities for our spy-catchers, military planners and top diplomats. While it remains secret, it cannot help shape our wider economic, cultural, academic and other relations with China. The most recent government assessment a year ago spoke of an “epoch-defining and systemic challenge” to the UK but said the government’s “preference” was for “better co-operation and understanding, and predictability and stability for global public good”.

What else should we do? One important step would be more transparency. MPs their advisers and to members of the upper house. Think tanks and lobbying firms merit more scrutiny too. It would be nice to know, for instance, whether companies with “lords on boards” have Chinese clients.

GRAHAM PERRY COMMENTS

Lucas’s article is a flood of anti-China comment and observation. But he makes a significant error in the reference in paragraph 3 when he writes in reference to Lord Cameron “Later he promoted a Chinese-backed port project in Sri Lanka — just the sort of infrastructure scheme critics say puts emerging economies into debt-dependency with Beijing”.

It is his reference to “just the sort of infrastructure scheme critics say puts emerging countries into debt-dependency with Beijing”. This is a reference to China’s Belt and Road Initiative BRI) where China has advanced USD1 trillion to 130 countries to assist in their economic development. The funds have been used to construct ports, highways, airports and infrastructure.  China’s critics were quick to dismiss the initiative as “debt trap diplomacy” This allegation – that China advanced the funds to lull borrowing countries into debt thereby enabling China to seize the assets of the borrower – has been rejected by two sources of substance. The first is the renowned US Historian Francis Fukiyama (the author of The End of History) and the second is the International Monetary Fund – the IMF. And yet Lucas persists in making this allegation.

It calls into question whether Lucas can be relied upon for balanced and objective comment on China.

He writes regularly and adversely about China. China’s emergence as a leading power upsets him. He sees every Chinese as a spy committed to furthering what he would say is the “despotic” power of China. 

“Reds Under the Beds” was a phrase invented by the US at the height of the Cold Way in the mid 1950’s to describe the panic created by Senator Joe McCarthy and his House of Un-American Activities. And as a British national he offers no comment on the period 1842 to 1949 – China’s Century of Humiliation – when the UK led the way in forcing the Chinese into Opium addiction to pay for UK purchases of tea and porcelain.

Like most readers I have no knowledge of spying. My guess is that China spies on the UK and the UK spies on China. Certainly in a BBC radio programme on the development of China, the commentator readily acknowledged the prominent role of Cable and Wireless in tapping phone conversations of Chinese diplomats. But the whole issue is intended to deflect attention and to damage China’s reputation as it continues along the path to become the world’s largest economy.

Commentators such as Edward Lucas are desperate. China is not falling into line. It is not playing the game. It will remain strong and independent as it seeks to convert China – maybe by 2049 but not earlier – from being what it is today, a moderately prosperous country, to what it should be by 2049 – a prosperous country and still with the Communist Party in the driving seat.

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#3   CHINA’S KEY ROLE IN CONSTRUCTION OF NEW CAPITAL OF INDONESIA

       SOUTH CHINA MORNING POST

“China is positioning itself to become one of the top foreign investors in Nusantara, the planned new capital of Indonesia that is being built from scratch over the next 20 years in the middle of forests and palm tree farms.

The investment is expected to become the stand-out showpiece in a growing body of work building smart cities and other landmark urban zones in other countries, analysts said.

The projects in turn would help China connect with friendly nations to facilitate trade, they added, giving Chinese construction firms a chance to prove themselves abroad.

“It’s fair to say that China has the strongest squad of engineers and constructors, who have benefited from the country’s building boom since the mid-2000s,” said Xu Tianchen, a senior China-based economist with the Economist Intelligence Unit.

“China is also experienced in providing full life cycle solutions, from financing to construction and maintenance, which make life easier for host countries.” The Indonesian minister of investment has said that doing business with China is easy.

Beijing-based state-owned builder Citic Construction has expressed interest in developing 60 residential towers in Nusantara, which is set to replace flood-prone Jakarta as the national capital.

Building cities for other countries also naturally follows China’s 45-year “leap” in its own urban development, as well as the goals of its Belt and Road Initiative, said Victor Gao, vice-president of the Centre for China and Globalisation in Beijing.

Beijing’s signature Belt and Road Initiative has spawned China-funded infrastructure projects in scores of countries, including ports, highways and power plants.

Construction of smart cities – a term that usually refers to technology-aided management of traffic and urban resources – advances China’s goal of increasing “connectivity”, especially in countries near its borders such as in Southeast Asia, Gao said.

Chinese-funded projects in Nusantara – which is located on the east coast of the island of Borneo – would follow work in Africa, the Middle East and elsewhere in Asia.

In Egypt, Chinese contractors built much of the New Administrative Capital government centre, Egyptian Hong Kong-based consul general Baher Sheweikhi previously told the Post. The new capital includes one of the African nation’s tallest skyscraper

Several Chinese companies are also helping construct Egypt’s New Alamein, a city designed to accommodate autonomous shared cars and public transport systems, Xu added.

China is also taking part in the construction of Neom in Saudi Arabia, which officials call a “futuristic” development. Chinese firms have worked on tunnels, solar power stations and water desalination projects, Xu said.

In 2019, China and Kenya signed a US$665 million deal to help build “smart cities” in the African nation, with Chinese telecommunications equipment giant Huawei Technologies nominated to carry out the work.

And in 2020, Alibaba Cloud – Alibaba Group Holding’s cloud computing unit – received clearance in 2020 to install hardware for Kuala Lumpur’s smart city system that is designed to collect and integrate real-time data from traffic cameras. Alibaba is the owner of the South China Morning Post.

China already ranks as Indonesia’s second-largest investor after Singapore following a steep climb over the past decade, with combined direct investment from mainland China and Hong Kong in 2023 of US$13.9 billion.

“Chinese construction companies are increasingly competitive worldwide, in terms of expertise,” said Zha Daojiong, an international studies professor at Peking University.

The projects in Nusantara are also significant for China because Indonesia is Southeast Asia’s largest country, a member of the Regional Comprehensive Economic Partnership trade pact and an original member of the Belt and Road Initiative, said Zhao Xijun, a finance professor at Renmin University in Beijing.

And a US$7.3 billion, 142km (88 mile) high-speed railway built by a Chinese-invested consortium on the populous island of Java, which opened last year, should be seen as a “model” for what China can do, Zhao added.

“That’s a very successful cooperation project in terms of investment in Indonesia,” Zhao said.

The Nusantara Capital City Authority estimated that domestic firms have committed US$2.2 billion toward building the future capital versus a total cost of about US$30 billion – leaving plenty of space for foreign investors.

Officials in Beijing are watching Belt and Road Initiative partners for any “country-specific risks”, linked to economic trends and social stability, Zhao said, although Indonesia is considered “low risk”, he added. But China would still stay on alert for “significant delays and cost overruns” on the Indonesian capital construction projects, Xu said.

GRAHAM PERRY COMMENTS;-

China’s Belt and Road Initiative (BRI) has been much derided in US/EU countries and by the Western media generally. Initially, the focus of criticism was on the allegation that BRI was merely a cover for debt-trap diplomacy – that China was inducing countries to over-borrow from China thereby enabling China to seize the assets of the borrowing countries. China, it was contended, would “own” the borrowing countries and compel them to enter the China sphere of influence to the cost of the US and other leading countries.

This allegation has been dismissed by widely known US historian Francis Fukiyama, the author of the End of History. Fukiyama makes a different allegation – nothing to do with debt-trap diplomacy or asset seizure. He complains that the debtor countries who have run into post-Covid difficulties in repaying borrowed Chinese funds have put pressure on the World Bank to assist borrowing countries to repay China thereby preventing the Bank from itself being active as lenders to the developing world. That is a quite different allegation that has nothing to do with any China takeover of the BRI countries.

The second source to clear China of any creeping takeover of the Developing World is the IMF who would be quick to fall in with Washington if it was possible to sustain the debt-trap allegation.

The article above underlines the importance of the USD1 trillion that China has made available to the developing world to build ports, highways, airports and general infrastructure. No military bases in the list.

The news about China’s involvement in the construction of the new capital of Indonesia has been underlined today – 1 April 2024 – by the announcement of the decision of the newly elected Indonesia Leader Subianto to make a pre-Inaugural visit to Beijing to meet with President Xi Jinping. It is unusual for any newly elected Leader to make any foreign visit before he/she has been sworn in at the Inauguration Ceremony in the country’s capital. It is evidence of the growing significance of China in world affairs.

There is no question that each BRI transaction will encounter problems even delays – that is in the nature of large scale construction projects but the BRI has been a big plus for the 130 countries who have BRI relations with China. Even James Kynge of the FT has acknowledged the size and significance of China’s large scale, long term development – problems notwithstanding.

From the perspective of the borrowing country it is a big plus providing the recipient with the opportunity to break out of the stranglehold of restraint imposed by the Western counties. And the funds are not tied – as the West’s loans insist upon – to political terms and conditions about the structure of government or interference in the organs of administration.

GRAHAM PERRY

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