Is the new Pakistani government good for China?

Announcements for Access members

Slack chat schedule:

• Manya Koetse of What’s on Weibo was our guest on Tuesday this week; transcript will be posted soon, but chat is viewable on the channel.

—Lucas Niewenhuis (Jeremy travelling again today)

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1. New Pakistan government makes friendly noises to China, but trouble brews

On July 26, the Pakistan Movement for Justice (PTI) and its leader, the former cricket superstar Imran Khan, achieved victory in Pakistan’s general election. It is “considered the country’s second consecutive democratic transition,” the BBC reports.

What does this transition mean for China?

• Few countries are as important to China’s foreign policy as Pakistan. The China-Pakistan Economic Corridor (CPEC), a network of over $60 billion in planned infrastructure that runs from Xinjiang in China’s far west to the southwestern port of Gwadar in Pakistan, is a centerpiece of the Belt and Road initiative.

• Imran Khan has previously criticized CPEC, according to Inkstone, but “later reassured Chinese officials that he had no problem with the Chinese money – only where the Pakistani government was allocating it.” Now he says he wants to “use it and drive investment into Pakistan.”

• “Pakistan is likely to review some” of the CPEC projects following the power transition, but “is likely to maintain close ties to Beijing as a foreign policy priority,” analysts told the South China Morning Post.

• The PTI says that it wants to learn poverty alleviation from China, according to a statement on its official Twitter feed, along with “how they curbed corruption and set the example that corruption does not pay.”

• Pakistani media also made happy noises, mostly sticking to simple reports on boilerplate statements from China’s foreign ministry about the two countries’ “all-weather strategic partnership.”

Though the new government does not appear to intend to disrupt relations with China, trouble is brewing, Andrew Small, an expert on China-Pakistan relations at the German Marshall Fund, writes for War on the Rocks:

“In the run-up to the elections, CPEC has been languishing. The second phase of the scheme has stalled, civil-military skirmishing has consumed the country’s political energies, and Pakistan’s balance of payments situation has entered another crisis. Meanwhile, Beijing is facing growing pressure to improve its fraught relationship with New Delhi, where the deepening China-Pakistan axis has become one of the biggest points of contention.”

In the past few days, a controversy erupted over how much debt CPEC projects were putting on Pakistan.

• Pakistani officials told the Wall Street Journal that the country was headed towards a debt crisis (paywall), and the newspaper reported that “by early fall…Pakistan’s new government is likely to seek a bailout from the International Monetary Fund,” the conditions for which “would force the country to curtail” CPEC projects.

• China said that report “deviates from the facts,” because, the Journal says, “it didn’t identify who say that the infrastructure program is becoming a debt trap.” But the Journal stands by its reporting (paywall).

Another perennial issue for CPEC is political instability, as the all-important Gwadar port lies in the province of Balochistan (also spelled Baluchistan). Akbar Shahid Ahmed, a Pakistan native who works for the Huffington Post as a foreign affairs reporter, describes Balochistan as essentially the Xinjiang of Pakistan:

“I’m a skeptic [of Gwadar in CPEC], but there aren’t many of us. For the 200 million Pakistanis who, like me, were born and raised outside of Balochistan, the region is a national black hole. The province is the size of Germany and home to gas reserves and minerals we’ve been told will guarantee a Pakistani economic miracle. But it’s understood less as a real place than as our country’s version of the 19th-century American West ― and with little fanfare or accountability, Pakistan has subjected the province’s indigenous population, particularly the 7 million who belong to an ethnic minority called the Baloch, to decades of threats, kidnappings, torture and discrimination. The result has been four insurgencies, the most recent and vicious of them ongoing.”

Just over half of the 12 million people who live in Balochistan are Baloch. Admed continues:

“But a decade of writing on Pakistan has me convinced that predicting the country’s future is like politely asking fate to spit in your face. There’s one certainty in the only nuclear-armed country in the majority-Muslim world: The military, wealthy and unaccountable like no other institution, calls the shots. It’s thrilled with the Chinese project because it involves a massive infusion of outside cash without any pesky requirements about democracy. And it’s certain Balochistan should be handled with force and manipulation ― even though it’s never really tried the alternative.”

China is well aware of the volatile situation in Balochistan, and has even tried — in a breach of Beijing’s “non-interference” policy regarding other countries’ internal affairs — “quietly holding talks with Pakistani tribal separatists [in Balochistan] for more than five years,” the Financial Times reported back in February (paywall). In January this year, it was reported that the port of Gwadar would be the site of China’s second overseas military base, after Djibouti.

—Lucas Niewenhuis

2. Germany blocks China deal to protect power grid

Germany is toughening up its scrutiny of Chinese deals, per Deutsche Welle:

“The German economy and finance ministries said in a joint statement on Friday that the German government would buy a 20 percent stake in electricity network firm 50Hertz, in effect blocking Chinese investors from taking a majority stake in the strategic company.”

The government cited “national security grounds” for the decision.

Three days ago, Bloomberg reports (paywall), the most senior official in Germany’s intelligence apparatus “said Chinese acquisitions of high-tech companies in Germany represent a potential national-security threat.”

DW notes that more blockages for Chinese deals are on the horizon:

“To add to the negative visuals, earlier this week the German government said it would prevent Chinese investors from buying the machine tool manufacturer Leifeld Metal Spinning. The veto would be the first time Germany has prevented one of its firms being sold to Chinese investors.”

—Lucas Niewenhuis

3. Trade war, day 22

A quick roundup of the latest news in the U.S.-China trade war:

• A “miscellaneous tariff bill” to lower taxes on hundreds of imported Chinese products, and products from other countries, has been unanimously passed by the U.S. Senate, Reuters reports.

• The bill is aimed at “getting rid of tariffs set up to protect industries that no longer exist in the United States” — for example, “Hamilton Beach…would pay reduced tariffs on Chinese-made toaster ovens, steam irons and other household appliances it used to make domestically.”

• The White House has not taken a position on the bill, though it appears ready to head to President Trump’s desk soon: It earlier passed the House of Representatives, which now just needs to “resolve minor differences” with the Senate’s version of the bill “before they can send the legislation to Trump to sign into law.”

• Preparations for the China International Import Expo, scheduled for November 5 to 10 in Shanghai, have taken on new urgency with the trade war. “China has mobilized 60,000 companies to buy imported goods” to “promote the allure of the country’s market” and counter its closed-off image, according to the South China Morning Post.

• Despite plummeting investment in the U.S. — see this The China Project report — Chinese firms may be increasing overseas investment overall, according to investment bank Natixis, CNBC says.

• “Overseas investments [from] China rose from $170.2 billion in 2016 to $185.4 billion in 2017” and “outbound acquisitions and investments are expected to pick up further in 2018.”

• A full-blown trade war would “wipe 20% off” the S&P 500, and “profits for S&P firms would take a 14.6 percent hit,” CNBC reports, based on a new report from UBS.

• For now, China’s economy is mostly insulated from the “direct impact” of tariffs on its economy, according to the International Monetary Fund.

—Lucas Niewenhuis

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Our whole team really appreciates your support as Access members. Please chat with us on our Slack channel or contact us anytime at editors@thechinaproject.com.

Here are the stories that caught our eye this week:

• Chinese parents are in an uproar after reports that Changchun Changsheng, a vaccine producer in northeastern China’s Jilin Province, had produced and sold 250,000 substandard vaccines. Chinese authorities have arrested 15 people close to the matter on suspicion of “criminal offenses” as wary parents are reportedly flocking to Hong Kong to get their children vaccinated.

• The #MeToo movement in China has reached the nonprofit and media worlds. Several prominent Chinese men have been accused of sexual misconduct, including high-profile television host Zhu Jun 朱军, veteran journalist Zhang Wen 章文, and Lei Chuang 雷闯, an activist for equal rights for hepatitis B carriers.

• Amid pressure from China, major U.S. airlines, including American Airlines, Delta Air Lines, and United Airlines, have updated their websites, where Taiwan is no longer listed in a way that implies it’s a separate country. But China insists that the compliance is “incomplete,” because they did not outright list “Taiwan, China” as an option in their website dropdown menus.

• An improvised bomb exploded near the U.S. embassy in Beijing several hours after a woman tried to self-immolate in the same area. It appears from eyewitness accounts in the media that both incidents were acts of protest, but were not connected.

• Three weeks into the U.S.-China trade war, Beijing has confirmed that contact with the Americans is frozen. Xi Jinping has declared that the trade war will have “no winner,” and the ideological divisions between the two countries are widening.

BUSINESS AND TECHNOLOGY:

• Qualcomm deal not dead yet?
  China says it is still open to talks on scrapped Qualcomm-NXP takeover / Reuters
  “China’s State Administration for Market Regulation (SAMR) said in a statement on Friday that proposals put forth by the firms to resolve Chinese antitrust concerns were insufficient, but it hoped to continue communicating with Qualcomm.”
  NXP’s chief criticizes China after Qualcomm deal collapses / NYT (paywall)
  “Richard Clemmer, chief executive of NXP…said Chinese authorities gave no explanation for withholding approval for the transaction. He said that there were no government requirements or regulations that the deal did not meet, adding that Qualcomm and NXP had both agreed to undisclosed concessions to address antitrust concerns raised by Chinese authorities.”

• RMB value
  Why is China’s currency falling? / Bloomberg (paywall)
  “Since April, the yuan has fallen by almost 8 percent against the U.S. dollar. This has led many analysts and politicians to speculate that China is intentionally trying to devalue its currency to offset the effect of President Donald Trump’s tariffs. It almost certainly isn’t.”

• Bilibili and other video apps
  Bilibili removed from Android app stores for promoting incest / Sixth Tone
  “Bilibili, an anime-centered video platform especially popular with millennials, has been removed from several app stores in China after it was criticized for inappropriate content. On Thursday afternoon, Bilibili’s app was removed from several Android app stores, including the default app stores of Chinese smartphone brands Xiaomi and OnePlus.”
  This crazy way people watch videos in China is a whole subculture on its own / Goldthread
  Sweeping crackdown strikes again: Authorities punish 19 video apps for spreading vulgar content / TechNode
  “A total of 19 Chinese video apps, including the popular Neihan Fulishe (内涵福利社), Bilibili (哔哩哔哩) and Miaopai (秒拍), were slapped with penalties amid yet another crackdown campaign launched by the Chinese authorities.”

• Pinduoduo and other IPOs
  Chinese e-commerce firm Pinduoduo jumps 44% in trading debut / CNN
  Ex-Googler becomes China’s 12th richest person / Bloomberg (paywall)
  Pinduoduo and two other Chinese tech stocks to land in U.S. today / TechNode
  “By 24:00 July 27 EST, 19 Chinese companies will have been listed in the U.S. in 2018.”
  The incredible rise of Pinduoduo, Tencent’s most powerful Taobao rival / TechNode

• Potential acquisition of KFC/Pizza Hut operator
  Hillhouse, KKR said to weigh deal for $14 billion Yum China / Bloomberg (paywall)
  “Hillhouse Capital and KKR & Co. are among firms exploring a potential acquisition of Yum China Holdings Inc., the $14 billion U.S.-listed operator of KFC and Pizza Hut brands on the mainland, people familiar with the matter said.”

POLITICS AND CURRENT AFFAIRS:

• Geopolitical intrigue and Kissinger
  What Does the Apparent Trump-EU Trade Truce Mean for China? / Bloomberg (paywall)
  Some think that it is “a deliberate attempt to mend fences with allies as the U.S. girds for a protracted dispute with China.”
  Others say that “Trump’s apparent deal with Europe shows how bargains can be struck.”
  Henry Kissinger Pushed Trump to Work With Russia to Box In China / Daily Beast
  “Henry Kissinger suggested to President Donald Trump that the United States should work with Russia to contain a rising China.”
  “The former secretary of state—who famously engineered the tactic of establishing diplomatic relations with China in order to isolate the Soviet Union—pitched almost the inverse of that idea to Trump during a series of private meetings during the presidential transition, five people familiar with the matter told The Daily Beast.”
  Henry Kissinger: ‘We are in a very, very grave period’ / FT (paywall)
  Edward Luce interviewed Henry Kissinger in New York on July 17, the day after the Helsinki summit. This is what he got from Kissinger on China:
  “A divided Atlantic would turn Europe into ‘an appendage of Eurasia’, which would be at the mercy of a China that wants to restore its historic role as the Middle Kingdom and be ‘the principal adviser to all humanity’. It sounds as though Kissinger believes China is on track to achieve its goal.”
  The Chinese are wary of Donald Trump’s creative destruction / FT (paywall)
  Mark Leonard writes that “I have just spent a week in Beijing talking to officials and intellectuals, many of whom are awed by his skill as a strategist and tactician.”
  “Few Chinese think that Mr Trump’s primary concern is to rebalance the bilateral trade deficit. If it were, they say, he would have aligned with the EU, Japan and Canada against China rather than scooping up America’s allies in his tariff dragnet. They think the US president’s goal is nothing less than remaking the global order.”

• BRICS
  BRICS nations pledge unity in face of US-China trade war / SCMP
  Xinhua: Full text of Chinese president’s speech at BRICS Business Forum in South Africa
  Analyzed in detail in today’s Trivium.

• Xinjiang gulags and international response
  US urged to sanction Chinese officials overseeing sweeping crackdown in Muslim region / Hong Kong Free Press

• Vaccine scandal
  China says vaccine maker Changsheng broke manufacturing rules, faked records / Reuters via Nikkei
  “China’s cabinet investigation group has found that vaccine maker Changsheng Bio-technology broke the law in manufacturing rabies vaccines, the state news agency Xinhua reported on Friday.”

• South Korea territory dispute
  Chinese warplane enters S. Korea’s air defense identification zone / Yonhap News
  “The KADIZ near Ieo Island, south of the peninsula, overlaps with the air defense zones designated by China and Japan, a source of potential tensions among the regional powers.”
  South Korea scrambles jets to intercept Chinese warplane in its air defense territory / SCMP
  “South Korea said on Friday it had scrambled military jets to intercept a Chinese military aircraft that entered the South’s air defense territory. The Chinese plane spent more than four hours in the Korea Air Defense Identification Zone (ADIZ) after flying near a submerged rock in the area controlled by Seoul but claimed by Beijing, the South Korean Joint Chiefs of Staff said in a statement.”

• Tibet
  Chinese Premier Li Keqiang tells Buddhist leaders to defend ethnic unity on rare trip to Tibet / SCMP
  “Chinese Premier Li Keqiang has made a rare trip to Tibet, visiting the capital Lhasa on Friday after stops in the southern prefectures of Nyingchi and Lohka. During his tour, Li said infrastructure investment would be boosted to improve the economy, and called for unity between Tibetans and Han in the western Himalayan region.”

• North Korea
  65 years after the armistice, veterans see vital role for China in ridding North Korea of nuclear weapons / SCMP
  “The battle wounds on South Korean veteran Park Myung-ho’s body give away his close encounters with the Chinese People’s Volunteer Army during the Korean War nearly 70 years ago. The war was paused when an armistice was signed on July 27, 1953, but the real peace that Park and his comrades-in-arms have desired for decades is still far away today.”

• The crime of remembering China’s Nobel Peace Prize winner
  China puts Guangdong musician on trial who sang about Liu Xiaobo / Radio Free Asia
  “Singer-songwriter Xu Lin was detained last year after he penned songs in memory of Liu, who died in police custody of late-stage liver cancer in July 2017.”

• Aftermath of explosion at U.S. embassy
  Beijing police claim man behind explosion at US embassy had ‘paranoid personality disorder’ / Hong Kong Free Press

• Corruption
  Ex-assistant chairman of China’s banking regulator gets 16 years in prison for corruption, state media says / SCMP
  “Yang Jiacai, former assistant chairman of the then China Banking Regulatory Commission (CBRC), was found guilty of accepting bribes of about 23 million yuan (US$3.4 million).”

• Nationalism
  Impatient China / China Media Project
  “China has a serious problem with inflation. No, I’m not talking about inflationary pressures on the economy, though those numbers have been up. I’m talking about inflation of the national ego. The country, encouraged by relentless state propaganda, has grown full of itself — and this may dangerously diminish its basic capacity for self-reflection.”

SOCIETY AND CULTURE:

• Sexual harassment and assault
  Hainan police officers suspended after allegedly asking Hong Kong sexual assault victim to drop case / Hong Kong Free Press
  “The officers allegedly refused to open a file for Sharon Lam Suk-ching — a Hong Kong director who was sexually assaulted while filming in the city. They later urged her to drop the case.”
  A #MeToo reckoning in China’s workplace amid wave of accusations / NYT (paywall)
  See Jiayun Feng’s reporting in The China Project this week: TV host Zhu Jun accused of sexual harassment and #MeToo in China reaches the nonprofit and media worlds.

• Chinese students return from abroad
  How Chinese students who return home after studying abroad succeed – and why they don’t / SCMP
  “The number of Chinese students returning from abroad has grown by leaps and bounds. In 2017, 608,000 students went abroad and 480,900 returned. China is proud of a return rate of 79 percent; in 1987, the return rate was about 5 percent, and in 2007 only 30.6 percent.”

• NüVoices co-host Alice Xin Liu interviewed
  Featured young China watcher – Alice Xin Liu: translation director at NüVoices / Young China Watchers
  The NüVoices podcast launched on The China Project last week.

• Obscure Chinese names
  It’s hard to have an unusual name in China / Economist
  A story from a Chinese person apparently with the surname Ying (嬴 yíng), which is so unusual that banks and other institutions won’t even recognize it.

• Health of students
  Study finds weight, vision, sleep problems among China’s schoolchildren / Caixin (paywall)

• Bad musicians
  Tone-deaf Kris Wu vocal track ravages Chinese social media / Radii China

• Paraglider perishes
  Hong Kong paraglider missing since Sunday found dead on Lantau Island / Hong Kong Free Press
  “Patrick Chung Yuk-wa, a 44-year-old paragliding enthusiast, was confirmed dead after being rushed to Pamela Youde Nethersole Eastern Hospital by helicopter.”

VIDEO OF THE DAY

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Viral Videos in China, July 23–27

What is China watching? This week: Tens of thousands of fish jumping out of the sea, an artificial and expensive waterfall, and a new discovery of burial artifacts.

We have also published the following videos this week:

• Fashion designer Alexander Wang on his China ambitions

• New burial artifacts discovered in Xinjiang

• Fish out of the water in Taiwan

• An artificial — and expensive — waterfall in southern China

ON SUPCHINA

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Chinese Corner: The decline of investigative journalism, slut-shaming of sexual assault victims, and students’ organizations

Read Jiayun Feng’s roundup of what China’s reading this week.

Taichung stripped of East Asian Youth Games, Nike’s optimistic China football video, and Dwyane Wade

Nike has put together an amusing video portraying the future of Chinese football. “Amusing” both because it’s a fun 90 seconds that brings a smile and because it’s complete nonsense. Also in this week’s China Sports Column: The Taiwan city of Taichung has been stripped of its right to host next year’s East Asian Youth Games, and Dwyane Wade may be coming to China.

When China embraced classical music: The Philadelphia Orchestra’s historic 1973 tour

When the Philadelphia Orchestra toured China in 1973, it was entering a country in which Western classical music had been verboten just a few years earlier. The musicians endured lukewarm audiences and a demanding Madame Mao, but those who went on that trip remember it as a monumental event — one whose lasting impact is evident in China’s embrace of Western classical music today.

Kuora: China’s dramatic fall from grace and its long road back to respectability

Around the signing of the American Declaration of Independence, China was an enormous empire and world power. Its decline would be swift and catastrophic, marked by one devastating mistake after another — for about 150 years. Seen through the lens of history, it really is a miracle that the country is where it’s at now, writes Kaiser Kuo.

TechBuzz China: Bike sharing in China, part 1: Ofo’s wild ride

The internet age has brought with it what China’s state media — somewhat incredulously — calls the country’s “New Four Great Inventions”: high-speed trains, scan-and-pay mobile payments, bike sharing, and ecommerce. This week’s episode is the first in a two-part story on bike sharing — told against a backdrop of Ofo, one of the two major Chinese players, pulling out of international markets. What happened? And most importantly, what is happening now?

• Subscribe to TechBuzz China on Apple Podcasts, Overcast, or Stitcher, or click here for the RSS feed.

Sinica Podcast: Australia’s Beijing problem

Australia has become embroiled in a debate about how serious or coordinated Beijing’s influence operations in the country have become, and what the country should do about it. Two scholars from Australia, David Brophy and Andrew Chubb, give their perspective on the controversy.

• Subscribe to the Sinica Podcast via Apple Podcasts, Overcast, or Stitcher, or plug the RSS feed into your favorite podcast app.

The Caixin-Sinica Business Brief, episode 57

This week on the Caixin-Sinica Business Brief: China’s currency amid the trade war, the potential merger of China Telecom and China Unicom, Didi Chuxing’s launch in Japan, and Doug Young on Vatti giving refunds to some customers due to a World Cup-themed marketing campaign.

• Subscribe to the Business Brief on Apple Podcasts, Overcast, or Stitcher.

PHOTO FROM MICHAEL YAMASHITA

Lakeside tai chi

A woman practices tai chi at West Lake (西湖 xīhú) in Hangzhou.

—Jia Guo