Adam's update: March 2020

Repurposing

I’m repurposing this newsletter, which used to be on China issues for media to a personal update newsletter from this point onwards

-Adam

Last note from the On China Newsletter

but don't worry...

Dear friends,

Thanks so much for reading my On China Newsletter over the last few months. I was surprised and grateful for the swell of support and goodwill.

This is the last note from me under the On China Newsletter. However, don’t worry, I’m taking you all to a new project: China Neican, a cooperative newsletter with expert analysis on China issues. I’m super excited!

This will be launching shortly, so please expect an email from me and my new accomplices soon.

As always, yours,

Adam

PRC's 70th anniversary parade

Beneath the facade of strength, unity and national rejuvenation

Over the last few weeks, I have been asked repeatedly what we should expect from the October 1 parade. Here I want to talk about this occasion against broader trends instead of focusing on glitzy weapons.

Weapons, weapons, weapons

But let’s get the weapons out the way first…

Researchers at the Foundation for Strategic Research in Paris have done a great job at analysing satellite images for clues on the new weapons that would be unveiled.

Based on these images, the highlights will be advanced missiles and UAVs, including the DF-41 next-gen ICBM, DF-17, a launcher for the DF-ZF hypersonic glider, the JL-2 SLBM, and a range of new drones.

Strategic messaging

First, China’s nuclear modernisation is making substantial progress. This progress is both in terms of quality and quantitive of its nuclear arsenal. Essentially, China’s nuclear force is becoming more mobile, resilient, reliable, technologically advanced, and diversified (in terms of missile systems, as well as moving away from a sole reliance on land-based nuclear forces). This makes China’s nuclear forces more secure against a first-strike, thus adding to the credibility of its nuclear deterrent by ensuring a second-strike retaliatory capability. I have written about China’s nuclear forces at length here (especially page 166-170).

Second, China’s growing conventional military capability, including missiles, information forces, and air and naval power is increasingly making it hard for the US to sustain its military edge in regional scenarios. The US military is still far more advanced than the PLA, but the PLA is closing the gap across the spectrum of capabilities and eroding the US military advantage in Asia. Also, US forces are spread across the globe whereas China can focus its military in its neighbourhood. What this means is that the conventional balance in military power, in relative terms, is tipping towards China. Hence, the PLA is more likely to deter the US from using force in regional scenarios, such as with respect to Taiwan and the South China Sea.

Finally, the parade will focus on showcasing domestic manufactured weaponry. Amid the trade war and rising technological competition between China and the US, Beijing wants to send the message that it is now a formidable technological power with the scientific and industrial foundations to support its ambition of creating a world-class military. In the past, much of China’s advanced military equipment came from abroad. Increasingly, these advanced systems are developed and manufactured in China (some with technology acquired via covert means).

A Party in a pressure cooker

Okay, having dealt with weapons and strategic signalling, let’s move on to other important stuff: CCP legitimacy, challenges, and the storm looming on the horizon.

70th anniversary is a very important occasion, especially given the domestic and international context in which this occasion is celebrated.

Domestically, Beijing faces formidable economic challenges, including intractable structural issues. And it faces the colossal task of ensuring that the expectations of the people for a better life are satisfied. After all, this is a key pillar of CCP’s legitimacy. Xi during the 19th CCP Party Congress stated that the principal contradiction facing Chinese society has evolved from “the ever-growing material and cultural needs of the people and backward social production" to “unbalanced and inadequate development and the people's ever-growing needs for a better life”.

This is not ideological mumbo jumbo - it is actually very important. Principal contradiction refers, in Marxist-Leninist parlance, to what the party should be preoccupied with as its top priority. Essentially, the CCP is admitting that in order to keep power, it needs to keep the people happy. To me, the party is a tired hamster on the wheel of material progress.

At the elite politics level, we are likely to see a further sidelining of the role of Deng, Jiang and Hu in building modern China. I suspect we will see a further sanitisation of the history of the PRC to suit Xi; drawing a straight line from Mao to Xi - from revolutionary beginnings to the threshold of national rejuvenation. This emphasis is not new. The party has already rewritten the history of the reform era. History is consistently been examined, struggled over, and rewritten in the People’s Republic. Indeed, on October 1, this will be on full display with all the accompanying symbols and rituals of Xi’s new era.

Beyond mainland China, the CCP is facing, what essentially amounts to, an open rebellion in Hong Kong without an end in sight; a recalcitrant Taiwan with a looming election; and an international environment that is decisively less hospitable. US-China competition is for the long term; the trade war is just a symptom of deeper trends. Other regional countries, such as Australia, Japan and India are also anxious about China’s power and are adjusting their strategy to better protect their interests, sometimes to the chagrin of Beijing.

Shadows loom large

The story of the 70th anniversary that the CCP wants to tell is a pretty simple one: over the last 70 years since the establishment of the PRC, CCP has led the Chinese people to rise and stand up; today China is more powerful than any time in recent history; and under Xi, China is finally on the threshold of achieving national rejuvenation; the road ahead will be difficult, but the time for greatness is imminent.

This story pandas to nationalism, which has been on full display, most palpably in the unfolding crisis in Hong Kong. But beneath the facade of confidence, unity and strength, the party-state is paranoid about the accumulating political risks, social tensions and frustrations, and the myriad of domestic and international challenges.

This year alone, Xi has warned party officials of “black swans” and “grey rhinos” risks; launched a political education campaign for the party and military officials; and called on the party to steel itself for protracted “struggles”. These are not signs of confidence. CCP perceives itself to be under assault - by both internal and external foes.

On the occasion of the 70th anniversary of the PRC’s founding, shadows loom large over China. China’s political order, hybrid economy and social stability are all more brittle than one may assume. For all we know, the fuse may or may not have already been lit.

PM Morrison argue China is not a “developing country”

Thoughts on China's economic engagement and Australia-China relations

Australian Prime Minister Scott Morrison, in a speech delivered in Chicago (on September 23) during his visit to the US, argued that China should lose its “developing country” status under WTO rules:

China’s economic growth is welcomed by Australia and we recognise the economic maturity that it has now realised as a newly developed economy. This was the point of the world’s economic engagement with China. Having achieved this status, it is important that China’s trade arrangements, participation in addressing important global environmental challenges like the ones I just mentioned, that there is transparency in their partnerships and support for developing nations, all of this needs to reflect this new status and the responsibilities that go with it as a very major world power.

What’s the big fuss?

Under the World Trade Organization rules, “developing countries” are given concessions, such as lower labour and environmental standards, and the ability to protect their own industries. “Developed countries” must conform to higher standards. This gives poorer countries more leeway to catch up with rich ones.

There are no formal definitions for “developing” as opposed to “developed” country status under WTO agreements.

The difficulty with China is that China has both the characteristics of developing as well as developed countries. By some measures such as literacy and life expectancy, China is comparable to many developed countries, but other measures such as GDP per capita, it still far behind rich countries. Its GDP per capita in 2018 was about US$9,600, compared to Australia’s US$56,000.

China is a different country now

China in 2001, when it joined the WTO, had a GDP of around US$1.3 trillion USD, today it is over US$14 trillion. So, China has done tremendously well from the international trading system.

Chinese officials continue to argue that it is still a “developing country”  because of its overall level of development and because China doesn’t want to lose the benefits that it gets from the “developing” status. I don’t see it changing position on that any time soon.

However, US, Australia and other developed economies are increasingly seeing China as having unfair advantages, because of the lower standards, but as well as questionable trade and regulatory practices, and China’s state-led economic structure.

The conundrum of economic reform

Regardless, China needs to reform its economy, including its financial sector, state-owned enterprises, intellectual property rules, the state-involvement in the economy, and barriers to inward foreign investment. 

But the complexity is that the current structure of China’s economy is the root of the Chinese Communist Party’s power. Economic growth has enabled the Party to keep its grips on power as other authoritarian regimes collapsed around the world.

The key tension is the party’s imperative to keep control of the economic levers, on the one hand, and on the other, the need for China to reform its economic structure, both to maintain its economic growth but also to address international concerns.

We are likely to see some cautious and incremental measures, but I doubt we would see any major economic reform in China’s current political climate with tighter party control and risk-aversion.

Triangular relation: Canberra, Beijing, Washington

Morrison’s latest words will fit into existing narratives in Beijing of an ungrateful Canberra that is solidly in the US camp despite having been a great beneficiary of China’s economic growth. 

Although, the Prime Minister in his QnA following the speech did highlight where American and Australian views may differ on China. He pointed out, rightly, that Australia’s economic engagement with China has been enormously beneficial to Australia and this has shaped how Australians view China. He said:

From Australia’s point of view, the engagement with China has been enormously beneficial to our country and that’s what led us to develop the Comprehensive Strategic Partnership we have with China, the China-Australia Free Trade Agreement which was quite revolutionary [indistinct] and we want to see that continue.

Of course, the US has also greatly benefited from trade with China, but there the political narrative has turned more sharply against China than in Australia.

On Australia-China relations, countries trade not because they are nice, but because it is in their interests to do so. Australia and China have both benefited from their trade with each other, it is far from one-sided despite the narratives spined out by Chinese state media.

Also, we have to remember that there has been a continued heated China debate in Australia; on foreign interference, on 5G and on a variety of other issues. While Beijing may not like the content and tenor of this debate, it is a much-needed discussion as part of a recalibration to put bilateral relations between Australia and China on a more solid long term footing.

And over the long term, navigating the triangular relationship between Australia-US-China is and will continue to be the top challenge for Australia’s foreign policy, a challenge made more pronounced by intensifying strategic competition between US and China.

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