How Beijing has rearranged the diplomatic pieces ahead of a potential conflict; Exclusive Insight: The Strategic Chessboard of Power: Intricacies and Tensions Among Xi Jinping's Premier Advisors
U.S. Navy shows Chinese warship's 'unsafe interaction' off Taiwan; Indian, U.S. defense chiefs discuss upgrading ties to counter China; Chinese quants redouble AI bets amid ChatGPT frenzy
Welcome to this issue of The China Brief. Today is June 5, 2023 . Here at The China Brief, we bring you the latest news on China's politics, economy, and society from global media sources, along with exclusive expert analysis. If you find our content helpful, please subscribe to our newsletter.
Exclusive Insight: The Strategic Chessboard of Power: Intricacies and Tensions Among Xi Jinping's Premier Advisors
In the milieu of Xi Jinping's top aides are three distinguished statesmen. Firstly, Cai Qi, originating from Zhejiang where Xi Jinping forged his career path, has served under and alongside Xi for two decades. His primary responsibility currently lies in assisting Xi in managing party affairs. Secondly, Li Qiang, also a product of Zhejiang, where Xi's career flourished, was Xi's major steward during his tenure there. His current mandate involves overseeing the operations of the State Council for Xi. Lastly, Ding Xuexiang, from Shanghai, Xi's brief, gilt-edged tenure, became Xi's major steward upon his arrival in Beijing, previously holding the position of director of the General Office of the Chinese Communist Party Central Committee. Currently, Ding assumes the role of the premier vice premier, effectively the "prime minister" within the government.
The appointment of Ding Xuexiang constitutes a stroke of genius in the arrangement of the current Standing Committee members. Primarily, his function is to assist Li Qiang in his duties while simultaneously containing and disrupting Cai Qi and Li Qiang.
Three reasons can elucidate Ding's capacity to fulfill such a role:
Initially, prior to joining the Standing Committee, Ding held two positions within the Chinese Communist Party Central Committee, namely, the secretary of the Secretariat and the director of the General Office. Familiar with Cai Qi's work and subordinates, he is poised to replace Cai at any moment, thus serving as a check.
Secondly, before the twentieth National Congress of the Chinese Communist Party, Ding held a concurrent post as the secretary of the Work Committee for Central and State Organs. This committee is responsible for guiding the party building work of central and state organs (including ministries of the State Council) and supervising and managing the leaders of these departments. Through this committee, Ding essentially took control of the State Council a few years ago and has already taken over the work of the State Council, although this was not well known to the outside world. His appointment as the premier vice premier not only validates his role within the familiar system of the State Council but also allows him to legitimately assist Li Qiang from Zhejiang, whilst being ready to replace Li at any moment, thereby exercising a check.
Finally, both Cai Qi and Li Qiang, according to the party's "seven up eight down" rule (one must retire upon reaching 68 years old during a term change, while they can continue at 67), will have to retire at the twenty-first National Congress of the Chinese Communist Party in 2027. However, Ding, born in 1962, will be 65 years old at the time of the twenty-first National Congress and can continue until the twenty-second National Congress. Given the current arrangement, Ding is likely to serve as premier next term, which could effectively sever Li Qiang's line of succession.
Ding Xuexiang and Cai Qi belong to the same generation of statesmen. Their conflicting interests, in political science terms, are referred to as "intra-generational conflicts". Ding and Li, being the top two figures in the current State Council, engage in a mutual restraint which also involves "intra-generational conflicts". Furthermore, as Ding may cut off Li's succession line, these two individuals share the conflict of interest between the current and next generation of premiers, in political science terms referred to as "inter-generational conflicts". Precisely due to this inter-generational conflict, the dispute between Ding and Li, in comparison with that between Ding and Cai, has an additional temporal dimension and is consequently more complex.
In actuality, the conflicts across both intra and inter-generational dimensions are intentionally orchestrated by those who arrange the personnel, with the objective of maintaining a general political balance through internal struggle.
U.S. Navy shows Chinese warship's 'unsafe interaction' off Taiwan
Nikkei Asia
The US Navy has accused a Chinese warship of conducting an “unsafe interaction” by crossing the path of a US destroyer during what was described as a “routine” transit of the Taiwan Strait. China hit back saying that the interaction was an appropriate reaction to an inflammatory US presence in the region. The encounter is the second of its kind in a week. Rising tension between Beijing and Washington over a range of issues, including trade, global power and infrastructure projects, has led to warnings that incidents such as this one could trigger wider conflict.
Indian, U.S. defense chiefs discuss upgrading ties to counter China
Nikkei Asia
India and the US are discussing strategic technology partnerships, including defence, clean energy and space, as the two countries grapple with China's economic rise and increased weakness, officials have said. India is working towards promoting domestic defence industry by acquiring technology and reducing reliance on Russia – India's largest supplier of military hardware, despite the ongoing war in Ukraine. US Defence Secretary Lloyd Austin arrived in New Delhi from Singapore to lay the groundwork for Prime Minister Narendra Modi's visit to Washington on 22 June, where a possible announcement of defence contracts is expected.
Chinese quants redouble AI bets amid ChatGPT frenzy
Reuters
Quant hedge fund managers are increasingly looking at advanced artificial intelligence tools, as they seek counsel in a difficult investment climate. ChatGPT-style tools are being used to help them better understand company fundamentals to avoid value traps. Tools like ChatGPT, which are trained using a large amount of data and can write poetry and compose music, are also useful when it comes to processing text-related data. While some managers are inspired by these tools, with some calling advanced AI the "greatest innovation of our times", others have warned that privacy, safety, and job security are at risk if AI is overused.
A wild account of Chinese political interference unfolds in Ottawa. It's not what you think
CBC
Daniel Suidani, the deposed premier of the Malaita province in the Solomon Islands, visited Ottawa last week to share his story of China's interference in provincial politics amid an ongoing debate in Canada over China's interference in Canadian domestic politics. Suidani claimed that attempts to bribe him began after he began opposing the pro-Beijing policies of the national government in the Solomon Islands. Suidani accused Beijing of using a host of tactics to exert undue influence, including bribery, bullying and political cronyism. Furthermore, in his outgoing letter to politicians, the departing president of Micronesia, David Panuelo, also accused China of using an illicit carrot-and-stick approach to politicians. All of this raises the question over why China cares so much about the sparsely populated islands in the South Pacific. The Solomon Islands, like Papua New Guinea and Micronesia, sit directly between Australia and American-held Guam and Hawaii, marking an essential maritime corridor between critical US allies across East Asia.
China scaling back spending in Southeast Asia, report says
Al Jazeera
China has lost its spot as Southeast Asia's biggest source of development assistance, as funding from the Asian Development Bank and the World Bank overtook China during the COVID-19 pandemic, according to a report by Lowy Institute. China was Southeast Asia's key source of development assistance between 2015 and 2019, but the country's contribution fell from $7.6bn to $3.9bn in 2021. However, China still dispersed close to 20% of the region's financing between 2015 and 2021, with Southeast Asia receiving about $200bn in total from regional partners overall during this period.
Chinese state media dismisses U.S. diplomat's visit to Beijing
Reuters
China's state-backed newspaper, the Global Times, has criticised the arrival of an official of the US State Department in Beijing, claiming that his visit amounts to an attempt by Washington to create an image of a responsible country. Assistant Secretary of State for East Asian and Pacific Affairs Daniel Kritenbrink was due to hold discussions on issues affecting both countries but the Chinese outlet said the visit would be "an engagement at the working level" and "not expected to give any breakthrough performance".
After US$382 billion rout, Nomura joins Goldman in cutting China stock targets
South China Morning Post
Nomura and Morgan Stanley are cutting down on their bullish forecasts for China amid intensifying competition among tech companies, political tensions and weak economic reports in April and May. Morgan Stanley now expects the MSCI China Index to reach 70 by June 2024, down from a previous target of 80 by end-2023, following downgrades by Nomura and Goldman Sachs. Hedge funds have reduced their China positions over the past four months to 9.1%, while China-sensitive currencies including the Aussie and New Zealand dollars remain under pressure.
China's May imports to fall again, exports slip into red
Reuters
China's imports are expected to have fallen by 8% YoY in May, while exports likely shrank by 0.4% YoY, according to a Reuters poll of 26 economists. Weak global demand for Chinese goods was blamed for the poor import performance and the pessimistic outlook for exports indicates Chinese exporters have caught up on unfulfilled orders after COVID-19 disruptions last year. Although China's economy grew faster than expected in Q1, factory output has continued to lag behind amid persistent weak global growth, causing analysts to downgrade their expectations.
Morgan Stanley Joins Goldman in Cutting China Index Targets
Bloomberg
Morgan Stanley has lowered its target for China's MSCI China Index to 70, from 80, and reduced the Hang Seng China Enterprises Index target to 7,320, from 8,250. The investment bank said it was trimming exposure to company stocks due to delayed earnings recovery, weak currency outlook and geopolitical uncertainty. It had been bullish on China in December and lifted its MSCI China Index target in January. The financial institution joins Goldman Sachs in cutting targets for major Chinese indexes.
With Micron chip ban, China shows its hand
South China Morning Post
China's Cyberspace Administration has concluded a recent cybersecurity review into Micron, declaring that it is too risky for the US company, which is the last in production of memory chips in the US, to sell to key information infrastructure operators in China. The move comes amidst Washington's strict export restrictions on chips to China, which appears to be increasing. Micron chips are said to be easy to replace, and there is the potential for Samsung and SK Hynix to benefit after Washington requested South Korea not to fill Micron's gap in China. Despite the ban, the Global Times, a nationalist tabloid newspaper, has described the move as an "individual case," and China's commerce minister has stated that the country still welcomes US business investment. Analysts have argued that targeting logic chips like Intel, Qualcomm and Nvidia could end up hurting China's own production capabilities.
Indonesia hosts great-power rivals China, US in rare joint naval exercises
South China Morning Post
Warships from the US, China and Russia are set to come together in Indonesian waters for humanitarian drills as part of the Komodo naval exercises this week. At the same time, dramatic rises in geopolitical tensions have been leading to defence competition across the Asia-Pacific, with new naval exercises between the Philippines, the US, and Japan and heightened diplomatic tensions over Taiwan, which featured heavily during the recent Shangri-la Dialogue defence summit in Singapore.
Dozens arrested in Hong Kong on Tiananmen crackdown anniversary
Al Jazeera
Hong Kong police have detained around two dozen people who were holding a commemoration of the anniversary of the 1989 Tiananmen Square massacre. The arrests took place near Victoria Park, once the site of vigils until the national security law was imposed in 2020. Those arrested, including Alexandra Wong, 67, who was carrying a bouquet of flowers, and an elderly man holding a candle, were accused of “breaching public peace". The African Union, which has 55 members from across Africa, has suspended Mali's membership of the organisation. Mali's membership was frozen after a coup in August 2020 that overthrew the government led by President Ibrahim Boubacar Keïta. The action comes amid international criticism of the second military coup in Mali in one year when an interim president, Bah Ndaw, who was holding the post after the earlier coup, was forced from office.
Hong Kong journalist wins appeal in rare victory for press freedom
Nikkei Asia
Bao Choy, an investigative journalist in Hong Kong, has won an appeal against her April 2021 conviction for deceiving the government over her use of vehicle ownership records. Choy, who was investigating a 2019 mob attack on protesters for a documentary, was originally fined HKD6,000 ($765) for making false statements in an online application. The court ruling is a rare boost for media freedom in the territory, where journalists have come under increasing scrutiny over the past two years following widespread protests against the government.
China's services activity picks up in May on improved demand- Caixin PMI
Reuters
China's services sector saw a pickup in activity in May, according to a private survey by Caixin. The country's services purchasing managers' index (PMI) rose from 56.4 in April to 57.1 in May, driven by a rise in new orders following the first May Day holiday after China's COVID reopening, which boosted orders for hotel rooms, restaurants, and travel. However, there are concerns that pent-up demand for in-person services could fade due to slowing income growth and mounting unemployment pressures. Furthermore, the pace of job creation slowed despite increased workloads. Average prices charged by service companies increased at the quickest rate since February 2022, and capacity pressures persisted due to sustained growth in outstanding business.
Hong Kong’s Office Towers Have Never Been So Empty
Bloomberg
Hong Kong's office space has never been emptier, with billionaire landlords Li K-shing and Lee Shau Kee's premises in the business district only 25% and 30% occupied, respectively. Rents have fallen to reflect the 13 million sq ft of empty commercial real estate, much of which was thought to have been earmarked for Chinese companies which are failing to take up space due to issues with the economy and border restrictions. Unlike in other cities, Hong Kong's landlords cannot rely on the work from home trend to explain the slump. The city's landlords are starting to lose their best customers as banks scale back due to China-US tensions and their impact on the Chinese economy. Wall Street's pullback is having a significant impact with almost 30% of Hong Kong's office space taken up by the finance industry.
How Beijing has rearranged the diplomatic pieces ahead of a potential conflict
Guardian
China's defence minister, Li Shangfu, has claimed that China will not tolerate attempts to separate Taiwan from China. China sees democracy island Taiwan as part of China, though it has never ruled it, and Li claimed China was preparing for a "justified war" after Taiwan's President, Tsai Ing-wen, last month rejected Xi Jinping's call for unification under the "one country, two systems" model that governs China's mainland with Hong Kong and Macau. Russia could support China in the event of a conflict, as the two country's economic ties have grown stronger since Russian President Vladimir Putin offered support for China's position on Taiwan following Xi's March visit to Moscow. This is despite the fact that most of the world's governments acknowledge the People's Republic of China as the only government of China including Taiwan and excluding Tibet.
Here Are Questions China’s Army Asked at Singapore Defense Forum
Bloomberg
Although China elected not to take part in any face-to-face meetings at the Singapore-based Shangri-la Defense Dialogue conference over the weekend, the country’s representatives made their presence felt during panel discussions and on the sidelines. Senior officials and uniformed military personnel raised questions at the public events, addressing matters including building partnerships with the US, talk of allowing NATO to establish a presence in the Indo-Pacific and criticism of US-led security relationships. The questions were often framed so that the speakers could ignore any implied criticism. The dialogue independently produces a summary of the major points raised during the conference.
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