Yellen says U.S.-China ties on ‘surer footing’ after critical trip; Exclusive: How much special sovereign debt does China need to issue to suffice?

For North Koreans in China, Seeking Freedom Is More Perilous Than Ever; Crunch time at the Nato summit

Welcome to this issue of The China Brief. Today is July 09, 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: How much special sovereign debt does China need to issue to suffice?

Will the issuance of one trillion yuan in special sovereign debt be enough to rescue the economy? What kind of policies can save the macroeconomy?

Recently, the Wall Street Journal reported that the Chinese government may issue one trillion yuan in special sovereign debt to aid heavily indebted local governments and bolster commercial confidence. These special bonds will be used for infrastructure projects and those intended to stimulate economic growth.

To estimate the economic stimulation effect of one trillion yuan in special sovereign debt, we need to understand the total size of China's economy and the scale of local government debt. At the end of 2022, China's total GDP was 120 trillion yuan. According to estimates from the International Monetary Fund, the debt of China's local governments was about 105 trillion yuan. Assuming an annual interest rate of 5% on these debts, the interest payment on local government debt would require over five trillion yuan each year. Obviously, the effect of stimulating the economy and aiding local governments through special sovereign bonds accounting for less than 1% of GDP is extremely limited.

In fact, China has issued one trillion yuan in special sovereign bonds in 2020 (when China's total GDP was about 100 trillion yuan) to cope with covid19-related expenditures. Referring to the special sovereign bonds issued in 2020, even if the rumors reported by the Wall Street Journal are true, one trillion in special sovereign bonds would only be enough to temporarily alleviate the debt (interest) problems faced by local governments trapped in a financial predicament, and its contribution to economic growth can be considered negligible.

To answer the question of how large a scale of sovereign debt and what kind of policy combination can bring the current troubled Chinese economy back onto the growth track, we still need to look for answers in history.

Yellen says U.S.-China ties on ‘surer footing’ after critical trip

Japan Times

US Treasury Secretary Janet Yellen has completed a four-day trip to China, during which she held ten hours of talks with officials in Beijing. Yellen described the talks as "direct, substantive" and said they had brought US-China ties closer to a "surer footing". While she called for greater cooperation between the two nations, she also raised concerns about Chinese economic policies and warned against "nonmarket" practices and "coercive actions" against American firms. Yellen's trip is part of an effort by President Joe Biden's administration to mend relations with China while also making US policy clear.

For North Koreans in China, Seeking Freedom Is More Perilous Than Ever

NY Times

Chinese surveillance measures have made it increasingly difficult for North Korean defectors to escape their oppressive regime, with the number of defections dropping significantly in recent years. China has imposed strict limits on border crossings and internal travel during the pandemic, and its surveillance technology has made it more challenging for defectors to avoid the authorities. Many North Koreans who are stranded in China have sought help from aid workers, but the price of hiring human traffickers to facilitate their escape has skyrocketed due to the increased risk of being caught by the Chinese police. China often treats North Koreans caught trying to flee as illegal migrants and sends them back to North Korea to face punishment. 

The article highlights the case of a North Korean software engineer who was desperate to escape China without being sent back to North Korea. He and a young woman who had been held captive in a Chinese border town for cybersex reached out to a Christian pastor in Seoul, Reverend Chun Ki-won, for help. Reverend Chun has aided North Korean refugees fleeing through China in the past but has found it increasingly difficult to assist them due to China's surveillance measures and restrictions on border crossings. He attempted to arrange an escape plan for the engineer and the woman but encountered various challenges along the way, resulting in the engineer being arrested and the woman's whereabouts remaining unknown.

The article sheds light on the struggles faced by North Korean defectors in China and the obstacles aid workers face in assisting them. China's surveillance technology and strict restrictions have made it almost impossible for defectors to escape, leading to a significant decline in the number of defections in recent years. The human rights situation for North Koreans in China is dire, with many being subjected to slavery-like conditions and exploitation. Despite international criticism, China has largely ignored calls for a crackdown on human trafficking and the mistreatment of North Korean refugees.

Crunch time at the Nato summit

Telegraph

The upcoming NATO summit in Vilnius will address critical issues such as the war in Ukraine and the future leadership and membership of the alliance. The summit will send important messages to Moscow and will be closely watched by countries such as China, Japan, South Korea, Australia, and India. The outcome of the summit will potentially signal the direction of travel for the alliance for the next decade. It is vital for the West to prevail in the conflict in Ukraine to demonstrate its resolve, determination, and strategic patience to the Global South. If Ukraine, with NATO support, does not convince Russia that it has lost its war of aggression, the international order will be vulnerable to serious challenge. The potential for Ukrainian attendance at the summit and future support must be informed by history, as the offer of future membership made to Ukraine in 2008 without practical steps to achieve it led to Russia moving against the country. The balance that must be struck is whether Ukrainian membership is a strengthening of the alliance against Russian aggression or a provocation. The summit will also address the issue of defense spending, with only seven member nations meeting or exceeding the 2% of GDP target. The membership of Sweden is also a contentious issue, with Turkey opposing Sweden's entry into NATO due to differences over free speech and sanctuary for dissidents. The summit will be a test of President Biden's leadership and whether he can provide strong leadership to NATO.

Yellen’s China Trip Leaves Little Doubt Pan’s in Charge of PBOC

Bloomberg

The role of Pan Gongsheng, who was recently named party chief of the People's Bank of China (PBOC), caused confusion during US Treasury Secretary Janet Yellen's trip to Beijing. Initially, US officials referred to Pan as "head" of the PBOC and then as "acting governor," while Yellen referred to him as "acting governor" as well. The confusion has since been cleared up, with Pan now firmly in charge of the central bank. It is expected that Pan will soon take on the title of governor.

Huawei Cloud team says AI model produces faster, more accurate weather forecasts

South China Morning Post

Chinese cloud company Huawei claims to have developed an AI-based global weather algorithm that produces faster and more accurate forecasts than traditional methods. Huawei says Pangu-Weather, the first AI-based model to outperform the numerical prediction method used by mainstream weather forecast services, can produce forecasts in seconds. The company claimed the model was "10,000 times faster" than the European Centre for Medium-Range Weather Forecasts' most powerful weather forecasting tool. Pangu-Weather focuses on medium-range forecasting, covering up to two weeks, which plays an important role in disaster prevention.

China and the U.S., Still Adversaries, Are Talking. That’s a Start.

NY Times

US Treasury Secretary Janet Yellen has called for more frequent communication between the US and China at the highest levels to prevent mistrust from damaging relations. After 10 hours of meetings over two days in Beijing, Yellen said the two countries had "significant disagreements" but that she believed they were "on a steadier footing". Yellen highlighted concerns about China's commercial practices, including its treatment of foreign companies and policies that the US sees as economic coercion. She also acknowledged Chinese concerns about US restrictions on investments in China. Though Yellen's visit was seen as a positive step, experts cautioned against expecting too much to change. "Yellen’s trip will likely turn down the temperature on the economic relationship for a bit and remind the US and China that they share some commercial interests," said former Treasury official Mark Sobel. Tensions between the two countries have grown deeper over the past two years, amid disputes over trade, national security and economic advancement.

China tamps down on gatherings providing harmful information -media

Reuters

China is cracking down on meetings and gatherings that provide false information and could harm citizens, according to state media. The authorities are increasing oversight on activities that disrupt market order, affect social security and stability, and infringe on the legitimate rights and interests of the people. China wants to curb activities such as gatherings and forums that collect fees irregularly and schemes that provide participants money, expensive gifts, or securities. The crackdown also includes shutting down online accounts that create fake news and content, and targeting rumours that hurt businesses.

China and Russia seek to expand bloc as alternative to Western order: analysts

South China Morning Post

China and Russia are seeking to expand the Shanghai Cooperation Organisation (SCO) by reaching out to countries sanctioned by the West and offering alternative options to the established order, according to analysts. The SCO, initially focused on security, has increasingly sought to boost its economic role and is broadening its membership to include countries such as Iran and Belarus, which are under Western sanctions. By doing so, China and Russia are sending a signal that there are alternative options for greater Eurasian integration and to counter the Western liberal order, the analysts said.

Yellen sees progress in US-Chi­na ties at end of Bei­jing vis­it

Al Jazeera

US Treasury Secretary Janet Yellen has described her talks with top Chinese officials as "direct" and "productive," stating that they have helped put the US-China relationship on a "surer footing." While the US and China still have significant disagreements, Yellen expressed confidence that the meetings have advanced Washington's efforts to stabilise relations between the two countries. Yellen's visit is part of the US' ongoing attempts to repair ties with China, which have been strained over a range of issues. The US diplomatic push comes ahead of a potential meeting between President Joe Biden and Chinese President Xi Jinping later this year. While the talks did not produce specific breakthroughs, both sides agreed to strengthen communication and cooperation on addressing global challenges. Yellen's objective was to establish and deepen ties with China's new economic team, reduce the risk of misunderstanding, and pave the way for cooperation in areas such as climate change and debt distress. She assured Chinese officials that any expected executive order restricting outbound investment would be narrow in scope and enacted in a transparent way. Yellen stressed that the US is not seeking to decouple from China's economy but wants an open, free, and fair economy that does not force countries to take sides. She also raised concerns about unfair trade practices by Beijing, including barriers to foreign firms entering the Chinese market and issues around intellectual property protection. Yellen also discussed Russia's war in Ukraine with Chinese officials and emphasized the importance of Chinese firms avoiding providing Moscow with material support for the war or evading sanctions. Both sides downplayed expectations for breakthroughs during the talks but highlighted the opportunity for face-to-face diplomacy. Analysts in China noted that Beijing's attitude towards Yellen's visit appears to be more enthusiastic than towards Secretary of State Antony Blinken's trip, as Yellen is considered more rational in her approach to China-US economic and trade relations. The two sides have not had this level of communication and consultations for a number of years, and success will lie in starting or restarting this process.

How China is sharpening ethics rules for scientific research

Nikkei Asia

China has released draft measures to strengthen the oversight of ethical reviews in the science and technology sector. The measures, released by the Ministry of Science and Technology (MOST), require science and technology activities involving humans or lab animals, or those that may pose ethical risks, to undergo ethics reviews. Companies and institutions will be responsible for managing the reviews, with entities engaged in sensitive activities required to set up ethics review committees. The measures also establish a system to categorise and manage emerging science and technology activities that are likely to pose large ethical risks and challenges. However, the document does not provide a clear definition of "high risk". The draft measures have been praised as substantive progress in the rule of law for ethical governance of science and technology, but experts have cautioned that more clarity is needed on defining ethical risk levels, holding companies accountable, and guaranteeing the independence of the reviews.

Central bankers lose status in party, pointing to Xi loyalist's power

Nikkei Asia

The leaders of the People's Bank of China (PBOC) are losing their status within the Communist Party, as neither the current governor, Yi Gang, nor the newly appointed party chief at the central bank, Pan Gongsheng, are included among the high-ranking members or alternates of the party's Central Committee. The decline in their status suggests that the Communist Party will be directly steering financial decisions in China. Chinese Vice Premier He Lifeng, who is close to President Xi Jinping, is now considered the de facto finance chief and is expected to have significant influence over future financial policy.

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