Flying cars might be closer than we thought
From Zhongnanhai: This week in Chinese Politics
It’s the (Private) Economy, stupid
China’s central committee announced that it will prioritize the private sector in a move that counters its historic support for state-owned enterprises (SOEs). The private sector has come under intense pressure in the past decade, from the detention and jailing of CEOs to seemingly arbitrary restrictions on private companies seen as competitors to SOEs. This move therefore suggests that Beijing is nervous about the relative lack of economic recovery after the pandemic, not to mention massive youth unemployment that is estimated to be as high as 46.5 percent, leading to the government’s relative openness to lobbying efforts by the private sector.
Analysis:
The move seemingly runs counter to a number of new laws and regulations announced in the past few weeks that are designed to centralize political control over the economy. Private companies, however, should not get too excited. While this is a positive step for non-SOE entities in China, the announcement should not be seen as the government easing too many existing restrictions on businesses, particularly foreign entities operating in China. Prioritization of SOEs and extensive state intervention in the economy will persist and foreign entities will continue to see the prioritization of China’s domestic private sector as the state continues to push for broader economic self-reliance.
On the Hill: Developments in US China policy
Yellen, Kerry, and Kissinger take on Beijing
Off the back of visits by Secretary of State Antony Blinken, several cabinet (and one ex-cabinet) members visited Beijing as part of the reestablishment of high-level communication between the US and China. Treasury Secretary Janet Yellen met with economic leaders and emphasized the Biden Administration’s message of competition over conflict. Climate Envoy John Kerry’s trip further underscored this approach as the US attempts to focus on the environment as one area of cooperation, as it was during the Obama Administration.
Both visits, however, were poorly received in China, particularly as online nationalists on social media chastised those in Beijing who met with their US counterparts as capitulating to the US’s demands. Shortly after Kerry’s trip, Xi Jinping also announced that China would take its own approach to climate and environmental issues.
Analysis:
The visits should be seen as a win for the Biden Administration, first for reestablishing communication with Beijing, even if ultimately unproductive, and second so that it can point to its efforts to engage with China as requested by the US’s allies in the region. But Beijing’s lack of interest in productive conversation perpetuates what it claims is the Biden Administration’s unwillingness to meet on China’s terms, with little sign of future abatement. Moreover, the visits came amid news of China’s hacking of US officials’ unclassified emails through Microsoft servers, including email accounts belonging to Commerce Secretary Gina Ramondo and US Ambassador to China Nicholas Burns, which added tension to an already icy exchange. Moreover, the disappearance of China’s Foreign Minister Qin Gang, who has not been seen in public in several weeks, further clouded these visits’ intention to clear the air between Washington and Beijing. The rumor is that Ma Zhaoxu will replace Qin Gang as China’s new Foreign Minister.
A day after Kerry’s visit, former Secretary of State and long-time “old friend” of China Henry Kissinger continued his questionable engagement with Beijing by meeting with Xi Jinping, a meeting that other US officials were unable to secure. It is unclear whether this aided or undermined Kerry’s visit, but Beijing is much happier to meet with Kissinger as he is a symbol of US-China cooperation and a useful propaganda tool for Beijing as it tries to draw contrasts between what it frames as past engagement and present bullishness with Washington. Whether Kissinger intended to become Beijing’s “useful idiot” is unlikely, but his appearance is not a coincidence.
What’s Trending in China’s Economy?
China’s Digital Currency
Since 2014, the PRC has attempted to develop a digital currency, variously known as the: e-yuan, e-CNY, digital renminbi, or digital RMB. It is a Central Bank Digital Currency (CBDC) issued by the People’s Bank of China (PCOB) that is equal in value to the normal RMB, China’s currency. The digital RMB functions as a fiat currency, which makes it distinct from unregulated cryptocurrencies that were banned in the PRC in 2021 (after a more limited trading ban in 2017). In contrast to cryptocurrencies, digital fiat currencies are regulated and less susceptible to fraud; at the same time, the amount of information collected through such transactions heightens the risk of intense surveillance and need for digital security.
China is far ahead of the US in development and deployment of its digital fiat currency. After announcing the CBDC initiative in 2014, the PRC established a Digital Currency Institute in 2016; began testing digital fiat currencies with banking institutions in 2017 and with select cities in 2020, and the program is currently expanding to another 15 major cities. As of January 2022, more than 261 million people had opened digital wallets, although usage of the currency is below government hopes. After a limited test with foreigners using the digital currency at the 2022 Winter Olympics, the government plans on a more comprehensive test when China hosts the Asian Games in September and October of this year.
Analysis:
The digital RMB is not inherently a threat to the US. Instead, it is the US's refusal to develop a competing digital USD that makes China’s leadership on this issue concerning. For comparison, nearly 80 percent of global central banks are currently considering or developing CBDCs. Successful deployment of the digital RMB has the potential to displace the USD as the primary currency among trading partners; allows for countries to circumvent the effective enforcement of economic sanctions by bypassing SWIFT systems; and makes monitoring financial flows more difficult. Digital currencies also lead to issues of data protection and espionage, which would be true of any country who leads development on this front, but the fact that it is China makes these additional concerns more acute. Finally, if the PRC beats the US to primacy in building out a global digital currency, they may win the opportunity to dictate new norms and regulations for finance and fin-tech that will make the US less competitive.
Tech Futures
Flying cars might be closer than we thought
Shenzhen has announced plans to become the world leader in flying cars by the end of the decade. Two companies specializing in electric vertical takeoff and landing (eVTOL) aircraft have partnered with the local government in Shenzhen as part of a larger plan to create a “low-altitude economic hub.” In addition to China’s promotion of domestic aerospace, near-space, and outer space industries, Shenzhen’s move contributes to a broader ambition to dominate future aviation, transportation, and exploration industries.
Analysis:
With recent news about aerospace employees caught conducting corporate espionage on behalf of the Chinese state to assist its aerospace ambitions, companies operating in the tech industry should be particularly alert to attempts at leaking their intellectual property. This is especially true for employees that hold a Chinese passport, or who intend to travel to China, where corporate information can be either forcibly or unknowingly extracted from devices.
On the Horizon
Continued pressure on foreign firms leads to relocations
Analysis:
Pressure on foreign firms operating either wholly or through joint ventures in China is continuing despite the government’s apparent pledge to support the private sector.
In particular, foreign companies in tech, data, and consulting are increasingly relocating employees out of China owing to concerns for employee safety and protection of company assets. Morgan Stanley, for example, recently announced the relocation of 200 employees in their tech division to Hong Kong and Singapore, with Microsoft similarly relocating employees to Canada. Morgan Stanley also announced that it is creating a separate entity for operations in China as part of its de-risking strategy and to limit the entity’s exposure to the company’s global operations. Despite promises to respect the private sector (see above), it is unlikely that political pressure on foreign companies’ presence in China will ease up soon as the amended anti-espionage law continues to be enforced.
On more thing…
Asian Americans view China unfavorably
Analysis:
A recent survey reported that Chinese Americans have an unfavorable opinion of China for the first time: China for the first time: 52 percent have a negative view of China, 26 percent have neither a favorable or unfavorable opinion, and 20 percent have positive views. When compared, Chinese Americans also now have a more favorable opinion of Taiwan (62 percent) over the PRC (41 percent), but these positions still largely correlate with country of origin or heritage.
On the flip side, 78 percent percent of Asian Americans view the US favorably, including 44 percent having “very favorable” views; they also have positive views of Japan, South Korea, and Taiwan.
Final Word
Taiwan’s presidential election is heating up, with candidate William Lai (Lai Ching-te 賴清德) stating that Taiwan’s president should be able to visit the White House in a change to current policy that restricts high-level meetings between US and Taiwanese officials. The comments concerned officials in Washington, who hope to maintain the status quo on Taiwan. Recent polling from Taiwan suggests that the ruling DPP will likely do well in the upcoming election based on responses to polling that asks questions about respondents’ identity and position on Taiwanese independence.
