Tagged: Economy of the People’s Republic of China

Asia – 05/27/2013 – Weekly Brief

Rebalancing the Chinese Economy
Since reports were released showing the contraction of Chinese manufacturing figures, China, as the second largest economy, witnessed its first shrinkage in seven months. The Chinese economy’s purchasing managers’ index (PMI) fell below the 50 point mark, indicating contraction of the economy, to 49.6 this month. The IMF also released its growth forecast report for China and predicted a week 7.75 growth rate compared to the 7.8 in the previous year (which was the slowest in thirteen years then). However, as Mr. David Lipton of the IMF stated, China is still growing at a very fast rate and these declines are not unprecedented. Due to the global economy, Chinese exports have been much lower and, to an extent, domestic business has also lulled. It is these exports, however, that cause concern and China is starting to see the necessity for economic reform. President Li announced plans to rebalance the economy:  taking the state’s parasitic role out of the equation and instead focus on expanding the private sector while drastically cutting government spending so as not to worsen economic conditions. In Li’s speech regarding economic reform, he addressed new policies (like interest rate liberalization, the deepening of the capital market, and loosening foreign exchange restrictions) that would facilitate the move away from exports and towards investment and consumption. Yet, in these hopes to improve the economy and livelihood of Chinese citizens, the question of whether China is ready for reform arises:  Is the government ready to stop controlling the cost and allocation of capital? Some reports suggest China would have to liberalize the banking and finance sector before pursuing any further economic reform but with few alternatives to the situation, delaying these economic reforms could consequently lead to more problems.

China Hacks U.S. Defense Plans
China’s latest cyber intrusion of American weapons systems designs has caused uproar. Over 40 Pentagon programs and 30 defense technologies like missile defense systems, fighter jets, helicopters, and navy vessels were breached. Specific designs like the PAC-3, THAAD, F/A-18, and V-22 are amongst the key designs. China denies any cyber-attack but a senior military source has suggested these breaches by Beijing are a widening campaign of espionage against American defense and government agencies. The information China has gained from the U.S. is frightening for some:  billions of dollars of combat technology advantages and 25 years of defense research are now in Chinese hands. Not only does this put China in a more strategic position, it also questions the capabilities of the U.S. and whether China could use stolen information to find American defense vulnerabilities. These attacks come shortly before President Xi and President Obama are set to meet on June 7 and U.S. National Security Advisor, Tom Donilon, called on Beijing to take adequate investigational steps on these attacks because it has reached an unprecedented level. Donilon told Xi that the U.S. was committed to fostering a relationship with greater levels of trust, practical cooperation, and addressing disagreements and differences maturely. Chuck Hagel also heads to Southeast Asia to discuss the escalating cyber threats. Experts have suggested it is finally time to use sanctions or punishments against China to deter it from future attacks but former cyber director at the FBI, Shawn Henry, has said it would be useless and changes in cyber behavior will only be seen once China understands where red lines are and the resulting repercussions for crossing them.

North Korea Re-opens Kaesong Industrial Park
North Korea has invited back South Korean managers to discuss talks of normalizing the Kaesong Industrial Park relations, after it was closed in April. Reports suggest this is the North trying to cooperate because South Korean business is essential for North Korean workers; however, this round of diplomacy might fall short of the North’s expectations. The South Korean managers being invited back into Kaesong were also those held hostage by the North in late April and the South has made it clear that the North must provide a guarantee that the use of the economic complex will not be used for political leverage again. Business owners have also called on both governments not to let politics interfere in economics; over 120 South Korean companies are located within the Kaesong Industrial Park and employs over 50,000 North Koreans. The North relies heavily on these companies to contribute to its economy but it will have to give reassurance to the South before Kaesong becomes fully operational again. On May 29, about 250 people gathered at the South Korean border to demand the reopening of Kaesong. This group had planned to hold a rally but was stopped short by police due to the lack of a protest permit.

North Korea Agrees to Talks of Nuclear Disarmament
After months of pressure from China for North Korea to restart talks of nuclear disarmament, the North has finally agreed to renew talks by launching dialogue with all relevant parties. However, speculation remains because North Korean Envoy, Choe Ryong-hae, did not specifically offer talks on North Korean disarmament or ending its nuclear program. Rather, Choe only stated the North is willing to take positive steps to help stabilize the Korean peninsula. Reports claimed Russia readily welcomed the prospect of talks but South Korea urged the North not to engage in talks until it is serious about compliance and abiding international obligations. Talks for talks sake, according to South Korea, would only cause more turmoil. China also has taken into account the turmoil that could be stirred in the region and has been walking lightly to not disrupt the current balance before talks are reinitiated.

Maoist Rebels Attack Indian Congress Leaders
An hour-long firefight ensued after Maoist rebels attacked a policed convoy transporting members of the Congress Party. After blocking the road by felling trees and planting a land mine, the 200 to 300 rebels outgunned police officers killing 24 (Aljareeza reported 27 but others reported 24) and wounding 32. Amongst the 24 dead lie two prominent Congress Party members, Mahendra Karma, a senior politician, and Nand Kumar Petal (and his wife and son), the Chhattisgarh state party president. Prime Minister Singh said proper action against the perpetrators would be taken and Congress Party President Sonia Gandhi suggested it was a “dastardly attack.” Thousands of Indian troops searched for the attackers in Chhattisgarh to no avail. Reports claim this attack as being the most audacious in recent years and that these rebels, or the Naxalites, have continued to carry out guerilla attacks over the past four decades, repeatedly demanding land and jobs for farmers and the poor but ultimately want to see a communist society in India. Talks have been presented as an option previously but have failed each time, leading PM Singh to review the situation since “the time for talking is over.” The Chhattisgarh state government assigned, on May 29, Justice Prashant Mishra to continue to investigate the attack and submit his own report in coming months. The National Investigation Agency of India is also probing the incident and the Indian government has remained firm on its position to never back down.

Taiwan Faces Resistance over Anti-Piracy Proposal
Taiwan is currently considering a SOPA-like initiative to crack down on online piracy sites and copyright infringement. Sites like Megaupload are on the top of priority lists of sites that must be shut down. However, the question of internet freedom has (unsurprisingly) arisen. Citizens have already voiced opposition to the possible new measures – Taiwan’s intellectual property office has received dozens of messages demanding it to stop taking further action. A Facebook event was even created, advocating freedom on the web, and over 16,000 have joined. The resulting outrage is not unlike that seen in the United States regarding SOPA. Taiwan officials have promised only large offenders will be targeted and small offenders with minimal copyright material will be ignored, along with other popular sites like Facebook, Google, Yahoo, and Ebay-like sites going untouched.

Taiwan’s Fisherman Case Triggers Sanctions and Investigations against Philippines
After the Philippine Coast Guard (PCG) shooting of the Taiwanese fishing vessel, resulting in the death of 65-year-old Hung Shih-cheng, Taipei demanded a formal apology from Manila unless it wanted to suffer sanctions. The apology issued by the Philippines, however, was rejected for being inadequate. By May 15 Taiwan imposed sanctions by freezing work permit applications for Filipinos and recalling its diplomatic envoy. Yet Manila still believes it has taken proper steps in this situation, saying it has “gone the extra mile,” but Taipei, still unsatisfied, called for a further investigation. On May 27, both states exchanged teams of official investigators. Taiwanese investigators were given access to the 2 hour long video of the incident and the PCG vessel, MCS3001. Investigators collected paint samples, measurements, and documented scratches on the vessel but no final report has been released from either side. The investigators will also continue examining the slugs and shells from the MCS3001 to see if they match those found on the Taiwanese fishing vessel. Taiwan has made it clear that if evidence proves any of the PCG personnel to be guilty, it will insist on criminal liability.

India and Japan Boost Economic and Security Ties
India’s PM Singh and Japan’s PM Abe met to discuss strengthening maritime-security cooperation, protecting regional stability, promoting economic growth, and speeding up (less than two years) process of allowing Japan to export its nuclear reactors to India. Japan’s interest in exportation of nuclear reactors revolves around its ability to gain access to the rapidly expanding market of nuclear developments in India. India still suffers from power outages and seeks to ultimately increase the number of nuclear reactors from 20 to 50 by 2032. Both PMs plan to intensify political dialogue between the two and start progressively strengthening maritime-security and defense cooperation due to the territorial sea disputes with China. India and Japan agreed to carry out regular joint naval exercises and are committed to the freedom of navigation and unimpeded commerce. The two states also are working out an agreement on the sale of amphibious aircraft to India which would be the first hardware sale by the Japanese military since the weapons export ban was imposed. These talks follow those between China and India and reports suggest Japan is seeking to better relations due to the perceived challenge from China – perhaps the region will see a new balance in alliances over the next decade.
http://www.boston.com/news/world/asia/2013/05/28/india-japan-natural-partner-sea-issues/0Yjy9vSnOYzcW4JlJ029iN/story.htmlChina Makes Bid on Smithfield Foods Incorporation
In hopes to secure a safe and trusted pork supply, China has struck a $4.7 billion agreement to acquire Smithfield Foods, an American company. Two other companies also considered putting a bid in on the company but for the last four years Smithfield Foods and Shuanghai International have discussed this deal and have already established some parameters. Shuanghai plans to takeover Smithfield and the deal has been reported as generally good too go with only questions regarding the food safety regulations Shuanghai possibly causing delays even after both companies expressed their interest in maintaining safety and quality control standards. Luckily, the deal does not bring into question national security concerns thus it is not expected to be upheld by CFIUS. China has repeatedly seen problems with unsafe chemicals being used in domestic products and as the appetite of China’s economy and middle class grow, trusted and safe products are sought. Thus access to imported meat with stricter safety standards will help satisfy China’s pork lovers as the population shifts towards a more protein rich diet.