A controversy

Remember that time a Chinese investment proposal toppled a Western government? Neither do I.

It really happened though — in 2013:

Talks to bring in Chinese capital to a large iron ore project weren’t even ripe for a deal when the outcry over a law facilitating the use of foreign labour led to fresh elections and a new cabinet that promises to revise that legislation.

Introduced by then PM Kuupik Kleist’s Siumut party and passed last December by the Greenlandic parliament, the so-called ‘large scale law’ (storskalalov) allows for foreign workers to be paid less than the local minimum wage of $14 per hour during the construction phase of large scale projects. Greenland’s untapped mineral resources, proponents argued, could help the country achieve economic self-sufficiency and eventually independence from Denmark, but cannot be developed without a workforce not to be found among the 58 thousand local inhabitants.

A large-scale fiasco

The law raised opposition both at home and in Denmark. Kleist’s government was accused of laying the ground for an invasion of thousands of Chinese workers that would amount to “social dumping”. Such large mining projects, some argued, would bring less benefits to the local population than traditional industries like fishing, which now accounts for 90% of the country’s exports. MP Nikku Olsen called the government’s policy towards foreign investment “very shallow and not thought through”, and led a breakaway faction of the ruling Inuit Ataqatigiit party to call for a referendum on the law. This triggered fresh elections that brought back to power the social democrats from Siumut, the dominant party since the first parlamentary elections in 1979, in a coalition with Olsen’s Parti Inuit and the centre-right Atassut. New PM Aleqa Hammond’s cabinet has stressed support for developing mining into the country’s main industry, vowing at the same time to revise the ‘large-scale law’ before next year.

Greenland (population 56,186) increasingly seems like a place to watch.

Paying for all that belt and road

Is China tying its financial stability to stuff like this?

An important article by economist Christopher Balding from back in May discusses the problems with China paying for its wildly ambitious (over-hyped?) One Belt, One Road infrastructure project:

Such doubts might seem spurious, given the numbers being tossed around. China claims nearly $900 billion worth of deals are already underway, with estimates of future spending ranging from $4 trillion to $8 trillion, depending on which Chinese government agency is doing the talking. At the conference itself, Chinese President Xi Jinping pledged another $78 billion for the effort, which envisions building infrastructure to link China to Europe through Asia, the Middle East and Africa.

From no other country in the world would such pledges be remotely plausible. Yet even for China, they’ll be difficult to fulfill without clashing with the country’s other objectives.

Comrade Balding, as he styles himself, crunches the number in a bit more detail on his blog:

  1. Let’s use the $5 trillion over 5 years number reported by Nataxis (which I would highly recommend reading their research report on financing OBOR which is a link in the BV piece) but also note that other outlets like The Economist have reported similar numbers (theirs was $4 trillion). Use simple numbers for our purposes and assume it is all equally divided into equal blocks so every year sees $800b-$1t per year in overseas lending by China. That is an enormous, enormous, enormous jump in overseas lending. For thought experiment purposes, we have even extend this to 10 years. To put this in perspective, ODI from China to the ROW in 2016 after an enormous surge was $170 billion. Then ODI is down 49% YTD from 2016.
  2. Assume that all OBOR lending is done in USD, this means that either a) China is going to tap PBOC USD or b) they are going to do tap the USD bond market to fund these lendings. If China taps PBOC FX reserves to pay for this, with the numbers reported, they will have no USD left in the reserves. None. Zero. Zilch. In fact, not only will they have nothing left, they will have to begin borrowing on international USD to fund investments in such credit worthy places as Uzbekistan. For simplicity sake, assume they plan to invest $5 trillion, they use up all $3t in PBOC FX reserves and then they have to go borrow $2t on international markets. Frankly, this is a crazy financial risk by China.
  3. However, it isn’t fundamentally any better if China opts for option B to raise all the funding on international USD bond markets. If China raises the entire amount, as Nataxis noted, this raises Chinese external debt levels by about 40% of GDP and more importantly makes China exceedingly risky to any type of devaluation. Even small devaluations of the RMB would then become important. All of a sudden China becomes a very risky borrower with high levels of external debt and an increasingly risky tie to the USD. What is so crazy about this situation is that China has tied itself and its stability to the USD to Pakistani bridge repayment. Stop and wrap your mind around that for one second.

More at the link.

Balding’s conclusion in the Bloomberg article seems exactly right: “But it’s almost certain that the amount of money that makes its way into Belt-and-Road projects will be significantly lower than advertised. Grand in ambition but short on details, Xi’s sweeping initiative may be better thought of as a “philosophy” or “party line,” rather than a fixed commitment.”

China will almost certainly spend/loan a LOT of money to build the B&R, but it won’t be $5 trillion over five years (I mean, seriously). But over the long term, it will still be a lot.

Notably, the B&R doesn’t have a timeframe, which could mean either that the project is more of a marketing gimmick than a reality — or that China is simply in this for the long haul:

The only internal instructions that have come so far, have been from Zhongnanhai [China’s top leadership], and are about banning words like “project” (because the word connotes a goal and timeline, Beijing prefers the looser term “initiative”) as well as banning the publication of official maps purporting to show the scope of OBOR [One Belt, One Road].

Getting around town

Winter in Shenyang (taken in 2011):

Choose your ride

I see what you did there

A pretty astonishing story. When Beijing Normal University set up a research base in the capital of Greenland, it forgot to mention to its local partners that the facility would double as a satellite ground station with possible military uses. Just an oversight, I’m sure:

China has ‘officially’ launched a project to set up a satellite ground station in Nuuk, although Greenland’s public and elected representatives were kept in the dark about it for months, in an attempt to avoid concerns about its likely dual-use capabilities. Last May, a ‘launching ceremony’ was held in Greenland, where speakers included the well-known polar scientist in charge of the project and a military pioneer of the Beidou system, China’s alternative to GPS. The event was attended by a public of a hundred ‘élite’ businesspeople, including, in all likelihood, a senior Navy officer, as part of a group holiday; only two Greenlandic representatives were present. While reports were immediately available in Chinese media, the project’s launch went unnoticed in Greenland until I first ‘revealed‘ it last October.

It would be a shame if something happened to that facility. What if chronic power outages or some mysterious, unfixable technical glitch put it out of commission, perhaps indefinitely? That would really be terrible. Just saying.

On a related note (report from last December):

China’s first overseas land satellite receiving ground station was put into trial operation on Thursday.

The China Remote Sensing Satellite North Polar Ground Station is above the Arctic circle, half an hour’s drive from Kiruna, a major mining town in Sweden.

 

They found his lack of faith disturbing

There is some irony in the fact that China’s ruling party has outlived the Forbes career of Gordan “Collapse” Chang:

When a Chinese company buys a major American magazine, does the publication censor its coverage of China? There is only one example so far, and the results are discouraging. In 2014, a Hong Kong-based investment group called Integrated Whale Media purchased a majority stake in Forbes Media, one of the United States’ best-known media companies. It’s hard to demonstrate causality in such cases. But since that purchase, there have been several instances of editorial meddling on stories involving China that raise questions about Forbes magazine’s commitment to editorial independence.

On Oct. 9, longtime China commentator and Communist Party critic Gordon Chang received an email from Avik S.A. Roy, the opinion editor at Forbes. “Due to a wide-ranging reorganization of Forbes’ content,” Roy wrote, “we are going to be concluding our official relationship with you.” Roy added, “As a result of the organization, the articles you’ve written for us will no longer be stored on the Forbes server nor appear at Forbes.com,” according to the email Chang forwarded to me at my request.

Avik Roy, instrument of Gordan Chang’s collapse

I, for one, am amused to learn that a company called Integrated Whale Media exists. Regardless, this is a creepy case that may need to be added to our growing “Thought Policing by Remote Control” file (see also here, here and here).

Note the lack of an explanation for why Chang was cut loose and his articles erased (“Due to a wide-ranging reorganization of Forbes’ content” is not an explanation), combined with strong denials that any sort of censorship occurred.

Billionaires in one country

Lots of new billionaires are cropping up in China – with a catch:

The Chinese mainland added an average of two new billionaires to its super-rich list every week last year, according to new report, helping Asia replace the U.S. as the world’s most fertile cradle for individual wealth.

The report released Thursday by the investment firm UBS AG and consultancy PricewaterhouseCoopers (PwC) said 101 of the 162 Asians whose personal wealth passed the $1 billion threshold for the first time in 2016 were Chinese citizens.

China’s new billionaires helped boost Asian membership of the ultrawealthy club to 637 last year, compared to 563 in the U.S., according to the firms’ annual Billionaires Insight Report. It marked the first time that Asia could be called home to more billionaires than the U.S.

The report covered 1,542 billionaires residing in 14 markets worldwide. They account for about 80% of all individual wealth held by the world’s super-rich.

The catch is pointed out by economist Christopher Balding:

Comrade Balding‏
This omits one key issue: if you are a billionaire in China, you are only a billionaire in China. You are not a global billionaire

Woke Charles Bingley‏
why is that?

Comrade Balding‏
Officially, you are allowed to move $50k per year out of China. Unofficially you can move a little more but definitely not enough

Woke Charles Bingley‏
Wow I did not know that!

Comrade Balding‏
If you really wanted to you could find ways to move more than that but no where near tens or hundreds of millions

Ian‏
Some seem to be able to buy English Football Clubs and American film studios though.

Comrade Balding‏
Those deals haven’t happened for a while

Ian‏
They have tightened up a lot recently. It’s like Greece & Russia the smart or connected ones have already got their money out

Comrade Balding‏
assets are still on the Mainland. Just because its owned by a Cayman holding corp doesn’t mean the asset is out of the country

Ian‏
Like Wolverhampton Wanderers or Birmingham City or Aston Villa all owned by Chinese “businessmen”

Graham White‏
It’s only $50k of personal wealth. If you are a Chinese billionaire your company can buy overseas assets, eg London property, and sell on.

Comrade Balding‏
2017 has really cracked down on any movement and definitely not enough to move significant portion of wealth if desired

Robert Wishart 魏罗斌‏
Because you cannot move your money abroad?

Comrade Balding‏
Exactly. Not any material amount

“Captive billionaires” might be a better term for people who are billionaires within the borders of China, but millionaires everywhere else.

Preemptive cross-border censorship

A particularly disturbing milestone:

LINDA MOTTRAM: Allen & Unwin’s decision to abandon publication of Clive Hamilton’s book is possibly a first. It seems no other Western publisher has previously, pre-emptively halted publication of a book in a Western market, because of pressure from China’s Communist Party.

Allen & Unwin say that threats of retaliation from China forced it to cancel plans to print “Silent Invasion: How China is Turning Australia into a Puppet State”.

So what is China’s motivation?

I spoke earlier to Professor Rory Medcalf, who’s head of the National Security College at the Australian National University in Canberra.

RORY MEDCALF: Well I think the Chinese Communist Party, the Chinese leadership, is determined to reduce and supress criticism of its policies and of its authoritarian rule in other countries, particularly in other countries that are either allies of the United States, as Australia is; in other words, a country that can potentially band together with other countries to resist Chinese influence on the region.

But also, more importantly, countries like Australia where there is a large, diverse, dynamic Chinese population. China – or the Chinese Communist Party, I should say – is seeking to suppress criticism and dissent among those populations. […]

LINDA MOTTRAM: And so, you mentioned earlier this seems to have been a pre-emptive move.

There’s a suggestion of a legal threat of some sort over this book that Clive Hamilton has written, but there doesn’t seem to be anything specific.

Are they wanting to tie publishers up in court? […]

RORY MEDCALF: […] But if the details that we read today are true and that Allen & Unwin has taken this pre-emptive decision, it’s possibly the first time a Western publisher has pre-emptively chosen to stall or edit or censor what it’s doing in a Western democracy because of perceived Chinese Communist Party pressure.

And that would be a very worrying precedent for civil liberties and also for national security.

Just a couple of weeks ago we had the outcry over the Springer censorship in China, but this appears to go a lot further.

What’s happening with Allen & Unwin actually seems to be more along the lines of this case from last year, but without the mitigating circumstance that the publisher in question is simultaneously trying to run an NGO in China.

No articles for you

This appears to have touched a nerve, judging by the comments below the article (and elsewhere):

Springer Nature, the German group that bills itself the world’s largest academic book publisher, has blocked access in China to at least 1,000 articles, making it the latest international company to succumb to intensifying Chinese censorship demands.

Research by the Financial Times shows the publisher has removed more than 1,000 articles from the websites of the Journal of Chinese Political Science and International Politics, two Springer journals, in the Chinese market.

All of the articles in question contained keywords deemed politically sensitive by the Chinese authorities, including “Taiwan”, “Tibet” and “Cultural Revolution”. […]

The decision by Springer — which owns Nature magazine and Palgrave Macmillan books, and produces periodicals such as Scientific American — prompted anger from academics. It comes two months after Cambridge University Press acceded to similar pressures from Beijing, before reversing course after an intense backlash against its surrender of academic freedom. […]

Similar controversy has flared up over LexisNexis and Apple’s Chinese app store. Western organizations that deal with China in any capacity face an increasingly stark choice…

A rearguard action

John Robb offers a proposal for an imploding United States to postpone China’s rise to absolute global dominance by throwing a wrench in China’s $8 trillion “One Belt, One Road” infrastructure project:

One solution is to mount a rearguard action — a method of delaying an advancing enemy when your forces are in retreat. An action that buys time for the US to regroup and regain cohesion. The US faced a similar situation re; the Soviet Union in ’79 after the invasion of Afghanistan. In that case, support for Afghan insurgents kept the Soviets occupied while the US recovered (Carter, inflation, Iran, etc.). In this case, the rearguard action would be the disruption of China’s plans for one belt one road. This could be done inexpensively and with very little manpower or visibility. How?

  • Create groups that operate like global guerrillas. Small groups that operate independently w/o oversight. More letters of marque than special operations.
  • In the short term, disrupt the Chinese construction effort. Double and treble construction costs by delaying timeliness and forcing increased security efforts. Drive up the costs of financing. Drive away subcontractors.
  • Next, force the Chinese to physically and logically protect the entire system, from roads to ports to trains, from disruption. As my analysis of Lawrence of Arabia shows, it’s more damaging to partially disrupt a system than to completely break it. Keep up the pressure — with the ability of systems disruption to generate a million to one return on investment, this is sustainable.

As Robb points out elsewhere: “Transportation (ports, roads, trains, etc.) is a natural monopoly. Nobody has tried to build one on a global scale until Xi.”

China's One Belt One Road

The US may conclude that it has no choice but to play the spoiler to China’s grand, shining vision of a sprawling infrastructure network linking 60 countries together under the benevolent aegis of the CPC. To get an idea of how this might work, consider that insurgent groups were able to successfully bleed the US of >$200,000,000,000 in failed efforts to reconstruct Iraq.

As for “the ability of systems disruption to generate a million to one return on investment,” consider a classic example from Robb: A small insurgent attack on an oil pipeline in southeast Iraq, which cost roughly $2,000 to execute, inflicted $500 million of damage on the Iraqi government in lost oil exports (an ROI of 25 million percent).

Doesn’t the US risk more from disruption than China? No. The US doesn’t have a choice. If it doesn’t act while this system is being built (when it is the most vulnerable to disruption), the US will cede global dominance to China forever. China is creating the equivalent of “Standard Oil stranglehold” on the global economy and once established it will likely become too big/too entrenched to roll back through global guerrillas.

System maintenance

This is what happens if you try to change your profile picture in WeChat (the Chinese version of WhatsApp):

WeChat system maintenanceHmm…. that must be some pretty intensive maintenance, there.

As it turns out, by sheer happenstance, the “maintenance” coincides with a very important event in the Chinese political calendar:

WeChat, China’s social, messaging, and do-everything mobile app, announced (in Chinese) on October 17 that its users are temporarily banned from updating their profiles until the end of the month.

“Due to system maintenance, users won’t be able to change their profile pictures, user names, and short bios until the end of this month,” the notice says. “Other functions won’t be affected. We apologize for any inconvenience caused.”

Other Chinese social media platforms, including Weibo and QQ, have announced the same type of service interruptions.

“System maintenance” (系统维护 xìtǒng wéihù) is a euphemism often used by Chinese internet companies when services are suspended because of government regulations or censorship. None of the companies have stated the real reason for the suspensions: security measures for the 19th Party Congress, which formally begins on October 18 and ends on October 24.

I got the error message on October 24, by the way. I tried again today and was able to change the picture.

Clearly, this calls for a new meme:

System Maintenance - Dr Evil Air Quotes meme