Shadow Banking and the Real Estate Bubble: Is Financial Crisis a Real Possibility in China?

Anushka Maheshwari, Research Intern ICS

Image: Property-hungry Chinese millennials and shadow banking could fuel a financial crisis
                    Source: South China Morning Post

The Chinese economy, due to the strict measures adopted by the government to curb the spread of the Covid-19 virus,  is back on track, with output back to pre-pandemic levels and a surge in credit activity. China’s financial regulators are having a hard time containing risks at home while limiting disruptions from abroad as the economy is opening to foreign investment. The fear of missing out has stoked the investors’ expectations and many people are now buying property for investment or speculative purposes, which Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, termed as “very dangerous”. The household debt in China had reached 150 percent of its disposable income in December 2020 driven by a rise in property prices and seems to be concentrated among the millennials. The youth of China is clearly banking upon the government to sustain this growth in real estate prices, but a major portion of this debt is financed by shadow banking. People’s Bank of China (PBOC) defines China’s shadow banking as “credit intermediation involving entities and activities outside the regular banking system”.Since this sector is outside the formal banking sector, it lacks a safety net that comes from being financially backed by the government through deposit insurance publicly guaranteed or ‘lender of last resort’ facilities by China’s central bank. This raises an important question: Is China on the verge of a financial crisis like the one faced by the US in 2008-09?

China escaped the 2008 financial crisis primarily because of its booming domestic market and little exposure to the overseas market for wholesale funding. But the contraction in capital inputs through foreign direct investment during the crisis and fall in exports made the government announce a $586 billion stimulus package to provide a boost to the economy. Major infrastructural activity, constituting 72 percent of the package was undertaken, and only 30% percent of this was financed by the central government. The rest had to be funded by the local governments, and since they couldn’t borrow funds themselves, local government financing vehicles had to take on debt on their behalf from banks. But banks had severe restrictions in terms of lending such as caps on lending volumes imposed by the PBOC, mandatory bank loans to deposits ratio, restrictions on lending to certain industries, reserve requirements, among others. Due to this, shadow banking activities grew along with an increase in fixed investment, driving economic growth but at a high cost, so much so that the corporate debt to GDP ratio reached a record 160 percent in 2017 as compared to 101 percent 10 years prior to it. 

The Chinese leadership claimed that it had successfully defused the housing bubble that had formed in China by the end of 2014 due to these shadow banking activities. So, in order to uplift the dampening economy in 2015, it eased restrictions on second-hand home purchases and the property market since then has been booming, with more households buying houses and property developers borrowing more to engage in construction activities. There are many factors causing an increase in shadow banking activities, which in turn contribute to the growing real estate bubble. Firstly, Chinese authorities are trying to sustain high GDP growth rates through credit borrowing which puts strain on financial institutions of the country. Secondly, zombie companies that have little to no productive use, are borrowing more and more simply to meet their current obligations. Thirdly, many state-owned and private companies in China have property subsidiaries, and property loans made to these subsidiaries are sometimes presented in the books as going to the parent company. This results in the share of property-related debt being much higher than what is available in the official data. The overall impact was that the amount invested in Chinese housing hit $1.4 trillion in June 2020, while the total value of houses and developers’ inventory, according to a Goldman Sachs report, had reached $52 trillion in 2019.

Image: Shadow banking in China has ballooned into a $10 trillion ecosystem that connects thousands of financial institutions with companies, local governments and hundreds of millions of households.
Source: Bloomberg Quint

The shadow banking system in China works independently of its monetary policy, amplifying increases in the money supply but working opposite when the restrictive interest-based policy is imposed. Thus, it can be inferred that in spite of the Chinese policy changes to curb the real estate sector, the negative role of shadow banking is why the bubble continues to build. President Xi Jinping’s statement in 2017 that “houses are built to be lived in, not for speculation”  clearly indicates that the PLA government is sensitive to this issue. The government in China has adopted stringent measures to stop the rise in property prices over the past few years, and the latest mandate in August 2020, restricted credit supply to both developers and investors. These new regulations that mandate all lending institutions to decrease the quantity of loans given to this sector are going to stay in place until the real estate cools off. There are two forms of shadow banking in China, one is the channel business of Chinese banks that hide some of their lending activities to keep them outside the purview of the auditors and regulatory bodies. The other is P2P(Peer-to-Peer) lending platforms like trust companies, factoring companies, etc. In order to contract both these forms, the Supreme Court in China has lowered the interest rates on microlending, which will make it unprofitable for lenders while the CBIRC(Chinese Banking and Insurance Regulatory Commission) has forbidden trust companies to finance developers that do not meet the necessary requirements of shareholders and capital or lack necessary licenses.

The PBOC has significant control over lending activity in China as compared to the independent decision-making possible in the U.S. markets, which implies that the situation in China is more stable. There are many structural differences between the shadow banking systems in China and the United States, such as in China, market-based financial instruments do not play as significant a role as they do in the USA. Also, in China, smaller banks went off-balance sheet as they were constrained by liquidity requirements as compared to the larger banks in the US that were constrained by capital requirements. All these factors considerably lessen the chances of a financial crisis like that of 2008-09. Also, the Chinese real estate market has higher-than-normal down payments, sometimes as high as 40-50 percent of the transactions as compared to the 10-20 percent in most western markets. This implies that the debt to transaction price ratio is low, which discourages people from the lower socioeconomic strata of Chinese society to purchase high-priced properties, thereby reducing the risk of defaults. The PBOC and the CBIRC stepped in to take over the Baoshang bank when it collapsed in 2019, whichhas both positive and negative implications.  On one hand, it indicated that the Chinese government may intervene in case of any crisis-related situations caused by defaults in the shadow banking sector, but on the other hand, it may also encourage risk-seeking behaviour from creditors depending on the government to back the financial system. The Chinese government is caught between trying to curb shadow banking activity in order to reduce system risk in the country due to the real estate bubble and ensuring liquidity in the economy. Thus, although the possibility of a financial crisis is low, China does need to reduce risks posed by its shadow banking sector and ensure financial stability.

How Nepal’s Immediate Neighbour Takes Opposite Approaches to its Political Crisis

Shreha Gupta, Research Intern ICS

Source: Myrepublica

On 20 May 2021, the Supreme Court of Nepal intervened and overturned the decision of dissolving the Parliament in another landmark verdict. The verdict ordered the appointment of Sher Bahadur Deuba, Nepali Congress President, as Prime Minister.  Deuba was sworn in as Prime Minister on 13 July, 2021. Earlier, on 21 May, President Bidya Devi Bhandari, on the recommendation of the then Prime Minister K.P. Sharma Oli had dissolved the Parliament and announced mid-term polls on 12 and 19 November, 2021.

Nepal had plunged into political turmoil twice after Oli’s contentious recommendation to dissolve the Parliament on 20 December, 2020 and again on 21 May, 2021. In February, Nepal’s Supreme Court intervened and ordered the reinstatement of the Parliament that was dissolved on 20 December, 2020. This came as a setback to Oli who was already preparing for snap polls. Nepal’s highest court reinstated the Parliament for a second time in just five months.

The political crisis in Nepal has created a measure of uncertainty in the Indian and Chinese policies towards Nepal. The two countries have followed different trajectories in their response to Nepal’s domestic developments in the recent past. China, despite their claim of non-interference in domestic affairs have shown a keen interest in Nepal’s political crisis, whereas India, despite having been accused of interfering in Nepal’s internal matters in the past, has decided to step back and wait for the situation to unfold.

In December last year, Hou Yanqi, Chinese Ambassador to Nepal met with Nepalese President, party chair Pushpa Kamal Dahal and Standing Committee member, Barsha Man Pun after dissolution of the House of Representatives.  Earlier in May and July, she had held a series of meetings with top party leaders including Oli and Dahal in a failed attempt to reunite the Nepal Communist Party (NCP).

On 27 December 2020, China had sent Guo Yezhou, a vice-minister of the International Department of the Chinese Communist Party to Kathmandu to take stock of the political situation. The visit came at a time when China was concerned over the political stability in Nepal and the unity of the NCP. China was also concerned that the political crisis in Nepal could threaten to reverse the gains made after President Xi Jinping’s visit in October 2019 as it was instrumental in taking China-Nepal bilateral relations to a new height.

The Guo-led delegation had met with President Bhandari, Prime Minister Oli, Nepali Congress President Deuba and chair of the other faction of the NCP, Pushpa Kamal Dahal. The Chinese delegation reportedly wanted to explore the possibility of a reunion between the two warring factions of the NCP, the reasons behind its spilt, its impact on Nepal-China relations and the possible road ahead for the future political course in Nepal. The Chinese team had to return empty-handed after the NCP factions failed to bury the hatchet.

While China sent a high-level delegation to Nepal to persuade the rival factions of the NCP to stay together, India stated that Nepal’s political developments are its internal matter and it is for the country to deal with them under its domestic framework and democratic processes.

On 6 February 2021, the Chinese Foreign Ministry issued a press statement in the context of a telephonic conversation between Nepalese Foreign Minister, Pradeep Gyawali and Chinese Foreign Minister, Wang Yi. According to the statement, Wang Yi said that China adheres to the principle of non-interference in the internal affairs of other countries and respects the path towards development chosen by the people of Nepal.  “As a friendly neighbour, China hopes that all parties and factions in Nepal will bear in mind the fundamental and long-term interests of the country and its people, seek common ground while shelving differences, and maintain unity and stability, so as to create favourable conditions and environment for its own development and prosperity,” the statement added.

Although Wang Yi claims China’s adherence to the principle of non-interference in the internal matters of other countries, observers in Nepal don’t agree with it. Political analyst Uddhab Pyakurel criticised China for meddling in Nepal’s internal matter. “No matter what the Chinese side say to justify their visit to Nepal, we all know that they are trying to interfere in Nepal’s internal affairs. For this, NCP leaders and Nepali media, which helped build the narrative that Chinese leaders had played a role in unifying the erstwhile CPN-UML and CPN-Maoist Centre, are responsible,” he said. He was concerned that Chinese activities would turn Nepal into a strategic playground in its tiff with India and other western powers including the United States of America.

Analysing China’s recent actions, Political scientist, Dev Raj Dahal stated that China is using its soft power by sending CPC leaders to influence Nepal. He added that China was alarmed about the security and stability in Nepal as Nepal shares its border with the Tibetan Autonomous region, ‘the geopolitical loophole of China’. He said that China is concerned about stability in Nepal also because it is interested in doing business with India’s vast market through Nepal. This would be possible only if Nepal remains politically stable.

China’s meddling in Nepal’s domestic politics has drawn international attention. Some foreign diplomats in Kathmandu viewed China’s brazen interference as a demonstration of its growing influence in Nepal’s internal matters while India’s decision to steer clear has been appreciated by former diplomats. “India, which is usually the whipping boy of their politics is correctly staying out of the picture, while China attempts to involve itself in their politics,” said Manjeev Singh Puri, former Indian Ambassador to Nepal.

There could be several reasons why India preferred to keep a low profile and refused to take sides in a political tug of war between different parties in Nepal. In the past, India has been seen as trying to meddle in Nepalese politics which hasn’t been received well by people in Nepal.

To reiterate, China had invested in buttressing the Oli government which has now been ousted. In the short term, recent developments in Nepal could result in a limited setback for the Chinese policy towards Nepal. However, these developments have not fundamentally undermined China’s position in Nepal. China’s ambitious Belt and Road Initiative (BRI) and its ongoing and proposed involvement in hard infrastructures, including highways, bridges, airports, hydroelectric projects have significantly helped China entrench its presence in Nepal. China has also built up its soft and sharp power in Nepal in recent years. The latest change in government is unlikely to have a major impact on China’s position in Nepal.

India’s present policy of non-interference with regard to Nepal’s political crisis is serving India well. The change in government will help India to some extent in developing its equities in Nepal as it has been given credit for not interfering in Nepal’s domestic affairs. Durable political stability in Nepal augurs well for India whereas, instability will only pave way for inimical external influences. India must encourage the strengthening of a people-driven polity, invest in reinforcing its considerable linkages and synergies in Nepal and work towards improving its image that has been hampered in recent years. It is important for India to avoid being perceived as partisan and adopt the strategy of detached pragmatism rather than proactive involvement.

China’s e-commerce boom: How do Indian policies compare?

Raj Trikkha, Research Intern, ICS

Image: China, in spite of gaining access to the internet after India has managed to have a 50.4% share of the global e-commerce market, while India’s share is at 1.29%
Source: Businessworld

China has been dominating the world in e-commerce since 2013, when it overtook the US to become the world’s largest market. Ever since the growth in this sector has been on a double-digit spree. According to a report by eMarketer, the revenue accrued to Chinese companies from their e-commerce sector in 2020 stood at 2296.95 billion dollars, almost triple that of the US. 

Now, the first question that pops in our head is, ‘Is it because of the huge population of China?’. If it were so, then India, which has a population almost equal to China’s, should also be topping the list or at least be close to topping the list, which it is not. Hence the more important question arises, ‘What holds back India from leading the world in the e-commerce sector?’. 

Several factors, like demographics and consumer trust, might be taken into consideration while answering the question. To narrow down our focus, we will only look into the government policies and regulations of the two countries and compare their effectiveness. The policies will pertain to two domains, namely, internet development and domestic e-commerce. 

China embraced the internet in 1994, and quickly realizing its importance, began developing the internet sector at an incredible speed. While only 6000 computers and 40,000 users were connected to the internet in 1995, by mid-2001, 10.2 million computers and 26.5 million users were online. The credit for this achievement goes to the initiative taken by China’s government in the promotion of the internet. They launched 13 “Golden Projects” in order to build the information infrastructure of the country and developed their internet in three phases – Asteroids (1996-2003), Bees (2004-2010), Coliseums (2010-present). Along with this, the Chinese also focused on growing their technological infrastructure which led to an expansion of telephone networks, PC manufacturing, and internet awareness. 

While the internet came to India in 1986, much before China, it could not climb the stairs of development as quickly. Its first action towards internet development, the IT Action Plan 1998, was several years after the introduction of the internet. It also eventually laid down new laws, the IT Act 2000, to deal with cybercrime and e-commerce. While India was still formulating policies and laws, China worked on building infrastructure for e-commerce under the Golden Projects. The strategy followed by India was thought to be better in the long run, while China’s strategy paid off instantly. It is 2021, and the anticipated success from India’s long-term strategy is yet to be gained, as China enjoys an internet penetration of 70.4%, while India is only at 45%

The vast differences in their approaches to regulating the market affected the market and its players to a large extent and thus, became an essential factor in determining the growth of the market. 

Image: While India remains far behind China in e-commerce sales, it is growing at a rate faster than any other country on this chart
Source: eMarketer

For instance, China’s e-commerce policies aim at strengthening the construction of an e-commerce credit system that includes the credit information of all stakeholders. The government monitors companies with poor credit ratings, which helps avoid counterfeiting and other malpractices. Along with this, the government ensures that all e-commerce enterprises operate in accordance with information security protection regulations and technical standards. To increase security, the government has promoted the use of digital certificates and their verification among electronic certification authorities. Of course, it might be argued that such progress has occurred at the cost of citizens’ privacy. 

China has promoted tax and financial incentive programs for high-tech SMEs by replacing business tax with a value-added tax and nurturing a multi-channel financing mechanism to support e-commerce companies. The government also motivates banks and other financial bodies to launch security over intangible assets, real estate pledges, and other financing services for e-commerce SMEs. This makes it easier for SMEs to raise finance, as Intangible Asset–Based Lending leverages a portfolio of Intellectual Property or other intangible assets to secure a loan. It also guides investment funds to strengthen support for E-commerce startups.

The Indian government, on the other hand, is working towards integrating traditionally offline markets, like vegetable markets, into digital e-commerce platforms. The government has also launched flagship initiatives like Digital India, Make in India, Start-up India, and Skill India, which are responsible for the growth of the sector. 

Although India is making considerable efforts in developing its e-commerce market, there are many areas with scope for improvement. Integration of stakeholders is a key shortcoming. Government stakeholders like policymakers, taxation authorities, and the Registrar of Companies should be woven into a single system to increase efficiency and transparency for the players in the Indian e-commerce market. The absence of a centralized mechanism to provide rating or accreditation to the numerous e-commerce sites adds up to the inefficiency. This makes it difficult for people to trust such websites. If a standardized procedure for the same is developed, it will positively impact the quality of online services.

On comparing the policy approaches of the two countries, it is evident why China holds 53.64% (as of 2020) of the global e-commerce market, and India is at 1.29%. It is also clear that a large population by itself cannot translate into a thriving e-commerce market in the absence of supportive policy. Hence a more careful dissection of China’s experience can be instrumental in realizing the full potential of the Indian e-commerce market. 

It’s high time that BRICS should work towards Youth Empowerment

Dr. Sushmita Rajwar, Assistant Professor, Maharaja Agrasen College, University of Delhi


Image: BRICS 2021 Summit logo
Source: BRICS Youth Energy Agency

We have come a long way from when the term BRIC was coined by Jim O’Neil in 2001 which later included South Africa in 2010. We should remember that BRICS nations came together at a time when there were many changes in geopolitics. It was a time when the 9/11 attacks were changing world politics, China had joined the WTO in 2001, Russia was recovering from the 1998 financial crisis, and India also coming out of the sanctions imposed after the 1998 Nuclear test. The BRICS nations were seen as quite different from each other but there was a great deal of complementarity that existed – China was seen as the ‘manufacturing factory of the world’, India was seen as ‘pharmacy of the world’ and IT Power, Brazil as the ‘granary of the world’ and Russia was seen as the ‘energy hub of the world’ and later South Africa was included as it was the most significant country in the African continent. India also had most of the young population and China is the most populated country among all.

There are many expectations from this year’s BRICS Summit. 2021 marks the 15th anniversary of BRICS and hence, it is an opportune moment to review its work, as the theme suggests “BRICS@15: Intra BRICS Cooperation for Continuity, Consolidation & Consensus”.

One should also understand that the BRICS represents is not just a political configuration but the economic potential to give greater voice to the developing world. The young population of India has had to face many challenges during the pandemic in matters of education and training, finding decent jobs, mental well-being, and the digital divide and it is the right time for BRICS to prioritise these issues.

How can BRICS help?

The initiatives taken up by BRICS countries should prioritise issues of the youth. One of the most important outcomes of BRICS has been the establishment of the NDB in 2014. China hosts the headquarters of NDB & regional offices have been set up in member countries and there is a demand for opening a regional office of New Development Bank (NDB) in New Delhi also. The NDB has funded 18 development projects in India, providing assistance for      Covid-19 emergency relief,  the rapid rail transport network, metro, roads, bridges, irrigation, renewable energy, etc. India has already been granted a US$ 1 billion loan from the NDB for the Mahatma Gandhi National Rural Employment Generation Scheme (MGNREGA). The NDB’s regional office in India would allow young people to gain employment opportunities as well as participate in the decision-making process in the new project proposals too. India can certainly focus on empowering youth by promoting new and nascent start-ups by the young population in India. The Make in India campaign of the Indian government has sought to encourage young entrepreneurs.

If we look in terms of challenges for the youth, there are many, but the China-India Galwan conflict in May 2020 has also raised tremendous challenges to BRICS solidarity and created a huge trust deficit. There has been a rise in strong anti-China sentiments among the youth. The results of the conflict was a series of economic sanctions against China by India – for example, the canceling of a contract by the Indian Railways and opposition to contracts being given to Chinese firms for the construction of the Rapid Railroad Transport System between Delhi and Meerut (this is the same development project that has been granted funding by the NDB in India). The Indian government banned 52 Chinese Apps in India including Tiktok, We Chat which was a huge business loss for these firms. Having around 200 million users of Tiktok in India meant that a sizable portion of this is youth. Indian influencers on apps like Tiktok were adversely affected and had to look for other applications,  losing around US$ 15 million last year.

A large number of young people also lost either one or both their parents to Covid-19. While the government has brought out some schemes to provide free education to such children or youth, we all know that it isn’t going to be enough. There can be many ways through which such people can be provided help. There is a need for the governments of the BRICS countries to look into providing adequate education and training to the younger population. India already has a strong network in providing tele-education to many countries. Therefore, an idea of starting a BRICS Virtual University where young people can choose to study from a variety of courses from different disciplines in hundreds of Universities in BRICS countries can be proposed. This would also enable them to gain suitable employment too. BRICS countries can also come together to help young people find suitable employment in these countries.

There are many Indian medical professionals working around the world. Many young people go to Russia for medical education and become trained doctors and paramedics. These young people can be provided employment in BRICS countries through a substantial framework.

Mental health needs special focus in India through education. The social structure of families, peer groups, religious associations, and caste associations have done little to address mental health issues. Despite the Central Board of Secondary Education (CBSE) making it compulsory to have counselors at schools, only 3 percent of private schools have done so. Solutions should firstly point out the need to recognise the problem and then make efforts to remedy it. Introducing mental health as part of the curriculum would really help school-going youth to understand the fundamentals and seek help when they need it.

India has a huge shortage of healthcare services. As per the WHO the density of doctors per 1000 people should be 1, while only 6 states in India have been able to achieve this. There is a huge shortage of doctors in many other states. Most doctors are also concentrated in urban areas, creating a shortage of medical professionals in rural healthcare. Suggestions to the  BRICS countries could be to create a pool of medical healthcare professionals that can help the youth.

BRICS countries can help in supporting the rural areas of India to enhance IT technology. Specialised training in IT for people living in rural areas should be initiated. NDB can also fund such training programmes to set up IT infrastructure in rural villages so that school and college-going students can undertake online classes. Since the pandemic is here to stay and online courses are becoming more and more feasible, IT centres can be established in rural areas with fibre broadband internet services that can provide space and services to students to undertake their lectures. 

The implications of the pandemic on a country like India are immense. Despite the help that India has been able to provide to different parts of the world, India needs support from the global community. By the time India hosts the G20 Summit in 2023, India should be able to boost its economy. Being part of the BRICS grouping would mean benefits for each other. Therefore, this is the right time India can push for BRICS to help support each other to recover from this pandemic.

The Beijing Winter Olympics 2022: China’s Soft Reset?

Siddhant Hira, China-analyst and incoming MA National Security Studies student at King’s College London

Introduction

Just like Beijing’s 2008 Summer Olympics, the run-up to the 2022 Winter Olympics also has “angry pro-Tibet protests along much of the Olympic Torch relay.” 2008 was a watershed moment in Chinese foreign policy: the Games was a major soft power victory. China proved to the world that it was capable of hosting a green and high-tech event by investing $40 billion in four years.

Chang Ping puts it aptly: pre-2008, ‘connecting the world’ was popular but post the games, China’s new message was “now the world should follow us”. At that time, the Olympics was a sports diplomacy tool for it to consolidate its status as an emerging superpower. A 2009 Congressional Research Service Report stated that after the Beijing Olympics, China’s economy enjoyed a domestic boom while its international trade and investment declined sharply.  By implementing economic measures for short-term benefits, Beijing projected the image that its economy was surging despite the rest of the world combating global recession.

Beijing’s 2022 Winter Olympics will be the first to allow foreign visitors in the post-Covid world. It will certainly be a welcome distraction, both domestically and globally. Domestically, it is perceived as a potential major success: China’s 14th Five-Year Plan (2021-2025) outlines the country becoming a sports power by 2025 as one of its long-term goals. China wishes to use the Games to fabricate a diplomatic victory after Covid-19 by inviting the world to witness first-hand, on-the-ground Chinese economic and soft power.

Today, China faces a credibility crisis ahead of the Olympics that is not just economic but an amalgamation of military, political, human rights and democratic challenges. China is not yet a global superpower but is much stronger than in 2008; however, now it has a different agenda for the 2022 Winter Olympics: a reset in its global perception and a restoration of credibility against the backdrop of Covid-19.

Loss of Face?

For decades, China has maintained an aggressive posture in the South China Sea, with numerous ongoing territorial and/or maritime disputes with nations in the region. Threats to and flight incursions over Taiwan continues to be a major issue. According to Taiwan’s Ministry of National Defense, the PRC has violated Taiwan’s air defence identification zone (ADIZ) 380 times in 2020, a record figure. It does so in three ways, from most to least common: “circumnavigational flights of Taiwan, ADIZ intrusions, and violations of the cross-strait median line.”


Source: Statista

                                              

In recent times, there have been two heavyweights in Tibet’s corner: the United States (US) and Great Britain (GBR). The former passed the Tibetan Policy and Support Act in January 2020 in Congress: Tibetans choose a new China-independent Dalai Lama, strict measures against Chinese officials who interfere in his succession, environmental protection of the Tibetan plateau, potentially no new Chinese consulates in the US until a consulate in Lhasa and recognition of the Central Tibet Administration. Just two months later, GBR’s Foreign Secretary, Domininc Raab, spoke at the United Nations Human Rights Council, stating that human rights abuses against Uighur Muslims were “… taking place on an industrial scale.”

On 30th June 2020, China circumvented Hong Kong’s legislature by passing a draconian national security law. This Law grants vast and extremely vague powers to the Chinese Government to curb dissent and protest; criminalises secession, subversion, terrorism and collusion with foreign/external forces. Even though China has faced heavy backlash from the free world, the law is still in effect and the democratic and humanitarian freedoms enjoyed by Hong Kong remain curtailed.

Image: Tibetans protesting against China in Lausanne, Switzerland
  Source: Freetibet.org

2020 began with the grim news of Covid-19, with most of the world holding China responsible for its origins and development. One theory propounded is that it was intentionally developed in a Wuhan laboratory with links to China’s army – the People’s Liberation Army (PLA). The other theory considers it an accidental leak by human negligence.

Cases first emerged early November 2019, but the world only came to know in late December. Before the virus emerged, the US Department of Health and Human Services (HHS) had conducted an exercise in August 2019 – Crimson Contagion – to simulate a pandemic originating in China. David Sanger of The New York Times said that the result of the exercise may have been alarming enough to be “marked draft, sensitive, not for distribution”. The numbers projected were extremely sobering: “90% chance that the pandemic will be of very high severity, with 110 million forecasted illnesses, 7.7 million forecasted hospitalizations, and 586,000 deaths in the U.S. alone.” There is no evidence of a published exercise report, nor of any follow-up action. Had necessary steps been taken, Covid-19’s initial impact on the American public health system would have been minimised. The US Government’s apprehension of this becoming public knowledge potentially allowed China to control the narrative by obstructing impartial and independent studies on the origins and development of the virus. But now, the US Intelligence Community is conducting a thorough fact-finding investigation on the direct command of President Biden.

For India from an international relations perspective in 2020, its two greatest challenges which continue to shape its policy are Covid-19 and the clash with Chinese troops in Galwan Valley on 15th June 2020. Soldiers from both sides came to blows in Eastern Ladakh, using clubs, stones, fists and the like – with India losing 20 men – and the Chinese – four, and possibly more. Typically, China takes decades to admit if and when it has lost soldiers in battle but this time, it took eight months. Forced by its own citizens sharing information publicly and with international sources quoting higher casualties, China had to admit its losses.

Image: The Galwan Valley in Ladakh, Sino-Indian border
Source: South China Morning Post

Conclusion

China also lost, and continues to lose, face because of the Belt and Road Initiative, its alleged involvement in the Myanmar coup and the Uighur-related controversy surrounding the Disney film Mulan. Its medium of aggression is primarily wolf-warrior diplomacy, a term that has become synonymous with China’s foreign policy.

For any state, hosting the Olympic Games is an opportunity to display the strength of its public diplomacy, status and soft power. There have even been some comparisons between the 1936 Munich Summer Olympics and the 2022 Beijing Winter Olympics, and the significance for both nations. The Biden administration is yet to take a stand regarding any boycott – with various stakeholders expressing a range of reactions including outright boycott, hosting elsewhere and legally punishing sponsors. Political leaders across North America and Europe have also coordinated legislative action against China hosting the Games.

The greatest challenge for the democratic world order is to ensure that the spirit of the Olympics is upheld, and yet strong action is taken against China’s humanitarian track record. The question facing China is whether it will be able to reset its image to the pre-Covid era, or has it already done irreversible damage in the eyes of the free world.

Biden Picks Nicholas Burns for China Envoy: Right Man, Wrong Destination?

Hemant Adlakha, Honorary Fellow, ICS

 Image: Nicholas Burns        
   Source: bloomsberg.com          

Summary

President Biden’s China policy in his first hundred days is already drawing flak in Beijing. Notwithstanding recently witnessed smart US-China “climate diplomacy” during Washington-sponsored Earth Summit, the US watchers in the People’s Republic are further irked by weird signals Biden is sending in picking Nicholas Burns as the next China envoy.

“The US ambassador to Beijing must be someone who can show to the world the importance of the Unites States’ relationship with the Peoples’ Republic of China,” is how a former US envoy to China under President Obama reacted to the news of the likely Biden pick for the job. “It’s also critical that the person is empowered to negotiate on the president’s behalf and should not just be a person to deliver messages,” the former Montana Democrat Senator was quoted in the US media when Bloomberg first disclosed two months ago that Nicholas Burns might be the next China envoy. 

On March 18, the South China Morning Post’s seasoned China correspondent Shi Jingtao in an exclusive report claimed that Beijing had decided to stay on with Cui Tiankai, as China’s envoy to the US during the Biden presidency. Cui is already well over the usual retirement age for a Chinese official of his rank but “his connections and knowledge” are highly valued, citing sources in Beijing, Jingtao wrote. It is pertinent to point out, given that the Party general secretary, who is also at the same the President of the PRC, is assigned the responsibility by the seven-member politburo standing committee – the CPC’s highest decision making body – to deal with China’s affairs with the United States, which means Cui Tiankai is Xi Jinping’s man in Washington.


  Image: Chinese envoy in US Cui Tiankai: Xi Jinping’s “Mr.  Indispensable”
Source: news.cgtn.com

Furthermore, if what Shi Jingtao claims is true, then it is clear that 71-year old Cui or Xi Jinping’s “Mr. Indispensable” will be creating a history of sorts in the diplomatic annals by serving as Xi’s ambassador in Washington for long 11 years. It was the newly appointed Chinese president Xi, who picked Cui as the Chinese ambassador to the US in 2013. Cui’s continuation as China’s envoy in Biden era is also indicative of Beijing’s conviction that China-US rivalry is here to stay, at least for the next four years if not beyond. Let us recall, following the Alaska talks failure last month, China’s “independent” English language CX Daily in reaction to Biden administration’s relentless vitriol against China did predict that in Biden era and beyond “we are going to see at least 10 years of frosty ties between Beijing and Washington.”  

Let us return to the early reactions to Burns as the next potential US envoy for China. In the US media, as soon as the news of Nicholas Burns being considered for the most crucial ambassadorial appointment under the new Biden administration was disclosed two months ago, the reactions were positive and welcoming. While the state department and the White House both made it clear the next China envoy must be finalized based on the more “traditional mix of political and career,” the purpose was also to have fewer (key) political appointees than during Trump presidency. On the other hand, most ex-diplomats and foreign affairs experts too underscored the importance of having someone in Beijing who will be “perceived as having influence with the President Joe Biden.”

The influential Bonnie Glaser, a senior advisor for Asia and the director of the China Power Project at the Centre for Strategic and International Studies in Washington, emphasized the person (the likely China envoy) to have access to both Biden and Xi. “The most important thing I think for an ambassador is to have a good relationship with the President and have some ability to directly communicate with the President and the key people around him.” she was quoted by the CNN as saying. “It’s important for the person to have access to Xi Jinping as well,” Glaser added.

In Beijing, the first thing commentators have pointed out is the strange “missing” of the US envoy since October last year when Terry Branstad was unceremoniously recalled by President Trump, saying “Branstad would be coming home from China” as he wanted to join the presidential campaign. Branstad, a former long-time Iowa governor was handpicked to the posting in Beijing by Trump in part because of the ambassador’s strong personal relationship with Xi Jinping. Earlier on in February, scholars in China had commented on the new President’s going slow in finalizing ambassadorial nominees to several countries, including China.

Image: Xi Jinping’s friend and the last US envoy in Beijing
  Source: cbs2iowa.com

Diao Ming, a well-known expert on US-China relations and professor at the Renmin University in Beijing had told the Global Times: “Since Biden’s major officials in the foreign affairs sector attach great importance to China affairs, the ambassador to China needs to be a person with strong experience in politics, top-class professionalism, a well-known reputation and prestige in political circles, as well as trust from the president.” For Branstad, though ambassadorship came as political “reward,” he not only fitted the bill in several ways but he also proved to be a hit with the authorities in Beijing.

“Branstad’s departure would be a loss to China-U.S. diplomacy as it would mean one less political heavyweight with a deep understanding of China based here,” was how Wang Huiyao, an adviser to China’s cabinet and founder of the Centre for China and Globalization, had reacted to the news of the end of Branstad’s tenure. Branstad had arrived in Beijing as the US envoy during the early days of the new Trump administration. Branstad was also one of the first ambassadorial announcements – made as early as in December 2016, within a month of Trump’s victory. 

Just like Branstad, if appointed, Burns too will be among the first diplomatic nominees under President Biden. Burns’ reputation of a “no-nonsense” veteran professional diplomat – he has been a former ambassador, had served in the state department under the Bush administration and enjoyed his role in academic circles as professor with the Harvard Kennedy School – is well-acknowledged by the Global Times which has declared him as the “ideal choice for the position of US ambassador to China.” Interestingly, the GT, known for its strong hawkish views, while ignoring harsh remarks on China made by Burns in 2017 has lavishly praised the career diplomat for not “holding extreme views on China.” “Given his views on China that are not extreme, it is unlikely China will be averse to him. It should be said that Biden’s choice for Burns is very reasonable,” the newspaper opined.

  Image: Ex-Chicago Mayor Rahm Emanuel was among nominees for  Beijing but is finally US envoy pick for Tokyo
Source: Bloomberg.com 

In contrast to the GT commentary, Shanghai-based influential and widely popular Chinese language online news platform guancha.cn, has described Burns as “senior professional diplomat but not a diplomatic veteran.” Echoing what Hans Nichols wrote of Burns for AXIOS two weeks ago, cited above, the guancha.cn observed “choosing Burns would be indicating a preference for a seasoned diplomat instead of a high-wattage politician.” The online news platform did not fail to point out however that the past four US ambassadors in succession were all influential politicians. Guancha.cn also wondered on the choice of Burns as the US envoy for three additional reasons: one, Burns is known to be an expert on “Soviet Union” and Europe and not for handling China’s affairs; two, he would be filling in the challenging diplomatic assignment as “non-China” hand and that too when the coveted position in Beijing has been vacant for the past six months at a time considered as the most difficult period in the last 40-years of the bilateral relationship; and finally, unlike his past predecessors, Burns will have tough time doing liaison between President Biden and Blinken-Sullivan-Campbell trio. Not to forget, Biden’s China envoy will have to maintain a fine balance with the Biden administration’s first high-ranking traveller to China, John Kerry, the former secretary of state and now the president’s special climate envoy.

To sum up, as Lü Xiang, an expert in US studies at the Chinese Academy of Social Sciences has observed, Biden will decide on who will represent Washington in Beijing “once the state department announces comprehensively the US foreign affairs plan.” But scholars in Beijing are also saying, though Burns may not be a political heavy weight and “an old friend of Chinese people” like his immediate predecessor was, yet Beijing might be pleased with him. For the simple reason that he not only strongly supports the view that the US-China “decoupling” is impossible and that cooperation between the two largest economies is a must in containing Covid-19 pandemic and in climate change. But also because like his immediate predecessor who actively tried to ease China-US tensions, if experienced and professional diplomat like Burns succeeds as ambassador to China, he will play an even greater role than Branstad. 

                                                                                                   (1397 words)

This is modified version of an earlier article  published by the NIICE, Kathmandu under the title

‘Nicholas Burns for China Envoy: Is Biden Sending Wrong Signals to Beijing?’ on 26 April, 2021

On Kissinger, China, US Presidential Candidates and Presidents

Hemant Adlakha, Honorary Fellow, ICS  

Summary

Last week, Henry Kissinger warned that US-China tensions threaten to engulf the entire world and could lead to Armageddon-like clash between the world’s two military and technology giants. Surprisingly, some Chinese are interpreting the warning as threat to intimidate China in order to “accept and obey” the US-led world hegemonic order.

In January 2015, the peace group CODEPINK dangled a pair of handcuffs in front of 91-year old former Secretary of State Henry Kissinger at a Senate hearing. Twelve months later, at the February Democratic Debate Bernie Sanders and Hilary Clinton were seen engaged in a heated duel attacking and defending the acclaimed diplomat. The late writer Christopher Hitchens in his book The Trial of Henry Kissinger warned editors, TV news channel producers and presidential candidates to stop soliciting Kissinger’s “worthless and dangerous” opinions. The never ending outburst of enmity on the part of CODEPINK, Sanders and Hitchens was due to Kissinger’s brutal role in the killing of thousands of civilians, gang rape of hundreds of female detainees, and allegedly slaughtering of over one million people in Vietnam, Cambodia and Laos among countless similar crimes against humanity since the early 1970s. 

As documented in “Kissinger and Chile: The Declassified Record,” as some 5,000 people were being detained and tortured in Chile’s National Stadium, Kissinger told the ruthless Augusto Pinochet: “You did a great service to the West in overthrowing Allende.” But Sanders-Clinton “spirited exchange” five years ago, as mentioned above, was not confined in Sanders’ words to Kissinger being “one of the most destructive secretaries of state in the modern history” of the United States. Sanders’ rare outburst also included Clinton defending her foreign policy mentor – Kissinger – on China. “[Kissinger’s] opening up China and his ongoing relationship with the leaders of China is an incredibly useful relationship for the United States of America,” Hilary Clinton emphatically pointed out.

  Image: Kissinger, Zhou Enlai and Mao Zedong             
Source: thekootniti.in

Sanders responded disdainfully and berated Clinton for admiring Kissinger. “Kissinger first scared Americans about communist China and then opened up trade so US corporations could dump American workers and hire exploited and repressed Chinese,” Sanders had retorted. However, no one in Beijing either knows or seems interested in all the so-called negative traits attributed to the veteran diplomat who is generally known as arguably the most “influential figure in the making of American foreign policy since the end of World War II.” Instead, according to Peter Lee, editor of the online China Matters and a veteran Asia Times columnist, the CPC leadership value Kissinger as the “symbol, custodian and advocate” of a US-China relationship that is special.   

Professor Aaron Friedberg, author of A Contest for Supremacy: China, America, and the Struggle for Mastery in Asia, described the re-opening of relations with China as Kissinger’s greatest achievement. In a review of Kissinger’s massive book On China, Friedberg wrote: “Kissinger’s six hundred pages on China are an attempt to apply the principles of foreign policy realism to the most pressing strategic challenge of our day.” (Emphasis given) However, the approach, taken alone, was far from inadequate in anticipating the behavior of an increasingly powerful China on the one hand, and for prescribing an appropriate American strategy to deal with a rising China, Friedberg went on to add.

Since Mao, all successive top Chinese leaders have met with Kissinger one-on-one in Beijing, some even more than once. China’s current President Xi Jinping is no exception. In fact, given the deep esteem with which reform era CPC leadership has been embracing Henry Kissinger, the general wisdom in Beijing is President Xi has horned his diplomatic skills by learning well his (Kissinger’s) oft-quoted aphorism “you don’t go into negotiations unless your chances of success are 85 percent.” Kissinger had first met with Xi in 2007, when Xi, as the party secretary in Shanghai, had received the most frequent foreign visitor to China on a visit to the city. When asked for his assessment of the party’s new general secretary within days of the 18th party congress in November 2012 by the Wall Street Journal, Kissinger had said “Xi Jinping is a strong leader capable of rising up to any challenge.”


  Image: With Deng Xiaoping        

Source: china.org.cn \

In the past little over four decades of Kissinger-CPC bonhomie, the first decade thanks to Cold War passed off rather smoothly and uneventfully. The second decade ushered in with perhaps the first most serious test for both Kissinger as well as for the US-China relations since the unfreezing of the bilateral ties by Nixon-Kissinger pair in the early 1970s. In June 1989, the CPC rulers used brutal force to crush peaceful student demonstrators at the Tiananmen Square and launched nationwide crackdown on suspected dissidents. Though criticized by the US political elite for “Kowtowing to Beijing” for defending the CPC authorities by saying “a crackdown was inevitable,” Kissinger did influence the Bush administration in imposing comparatively mild sanctions while deflecting congressional pressure for tougher action.

In third and fourth decades respectively, unlike during the first two stages, ideology gradually regained initiative over geopolitics in influencing the bilateral relationship. There are mainly two factors for this. First, from 1979 to the end of the last century, China was relatively weaker than the United States both economically and in military technology. Following China’s rapid economic growth beginning late 1990s and at the turn of the twenty-first century, a section in the US political elite became apprehensive of China’s assertive and highly competitive stance. These concerns soon gave birth to the “China threat theory” which Beijing unsuccessfully tried to pass off as “China’s peaceful rise.”


   Image: Kissinger with Jiang Zemin

  Source: cfr.org                  

The second factor has much to do with the world financial crisis in 2008 which resulted in the beginning of decline of the US economy on the one hand, and the unfolding of the seemingly evident intent of the CPC leadership to “eventually displace the US” and “re-establishing their own country as the pre-eminent power in East Asia.” In other words, with Cold War and the Soviet Union both long gone, and China threatening to soon replace America as the world’s number one economy, the communist rulers in Beijing were under no illusion that the ideologically hostile US was gearing up to plot “color revolution” to replace the CPC with democratically elected leaders in the People’s Republic.

The chilling of US-China bilateral relations during the first year of Obama presidency itself, with China replacing Japan to become the world’s second largest economy in 2010 and further hardening of the US stance towards China, and finally the US “pivot to Asia” strategy introduced by the Secretary of State Hilary Clinton – all these were perceived by Beijing as the US “creating political framework for a confrontation with China in order to maintain the global hegemony of American dominance.” Even Kissinger was very much aware of the changing stance in Beijing, as is reflected from what he wrote in On China: “China would try to push American power as far away from its borders as it could, circumscribe the scope of American naval power, and reduce America’s weight in international diplomacy.”

Interestingly, although the most frequent US visitor to China has continued to visit China ever more frequently during the past decade, given the changing nature of polity in both the US and in China it is not incorrect to say the Kissinger magic has been gradually fading away. Last Friday, when the “old friend of China” warned both Beijing and Washington in a speech at McCain Institute’s Sedona Forum in France that their escalating tensions are leading the world towards Armageddon-like clash, the opinionating Chinese social media reacted with caution. “Kissinger used the so-called end of the world argument to threaten and intimidate China in order to accept and obey the hegemonic order by the United States.


  Image: With Hu
Jintao

  Source: wsj.com

Another commentary in Chinese pointed out, ever since Trump launched “all out political war” against China, Kissinger has been in subtle and cunning way warning China to “cooperate” with Washington. The signed article entitled “Kissinger Continues to Scare the Chinese People” stated: “For the past two, three years, Kissinger has been repeatedly saying, China must continue to compromise and obey the US hegemony and US-led global order. Otherwise, China will face the danger of World War I-like situation.”

To sum up, an angry guancha.cn – one of China’s most widely read online Chinese language news platform – reader posted in the chat room: Kissinger is no longer qualified to advise China or the world. Instead, the world will be a peaceful if America first puts its own house in order!   


   Image: With Xi Jinping…who is walking whom?
Source: cnbc.com                               

This is edited version of an earlier article published under the same title in moderndiplomacy on 5 May, 2021.

The Arakan Army and China’s Relationship with Ethnic Armed Organizations in Myanmar

Jelvin Jose, Research Intern, ICS

The Arakan Army (AA), an ethnic armed organization (EAO), engaged in armed struggle for ethnic self-determination of the Rakhine Buddhist people has been a significant newcomer to Myanmar’s ethnic conflicts. The fierce tensions  between the AA and the Tatmadaw, following AA’s police station attack on 4 January 2019, led to the displacement of 157,000 people and prompted a global outrage. The public support consequent to the political marginalization of the ethnic Rakhine community, and Chinese material backing, expedited the rise of AA as a lethal outfit within a short period since 2017. In order to safeguard its economic and strategic goals in Myanmar, Beijing needs to balance both the Tatmadaw and AA.

Arakan Army and its Rise

The AA was formed in April 2009 in Laiza, a town in Kachin state. It aims to set up an autonomous territory with substantial autonomy in Myanmar’s Rakhine state, similar to the one run by the United Wa State Army (UWSA). The Rakhine State of Myanmar is one of the poorest regions in the country. AA, seeks to garner public support by upholding Rakhine nationalism, promising to bring prosperity to the region, and preserving the identity and cultural heritage of the ethnic Rakhine community.

Though the AA had been initially trained and operated under the umbrella of Kachin Independence Army (KIA), it later shifted to the fold of the powerful UWSA. After gaining training and battle experience from its operations in the Shan and Kachin states in the initial years, AA started shifting focus to Rakhine state by 2012. However, it was only after 2017 that the AA has risen to prominence in the Rakhine state.

Chinese Material Backing to AA

Although there is little evidence for direct supply of arms to AA by the Chinese government, multiple instances, including the Sittwe naval vessel attack, confirm the flow of Chinese weapons to AA’s hands. In the words of Anders Corr, around 90 percent of AA’s financial resources come from China. Chinese backing to the AA also extends in terms of uniforms, weapons, and ammunition. In the Sittwe vessel strike that AA carried out in June 2019, the AA rebels reportedly fired at least three Chinese-made 107mm surface-to-surface rockets.

The primary source of weaponry for AA is the purchase from other EAOs, mostly from UWSA and members of the Northern Alliance. UWSA- Beijing’s closest ally and most prominent beneficiary of Chinese weapon supply is said to have installed factories producing Chinese weapons in its territory. UWSA, leading the Federal Political Negotiation and Consultative Committee (FPNCC) – a seven-member coalition of EAOs including AA – is reportedly used by Beijing to influence AA to secure its interests.

The flow of sophisticated Chinese weapons to AA’s arsenal strengthens the claim of Chinese backing of AA. In July 2020, the Thai military seized a massive stock of Chinese armaments worth US$1 million from Mae Tao district, bordering Myanmar and Thailand. The weapons reportedly were destined for the AA and insurgent groups operating in India’s North East. In November 2019, Tatmadaw captured another stock of Chinese-made weapons, including FN6 anti-aircraft guns, RPGs, and around 40,000 rounds of ammunition from the Ta’ang National Liberation Army (TNLA) – AA’s partner in the Northern Alliance- at Homein village of Northern Shan State.

It is notable that AA rebels, who have obstructed India’s Kaladan Multi-Modal Transit Transport Project (KMMTTP) at different points, have not, similarly, targeted any Chinese projects. The statement by AA spokesperson U Khaing Thukka in March 2020, that China recognises us, but India doesn’tfurther exposes Beijing’s connections with the AA.

Arakan Army and China’s Links with Ethnic Armed Organizations

Unlike several EAOs such as UWSA, Beijing has not directly backed AA. Instead, China pipelines weapons and other resources to AA via other EAOs, to secure its strategic and security interests in Myanmar. In a broader sense, Chinese indirect backing to the AA is part of Beijing’s balancing act between EAOs and the government to retain its influence in Myanmar. Keeping links with AA helps Beijing to shield its infrastructure projects from harm. Swedish Journalist Bertil Linter explains the strategy Beijing adopts in Myanmar as a  “Carrot and Stick Policy.” On the one hand, China assists Myanmar with investments and necessary political cover from global human rights outcries at international bodies such as the UN Security Council. On the other hand, China also keeps links with the armed ethnic outfits, providing them with necessary political cover, funding, and weapons.

In fact, for Beijing, the existence of AA as a cause of turmoil in Rakhine is unwanted business. China critically needs a stable situation, conducive to the smooth implementation of its economic projects in Myanmar. Beijing perceives that the AA claims are implausible to be accepted by the Tatmadaw, thus posing obstacles to stability in the state by instigating prolonged political stir. As a cause of violence, the persistence of AA without striking any workable deal with the government (or at least with Tatmadaw) seriously hampers Chinese interests in Myanmar. First, violence and resultant disruption of stability would impact the rollout of Chinese projects and their functioning. Second, border security is a crucial aspect of Chinese interests in Myanmar. Beijing believes that its porous border with Myanmar is vulnerable to exploitation by external players. Thus, the extreme turmoil AA has been making, pressing for greater international involvement, is not in China’s interest. Third, the presence of AA as a formidable power would necessitate Beijing to balance between the government and AA simultaneously. Otherwise, Beijing could have much more easily secured its interests by striking a deal with the government and Tatmadaw. Fourth, though Tatmadaw and Nyaypidaw have been long suspicious of Beijing’s connections with various EAOs, Beijing’s material backing to AA seems to have further exacerbated this distrust.

Notwithstanding this, given the reality that the Tatmadaw cannot control the whole territory on its own, Beijing requires links with both the EAOs and the government to safeguard its economic and strategic interests in Myanmar. Rakhine state, the focal point of AA, is the hub of both economically and strategically important BRI projects such as Kyaukpyu port and China-Myanmar oil and gas pipeline. These projects are critical for China from the geostrategic perspective to reduce its vulnerability in the crucial Malacca Strait- often described as  “China’s Malacca Dilemma.” Hence, Beijing essentially requires establishing links with the AA to prevent the disruption of these ambitious projects.

Given the factors mentioned above, the Chinese backing to AA is conditional. Beijing does not see any end to Myanmar’s ethnic crises in the foreseeable future. Thus, Beijing can be expected to continue its direct or indirect engagements with EAOs, including the AA, while maintaining strong ties with Nyaypidaw in order to minimize its risks and maximize the profits from Myanmar’s ethnic conflicts.

China’s Changing Role in The United Nations Security Council, 2007-2017

Chandam Thareima, Research Intern, ICS

In almost 50 years since the People’s Republic of China’s accession into the United Nations on 25 October 1971, there have been a series of shifts in its role as a permanent member of the UN Security Council. From a cautious beginning as a newcomer to the game of UN multilateralism (1971-1978), to one of pragmatic engagement and steady integration with the global economy in pursuit of modernization (1979-1989), China has sought, in the post-Tiananmen incident period, to salvage its international image while continuing its modernization drive (1990-2000), before assuming an increasingly pro-active stance at the turn of the new century. Especially since 2008, the Chinese role became increasingly wide-ranging in its strategic scope and reach as well as more assertive and strident.  One important indicator of this is China’s voting pattern in the Council. The period 1971-2000, may be depicted largely as “going with the flow” or “passive” approach except in extraordinary circumstances.  During this entire period, China cast its veto only four times – twice in 1972 and one each in 1997 and 1999. For the most part, its votes were affirmative, non-participative and abstentions, as illustrated below. This was to change decisively in the following two decades.

Time period Affirmative votes percentage Non-Participation Abstentions Vetoes
1971-1978 54.9 % 47 4 2
1979-1989 93.5% 17 1 0
1990-2000 87.9% 0 43 2

Source: United Nations Security Council Documents: Volumes of Resolutions and Decisions

China’s first veto in 1972 was against a resolution for Bangladesh’s membership in the UN, on behalf of its regional ally Pakistan; and the other 1972-veto was on an amendment to a NAM (Non-Aligned Movement)-sponsored resolution against Israeli use of force in the Middle East. This veto was not very substantial considering it was on an amendment rather than a resolution but could be inferred as showing solidarity to NAM countries and opposition to the US which had vetoed the resolution. The remaining two vetoes were against resolutions on Guatemala (1997) and on Macedonia (1999). Both these vetoes were in protest against the former two countries’ recognition of Taiwan- a threat to China’s core national interests. China’s UN representative Qin Huasun explained the 1997-veto as: “The Guatemalan authorities cannot expect to have the cooperation of China in the Security Council while taking actions to infringe upon China’s sovereignty and territorial integrity”. 

Since the turn of the century, China’s enhanced capabilities were translated into activism and confidence in global affairs. As Zhiqun Zhu argued, “China is gradually becoming more responsive to international demands to put diplomatic pressure on authoritarian regimes such as Sudan and North Korea”. Such confidence and cooperativeness were also reflected in its UNSC voting pattern during 2001-2006 in which its abstentions were drastically reduced to eight, increased its affirmative votes to 95.5 per cent, and a total lack of vetoes. However, the timeframe of this analysis, 2007-2017 is marked by a total of eight vetoes, a stark departure from China’s earlier record in which it had cast only four vetoes in a span of 30 years since its UN admission. It is often surmised that China’s frequent use of its vetoes in this period implied assertiveness on its part as a result of its rising power, rendering the Council ineffective in discharging its function of maintaining international peace and security. China’s assertiveness from this period onwards can also be seen in its broader foreign policy behaviour, for instance in the South China Sea.

Moreover, this period also assumes significance because unlike in the past when it traditionally used to veto resolutions on countries that impinged on its territorial integrity, China’s vetoes during 2007-2017 were against resolutions that had nothing to do with its one-China policy. Furthermore, the eight vetoes during this period were on resolutions against countries that had questionable human rights records‒ Myanmar (2007), Zimbabwe (2008) and Syria (2011, 2014, 2016, 2017 and two vetoes in 2012)— an association with which China risked tarnishing its international image which it had been striving to build since the Tiananmen incident. By not only stepping away from its consensus seeking stance on the UNSC resolutions, but also by blocking them from being adopted, China has shown that it is willing to stand against the larger consensus, in pursuance of its interests as also for the principles it upholds, and enforce it through its veto power. This marks a sharp shift from its earlier Security Council diplomacy wherein China has always refrained from using its veto power except in Taiwan-related cases or in cases in which its immediate geo-political interests were involved.

Although China defended its stance in UNSC on grounds of the principles it upholds such as respecting the sovereignty of the nations concerned, its opposition to sanctions, or the lack of consensus in the Council, China’s actions could also be attributed to its desire to protect its economic, political and strategic interests in those countries. For instance, China vetoed the 2007 UNSC Resolution calling for Myanmar to cease military attacks against civilians in ethnic minority regions and to put an end to the associated human rights and humanitarian law violations, on the grounds that “the matter was an internal affair of a sovereign state and did not pose a threat to international or regional peace and security”. However, China’s economic and strategic interests in Myanmar also seem to influence China’s decision to censure the latter from international scrutiny.

Most of China’s vetoes coincided with Russia’s, implying that both these countries support one another when their respective national interests are at stake and to avoid taking an isolationist stance. This could be seen in the cases of Libya and Syria when both these nations concurrently abstained or vetoed. China is also increasingly seen to shadow its vetoes and abstentions behind Russian vetoes or abstentions. During 2013-2017, China’s vetoes (3) and abstentions (14) were all on resolutions against which Russia had vetoed or abstained. This helped China diminish the negative attention of international community’s disapproval as Russia’s concurrent vetoes or abstentions insulated China’s own. 

Furthermore, China’s reduction of vetoes from five to three, and of its affirmative votes from 98.8 per cent to 97.7 per cent, increase of abstentions from five to 15 from the period 2007-2012 to the period 2013-2017; its exercise of vetoes and abstentions largely in support of Russian vetoes and abstentions, and not entirely to protect its own interests, could very well be interpreted as an act of cautiousness in the UN. This cautiousness could be seen as a tactical response to the international community’s apprehensions about China’s assertiveness. Nevertheless, the period 2007-2017 was also marked by an increasing number of UNSC Resolutions having been adopted without any apparent opposition from China. Thus, the argument that it was creating obstacles in the functioning of the Security Council is not entirely true.

From the foregoing account, it could be inferred that China’s UN policy, reflective of its broader foreign policy behaviour, has been undergoing distinct changes, reflecting the changing internal as well as external environment. Overall, it must be noted that in both the phases – 2007 to 2012 and 2013 to 2017- although China exercised its veto power, it nevertheless maintained a high rate of affirmative voting affinity with the rest of the Council members. This is enormously significant, especially in view of the fact that China has, on balance, maintained a posture of collaboration with the other powers in UNSC matters rather than a contentious one. This in turn provides some pointers to understand China’s foreign policy behaviour in the backdrop of its growing power.

Chinese Claims on the South China Sea are Infringing on India’s Economic and Geopolitical Interests

Halim Nazar, Research Intern, ICS


Source: The Week

Introduction

The South China Sea dispute involves conflicting land and maritime claims of sovereignty between China and several nations in the South China Sea area. Although China’s claims that they historically exercised “exclusive control” over the sea was rejected by the Permanent Court of Arbitration in The Hague, they haven’t been deterred in their pursuit. Almost a quarter of the global trade passes through these waters, so many non-claimant nations like India require the South China Sea to remain open as international waters. The region is of immense importance to India as India has been increasing trade and economic linkages with several East Asian nations and also with the Pacific region.

The South China Sea is the second-most used sea lane globally, with one-third of the world’s shipping (over $3 trillion) passing through the area. A single country having complete control over this maritime route would have significant economic and military advantages for itself. Thus, enabling this region to be the geopolitical pivot for achieving control over the rest of Asia. Opposing China, The Philippines, Vietnam, Brunei, Malaysia, and Taiwan all lay claims to sections of these waters.

China has laid claim to most of the South China Sea via a looped line called the “historic line” or the “nine-dash line”. The “loop”, or the “cow’s tongue” as it is called, surrounds many islands from China to Malaysia and Singapore, including the Spratly and Paracel chain of islands.

It is apparent that as Beijing accumulates more political, military and economic power, it would use it to further their interests, inevitably at the cost of other nations, regardless of the rhetoric of “win-win” situations. By following a delaying strategy, wherein a state maintains its claims over the contested land without offering concessions or using force, China seeks to consolidate its claims while deterring other states from strengthening their claims. Under the course of a delaying strategy, if a state occupies a piece of contested land, the passage of time strengthens its claim in international law; states can go beyond diplomatic statement and utilize civilian and military actors to further assert their claims. In the South China Sea, China would only compromise when improved ties with the other states become more critical than the maritime rights and islands that are contested. A similar compromise has precedence in Chinese statecraft as Mao had ordered the transfer of the disputed Bailongwei (White  Dragon  Tail) Island to  North  Vietnam in 1957, as part of improving the alliance between China and North Vietnam. Such a shift in priorities is improbable but can be orchestrated. For example, China could oppose the formation of any counterbalancing coalition in the region, especially one under the US’s leadership. In this scenario, China could be expected to offer some concessions to improve ties with the affected states.

India’s Interests

India has significant geo-economic and geopolitical stakes in the South China Sea. Although India is not geographically in the South China Sea region, it is extensively involved with several littoral states in the area, mostly through naval exercises, oil exploration, strategic partnerships and diplomatic discussions. India considers the South China Sea as its “extended neighbourhood” and has extended its diplomatic outreach to the various nations there.

The Chinese have estimated that the South China Sea has one of the world’s largest oil reserves, second only to Saudi Arabia and will ultimately yield around 130 billion barrels of oil. India’s state-run explorer, Oil and Natural Gas Corporation (ONGC), had come into agreement with Petro Vietnam for developing long-term cooperation in the oil sector via its overseas investment arm, ONGC Videsh Limited (OVL), and it had accepted Vietnam’s offer of exploration in certain specified blocks in the South China Sea and signed a letter of intent on September 15 2014. OVL had already forayed into Vietnam in 1988 when it obtained the exploration license for Block 06.1. The company also got two exploration blocks, Block 127 and Block 128, in 2006. However, Block 127 was relinquished as it wasn’t profitable, and the other block is currently under exploration and roughly coincides with the current area of Chinese escalation.

India has high stakes attached to the uninterrupted flow of commercial trade in the South China Sea as well as in maintaining the movement of its Navy in these waters. Over 55 per cent of India’s trade passes through the South China Sea. Therefore, ensuring peace and stability in the area is of paramount importance to India.

The South China Sea lies at the intervening stretch of waters between the Indian Ocean and the Western Pacific. As Indian maritime cooperation grew with America and Australia, these waters have come to be referred to as “Indo-Pacific”. Indian Navy now operates in the Western Pacific in collaboration with the United States and Japanese navies. Therefore, it becomes all the more important that India gets secure access through the South China Sea. To navigate from the Indian Ocean to Western Pacific, easy, unhindered access through the South China Sea is essential for India.

Conclusion

As China engineers strategic investments and partnerships throughout the South Asian neighbourhood, particularly under the ambit of the ambitious BRI project, it is imperative that India capitalize on the advantages of its geographical position and emerging naval profile as well as its cooperation with the ASEAN and legacy of goodwill to balance its eastern neighbour. India’s response to the South China Sea issue is based on the realist balance of power logic. India plans to deter China’s ambitions in the South China Sea whilst complementing ASEAN’s stance of indirect balancing of China by fostering an alliance based on the principle of cooperative security. The successful execution of the “Look East Policy” (LEP) and strides taken by the “Act East Policy” (AEP), which were premised on the adherence to the principle of ASEAN centrality, complemented India’s strategy of containing Chinese footprints in its “extended neighbourhood” by putting its weight behind countries like Vietnam caught in the dispute over overlapping claims to sovereignty in the South China Sea with Beijing. The LEP and AEP have constituted the bulwark for the development and entrenchment of India-ASEAN ties. Besides, it has also erected the foundation for India’s enhanced participation and assumption of responsibility in Indo-Pacific affairs.

The current policies have served India well. India, along with the US, Australia and Japan, held the first Quadrilateral Security Dialogue (Quad) summit, where they pledged to work together to ensure a free and open Indo-pacific and also cooperate on cybersecurity and maritime. A realist approach, tempered by strains of critical, tangible geopolitical imperatives, complemented by the constructivist logic of intangibles, would be most appropriate for India.