China Quote✒️
“EU’s persistent lack of active response to core concerns of the China-EU industry, significant differences remain in the consultations”. – Chinese Ministry of Commerce Spokesperson
Blindspot👁️
Economic Activity🏦
China’s Economy Faces a Conundrum of Xi’s Making
Mary Gallagher writes in WPR that the Chinese government recently announced a series of measures that aim to stabilise the country’s economy, spur economic growth and boost confidence in the long-term viability of China’s growth model. The recent moves have once again put the spotlight on the headwinds facing China’s economy and Beijing’s efforts to address them.
They’ve also highlighted the fundamental challenge that the Chinese government faces, which is the desire to boost confidence without unleashing unrealistic expectations on the part of Chinese consumers and investors. The boom in Chinese stock which has lost the bottom recently is a sign of troubles ahead.
China Pledges More Financial Support for ‘Whitelist’ Real Estate Projects
Anniek Bao writes in CNBC that China’s housing ministry announced plans to expand its “whitelist” of real estate projects and accelerate bank lending, aiming to provide 4 trillion yuan ($561.8 billion) in loans by the end of 2024. The initiative seeks to support unfinished housing developments and bolster the real estate market. However, investor reactions were mixed as stocks fluctuated amid concerns over the effectiveness of these measures.
China’s Wild Stock Market Swings Hurt a $28 Trillion Bull Case
The Straits Times reports that China’s stock market experienced a rapid boom and bust, driven by retail investors who initially rallied after central bank stimulus, causing a 25% surge in the CSI 300 Index. However, as equities slumped, retail investors quickly retreated, undermining hopes that China’s $21 trillion in deposits would fuel a long-term rally.
Inside China🐉
China, Myanmar Tied for Worst Internet Freedom: Freedom House
Liam Scott writes in VOA that a Freedom House report ranked China and Myanmar as the worst countries for internet freedom. Myanmar’s ranking deteriorated since the 2021 coup, with military-led internet shutdowns and censorship. China’s long-standing censorship regime remains entrenched. The global decline in internet freedom is alarming, especially during an election-heavy year, with 41 countries facing significant restrictions.
China and the World🌏
Taiwan military on high alert as Chinese drills encircle the island
BBC reports that China has launched major military drills around Taiwan for the second time this year, simulating a full-scale attack on the island – just days after the Taiwanese President William Lai delivered his first National Day speech. They come months after drills held, days after Lai was sworn in. The exercises reinforce what is at the heart of the issue: China’s claim over self-governed Taiwan. Beijing sees the island as a breakaway province that will, eventually, be part of the country, and has not ruled out the use of force to achieve this.
Xi Jinping Visits Coastal Region Opposite Taiwan, Underscores Strong Military
Resham writes in StratNewsGlobal that Chinese President Xi Jinping visited Dongshan County in Fujian, a strategic location across the Taiwan Strait, following the PLA’s military drills around Taiwan. The visit focused on rural revitalisation and cultural heritage, yet underscored China’s military modernisation amid rising tensions. Xi did not directly inspect military activities but emphasised the urgency of building a strong military, highlighting Taiwan’s importance in China’s security strategy.
In China, Harris Is Mostly Seen as Preferred to Volatile Trump
Bloomberg reports that China prefers the continuity of Kamala Harris over the unpredictability of Donald Trump, according to experts familiar with the thinking in Beijing. Despite persistent divisions over issues including Taiwan, the South China Sea and President Joe Biden’s export controls on advanced chips and other technology, US-China ties have stabilised over the past year. That’s thanks to regular, low-profile talks between Chinese Foreign Minister Wang Yi and US National Security Adviser Jake Sullivan.
China’s Li Qiang Vows ‘Upgraded’ Pakistan Economic Corridor on First Visit to Islamabad
Meredith Chen writes in SCMP that Chinese Premier Li Qiang pledged to enhance the China-Pakistan Economic Corridor (CPEC) and strengthen counterterrorism cooperation during his visit to Islamabad. The visit included the virtual inauguration of the New Gwadar International Airport, funded by China. Li’s four-day trip coincides with meetings of the Shanghai Cooperation Organisation, highlighting China’s strategic investment in Pakistan’s infrastructure as part of its Belt and Road Initiative.
China Ready to Strengthen Cooperation with Russia, Mongolia
Reuters reports that Chinese Premier Li Qiang expressed China’s intent to deepen trilateral ties with Russia and Mongolia during a Shanghai Cooperation Organisation (SCO) summit. The meeting with Russian Prime Minister Mikhail Mishustin and Mongolian Prime Minister L. Oyun-Erdene focused on enhancing mutual trust, coordination, and trilateral cooperation. Mongolia, though an SCO observer, plays a strategic role, particularly with its involvement in a proposed Russia-China gas pipeline.
China and Thailand Begin Latest Joint Military Drills as Beijing Boosts Defence Ties
Enoch Wong writes in SCMP that China and Thailand commenced their “Strike-2024” joint military exercises in Kunming, focusing on counterterrorism and deploying unmanned combat devices. The 11-day drills aim to enhance operational capabilities in complex terrains, including jungle and mountain areas. Thai soldiers trained with Chinese equipment, marking the seventh in the “Strike” series. The exercise underscores China’s growing defence ties with Southeast Asia, contributing to regional stability.
Tech in China🖥️
Apple Collaborated with BYD on Secretive Electric Car Project
Owen Bellwood writes in Quartz that Apple collaborated with Chinese automaker BYD to develop long-range lithium iron phosphate (LFP) batteries for electric vehicles. This partnership, started in 2017, helped BYD advance its Blade battery technology, now used in its entire EV lineup. Although Apple eventually abandoned its car project, the collaboration showcased its engineering expertise in battery design and heat management, contributing to BYD’s dominance in the EV market.
De/Cypher Data Dive📊
Freedom on the Net, 2024: The Freedom House’s internet freedom report seeks to provide a comprehensive analysis of the state of internet freedom in various countries, with a focus on key indicators such as obstacles to access, limits on content and violation of user rights. Each country is ranked on a scale of 0 to 100, with 100 representing the most free conditions and 0 the least free.
Iceland has been ranked as the leading country in terms of Internet freedom (2024), receiving an impressive 94 points out of 100. China and Myanmar have the lowest scores, with 9 points each.
For the first time in ten years, China and Myanmar are both ranked as the worst countries for internet freedom. Beijing has continued to block foreign traffic to certain government websites and impose steep fines on VPN users in an attempt to cut off China’s domestic internet from the rest of the world.
De/Cypher Pulse〽️
Investing in Africa: Is China Putting Its Money Where Its Mouth Is?
Written By Aurko Chakrabarti – Applied Geopolitical Researcher
China’s Pivot to Pragmatism
China seems to have pivoted from its usual gung-ho approach to investment in Africa since 2021, instead opting for a more pragmatic outlook. This was on display at the recent 2024 Summit of the Forum on China-Africa Cooperation. Despite pledging US$51 billion in loans, investment, and aid, China’s caution could be gauged through their keenness to fund small-scale development and sustainable energy projects as opposed to the large undertakings of The Belt and Road Initiative (BRI), which has faced widespread allegations of debt-trap diplomacy. These claims have been dismissed by many African leaders, who view China as a partner that respects their sovereignty, while maintaining ample economic influence. Likewise, African leaders have re-affirmed their support for the ‘One China’ Policy.
A Steady Growth in Investment
China has consistently improved bilateral ties with African nations since the 1950s but economic interest began to surge in 2003 with a US$75 million investment in Africa to US$5 billion in 2021. Chinese investment in Africa has surpassed the U.S. since 2013. The top five recipient nations for Chinese FDI in 2022 were South Africa, Niger, the Democratic Republic of Congo, Egypt, and Cote d’Ivoire. The Hinrich Foundation estimates that Africa accounts for approximately 7% of China’s overseas direct investments projects, 15% of the value invested, and 13% of jobs created by Chinese greenfield ODI since 2003. This positions China as the fourth largest trading-partner to Africa, but a closer look into the outlay of the spending shows that it may be overstated. There are major projects across the continent, which have received exposure at the onset but have now been put on ice or have only received partial funding.
Challenges in Large-Scale Projects
Kenya’s current predicament provides one such example. Their railway project, Standard Gauge Railway, remains commercially unviable despite immense government funding, as the planned extensions to Uganda and Rwanda are yet to begin. However, the Ugandan government signed a contract with a construction company from Türkiye, Yapı Merkezi, to start work on the first phase of the railway earlier this week signalling progress. The feasibility of the project could only be justified by the high profitability expected from its use, with promises being made to the public that it would haul 22 million tonnes of freight a year. This was expected to reduce the over-reliance on trucks and increase transport efficiency.
Similarly, in 2017, China promised to assist Egypt in the development of a new capital city east of Cairo. The visionary project was to be undertaken by China State Construction Engineering Corporation (CSCEC), which signed a memorandum of understanding (MoU) in September 2015 to build a new parliament, twelve ministerial buildings, a national convention centre, and an exhibition complex before withdrawing two years later. This was due to pricing concerns; China expected Egyptian construction companies to manage the process, which proved untenable, due to capacity limitations.
The long-term planning and sustainability of these China-backed projects have also come under scrutiny. The Ethiopian capital, Addis Ababa, received financing for a US$475 million urban metro system, which became functional in 2015 but the government miscalculated the operational and maintenance costs involved. As a result, it has become difficult for the Ethiopian government to continue funding repairs which are costing an estimated US$60 million. The expected footfall has also fallen well short of the amount needed for sustainability.
The Battle for Influence and Critical Minerals
Chinese investment is unlikely to majorly slow down across Africa, especially at a time when China and the U.S. are vying to gain access to the vast critical mineral supply of Africa. The African continent houses 30% of the world’s mineral reserves. These are frequently used in the production of renewable and low-carbon technologies including solar, electric vehicles, battery storage, green hydrogen, and geothermal.
If China is to succeed in its battle for technological supremacy with the U.S., they will have to continue expanding its diplomatic footprint across the continent in order to spread their web of influence.
USA and China – The War of Semiconductors
Written By Priyanka Garodia – Geopolitical Research Analyst, South Asia
The United States of America and China are engaged in a conflict surrounding the control of advanced technologies. In the larger geopolitical rivalries between the countries, semiconductors have emerged as a critical battlefield between the two superpowers. Semiconductors are foundational to the domains of artificial intelligence (AI), quantum computing, telecommunications and military innovation. Given it strategic importance, both the USA and China are fighting to assert their supremacy in the semiconductor industry.
America’s Export Controls
The semiconductor war is a struggle for technological supremacy. It is one of the most essential and basic components required for modern electronic goods including smartphones and computers and highly complex military equipment and AI-driven networks. China has made significant advancements in AI and telecommunications including 5G technologically. Given that the relations between USA and China have seen significant deterioration in the past decade due to China’s belligerent behaviour and USA’s need to dominate the world order. The advanced technological capacities that China has displayed with respect to the development of semiconductors has been seen by USA as a direct testimony to advance its military prowess. This in turn has compounded USA’s insecurity and it levied a series of export controls in the name of national security interests.
These export controls especially on the sale of advanced chips especially in AI applications and high-performance computing have been a blow to China’s ambitions in these crucial industries. Several Chinese companies including Huawei and the Semiconductor Manufacturing International Corporations (SMIC) has been blacklisted by the Department of Commerce’s Bureau of Industry and Security (BIS). These has been compounded with a ban on high-tech manufacturing equipment. Export controls targeting at limiting China’s ecosystem including restricting access to semiconductors designed by companies like Nvidia, Intel and AMD have left China vulnerable. Its reliance on American companies particularly to manufacture chips smaller than 7 nanometres, leaves it is a dicey situation.
While China has made significant progress in technology, it remains behind Taiwan and South Korea in the manufacturing of semiconductors. Taiwan’s TSMC and South Korea’s Samsung have far more nuanced production capacities that China still cannot match. Moreover, the sophisticated lithographic equipment required by China to manufacture semiconductors is largely imported from the Dutch company ASML that has limited access to China due to US pressure.
These import control have greatly impacted Chinese tech companies including Huawei once a global giant in 5G technology. Now it struggles to compete in the smartphone market due to access restriction to advanced chips. SMIC has also faced production challenges, limiting its ability to supply chips to domestic firms. However, China has introduced certain measures to get the situation under control.
China’s Response
China has doubled down on its efforts to become more self-sufficient in semiconductor production and technology. Huge investments have been made in domestic chip production and state-backed initiatives like “Made in China 2025” have further emphasised the production of key technologies within the country including semiconductors. However, this is not free of obstacles for China.
The quest for self-sufficiency is riddled with problems including the lack of specialised equipment, human capital and intellectual capacities. While China is adept at producing older-generation chips, they are unable to manufacture high-performing chips that are required for AI and advanced computing needs. China is still years behind companies like TSMC, Intel and Samsung in production capacities.
China’s response to the US sanctions includes pursuing strategic alternatives. Chinese firms have tried to acquire semiconductors through technological collaborations with non-U.S. suppliers. Some firms are using older technology to by-pass export controls. However, none of this made significant improvements in China’s condition and it continues to see major setbacks in the global semiconductor market.
Global Consequences
The U.S.-China semiconductor war has greatly interrupted the global supply chain. The production and assembly of these semiconductors is spread across the whole world. U.S. export bans on China have disrupted operations across multiple countries and multinational companies that use China’s assembly services. South Korea, Taiwan and Japan are key players in the global semiconductor supply chain. These countries are facing pressure to comply with U.S. export controls complicating their relationship with the Chinese market. Multiple European countries caught in the middle including ASML, are at risk for loosing access to both US and Chinese markets.
Strategic Implications
The war of semiconductors is part of a larger competition between USA and China for technological dominance. The two countries see control over the semiconductor industry as essential to maintain their economic and military superiority. Given that this industry is the cornerstone of all our modern technological needs, which ever country can assert dominance in the field control the technology not only for smartphones but also drones and missiles.
If China loses to the USA, its ambitions in quantum computing, AI and telecommunications will be significantly hindered, challenging its military modernisation efforts it has embarked on in recent times. For the USA, China is a national security threat that needs to be contained. The USA has positioned the war of semiconductors as preventing Chinese use of US technology for military purposes. However, the export bans are also indicative of America’s wishes to be a technological leader.
Image of the Week📸
