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Download this week’s newsletter as a PDF here: CPW No. 55
Dear friends and colleagues,
A different kind of trans-Pacific partnership
China’s active diplomacy turned itself towards Latin America this week, where Premier Li Keqiang is in the midst of a nine-day tour that will take him to Brazil, Columbia, Peru and Chile. China has pursued closer ties with the Latin America under this administration. While this is Li’s first trip to the region, President Xi Jinping has already visited twice. China has also created the Forum of China and the Community of Latin American and Caribbean States (CELAC), which held its first ministerial meeting in Beijing earlier this year. The group noticeably excludes the United States.
So far the trip has displayed all the hallmarks of the typical overseas visit of a Chinese leader: lots of rhetoric about a “community of common destiny” coupled with pledges for massive amounts of investment. In Brazil, Li and his coterie of 200 Chinese businessmen signed investment pledges of over USD 50 billion. Such deals are only the tip of the iceberg. In addition, it was announced that China Investment Corporation (CIC) has set up a company to manage overseas equity investments; the company will manage a fund that is expected to be over USD 40 billion. A USD 20 billion line of credit for infrastructure funding was also established, and Li also announced plans for a USD 30 billion fund to support industrial production capacity in the region. The China-Latin America Cooperation Fund also appears to have grown; when announced last year it was described as a USD 5 billion fund; on Li’s trip it is now said to have USD 50 billion.
China’s domestic economic agenda is very much at the heart of these deals, particularly when it comes to cooperation on “production capacity”. China wants to upgrade its economy, which means creating world-leading firms, increasing the export of Chinese technologies and moving “sunset industries” overseas. Li summed it up in Brazil, when he said, “we hope to export not only advanced technologies and equipment to Brazil, but also to set up factories and production streamlines to help create jobs”.
Li is doing more to promote Chinese industry abroad than simply acting as their chief salesperson to foreign governments. On May 16 the State Council issued a guideline that said “the government will work to help Chinese companies ‘go abroad’” by offering tax breaks and concessionary financing.
The growing footprint of Chinese industry abroad is a good thing for the world economy. Although Chinese overseas investment is sometimes met with skepticism, it often creates jobs and provides much needed investment in recipient countries.
However, Chinese investment abroad presents dangers for foreign companies. As Chinese companies gain more experience operating in foreign countries, they will increasingly challenge MNCs in more and more markets around the world. Companies that can assess the risk and prepare accordingly will be more successful in protecting market share.
Li’s visit to Latin America attempted to portray a friendly and open China. Meanwhile, back in Beijing Xi Jinping struck a much different tone, warning again of the dangers of foreign influences. The forum for these admonitions was the Central United Front Work Conference, held for the first time since 2006.
The United Front was designed to let non-Party organizations input into China’s policymaking process. United Front work has grown in importance under Xi. This can be seen by the fact that the Party’s United Front Work Department is fronted by a Politburo member (Sun Chunlan) for the first time in over two decades.
Liberals had hoped that the elevated status of the United Front would signal a larger voice for interest groups outside the Party. These hopes were misplaced; instead the new prominence of the United Front means exactly the opposite. The Party is not interested in what those outside the Party think- it wants those outside the Party to think what the Party tells them to think.
The work conference enumerated a slew of conservative goals, including indoctrinating non-Party intellectuals, co-opting new media sources to “cleanse” the internet and indigenizing religion within China, among others. It is not a good time to be a free thinker in China.
AIIB AOA OKed, to be signed ASAP
Preparations for establishment of the Asian Infrastructure Investment Bank (AIIB) took an important step forward this past week. The 5th Chief Negotiators’ Meeting was held in Singapore this week, and saw agreement on the bank’s Articles of Agreement (AOA). The AOA are scheduled to be signed next month.
Shi Yaobin, vice minister of Chinese Ministry of Finance and permanent chair of the Chief Negotiators’ Meeting, said “we will establish the AIIB by the end of the year, and start its operation as soon as possible, after legal ratification in certain number of countries”.
The Chinese are wasting no effort in ensuring the bank’s success. In and of itself, the AIIB is not a game changer, but it is part of a larger constellation of events that have signaled China’s growing influence in Asia and the world. I talked about these issues and more on a recent episode of the Sinica podcast, which can be found here: http://popupchinese.com/lessons/sinica/the-furor-and-the-asian-infrastructure-investment-bank.
China Politics Weekly aims to keep business leaders, investors, diplomats, scholars and other China hands up to date on important trends in China. It is produced by Trey McArver, a London-based consultant providing advice and intelligence to firms and investors engaged in China and the region. You can find out more about Trey and CPW in this interview.
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