Category Archives: China

(Diplomat) Europe’s Answer to China’s Belt and Road

(Diplomat) The EU’s new Connectivity Strategy is a long overdue response to China’s assertive behavior.

Today’s adoption by the European Commission of a new “Connectivity Strategy” linking Europe and Asia throws down the gauntlet to an increasingly assertive China.

The new strategy, released on September 19, will offer a different approach to that taken by Beijing with its flagship Belt and Road Initiative (BRI).

The EU emphasis is on sustainability, proposing that investments should respect labor rights, not create political or financial dependencies, and guarantee a level playing field for businesses.

Recently, however, a number of developments have generated a sense of caution among European politicians and policymakers.Given the rapidity of China’s economic development in the past 30 years, it has taken the EU some time to acknowledge the growing power and influence of Beijing. Not only has China become a trading giant, it sits on the world’s largest currency reserves and is an increasingly important provider of foreign investment, including in Europe.

China’s refusal to tackle the dominant position of its state-owned enterprises led the EU to refuse to grant China market economy status. Beijing’s targeting of European technology has also led to plans for screening of Chinese investments in Europe.

But it was the massive infrastructure investments under BRI that raised the most concerns in Brussels, as well as Washington, New Delhi, and other capitals, about the implications of China’s approach.

This spring, EU ambassadors in China penned a report critical of the BRI for being economically, environmentally, socially, and financially unsustainable. The report also criticized China for discriminating against foreign businesses, the lack of transparent bidding processes, and the limited market access for European businesses in China.

China’s involvement in the EU and its neighborhood also rang warning bells. In 2014, Montenegro concluded an agreement with China Exim Bank on the financing for 85 percent of a highway construction project, with the estimated cost close to 25 percent of the country’s GDP.

The IMF has repeatedly stated that construction should only continue on the basis of concessional funds. Many believe that a debt default is likely, which may result in the involuntary handover of critical infrastructure to China.

There is already worrying precedent in that regard. Sri Lanka has been unable to repay Chinese loans for the construction of the Hambantota port. As a result, the port and surrounding acres of land, strategically located at the crossroads of the Indian Ocean, the Bay of Bengal and the Arabian Sea, will now be under Chinese control until the year 2116.

Likewise, China’s entire or partial acquisition of ports in Belgium, the Netherlands, Spain, Italy, and most notably Greece, has not gone unnoticed. Without serious hindrance, China is buying up critical infrastructure in Europe, whereas European foreign direct investment in China is decreasing.

China has already reaped some political benefit from these investments, with some EU member states blocking resolutions critical of human rights in China or condemning Beijing’s conduct in the South China Sea.

Similarly, European officials have also questioned the environmental and economic sustainability of various Chinese connectivity projects. The planned construction of six coal-based power plants in Pakistan, whose joint output capacity equals 27 percent of the country’s current capacity, has been criticized as environmentally unsustainable.

These examples have increased EU concerns as China has expanded its influence in Asia, Central Asia, and Europe. This influence is not only about money and politics. It also extends to technical standards and distorting trade flows.

But the EU was well aware that mere peer pressure would not drive China to reconsider its strategy. To secure its own political and economic interests, the EU had to put forward an ambitious and comprehensive response, which was to strengthen its own links with the host countries and to present them with a credible and sustainable alternative offer for connectivity financing.

The new strategy will give Asian and European states a much clearer idea on the basis of which the EU wishes to engage with them, and what they can expect.

Although some financing is mentioned in the paper, the ongoing negotiations for the next EU budget will be crucial in allocating sufficient EU funds to connectivity financing in order to mobilize additional investment from private and multilateral investors.

The strategy will also need united support from member states, a solid public communications strategy, and broad bi- and multilateral outreach programs to the EU’s partners.

Geopolitical competition in Eurasia seems set to increase, with China, Russia, the United States and the EU competing for influence. The connectivity strategy of the EU has set down a marker that the EU is part of the game.

Fraser Cameron is Director of the EU-Asia Centre.

(BBG) China Plans Broad Import Tax Cut as Soon as October

(BBG) China May Choose to Skip a Treasury Auction, UBS’s Donovan Says

China is planning to cut the average tariff rates on imports from the majority of its trading partners as soon as next month, two people familiar with the matter said, in a move that will lower costs for consumers as a trade war with the U.S. deepens.

Premier Li Keqiang said Wednesday that China would further reduce the tariffs, without elaborating. The two people who spoke on the new reduction asked not to be named as the matter isn’t public yet.

By cutting duties on goods even as it retaliates against President Donald Trump’s trade war with higher charges on some U.S. goods, China is following through on long-stated goals to boost imports. The move comes as the nation is trying to stimulate domestic consumption to support a slowing economy, and follows similar cuts to tariffs in July on a wide range of consumer goods.

The offshore yuan pared loss to rise briefly following the news, and then weakened to trade 0.07 percent lower at 6.8562 per dollar as of 1:02 p.m. in Hong Kong. The onshore rate was little changed at 6.8505.

“By further cutting import taxes, China is sending a message that it will keep opening up and reform no matter how the trade war goes. It’s more like a commitment to both domestic and international audience. It’s a gesture,” said Tommy Xie, an economist at Oversea-Chinese Banking Corp Ltd in Singapore.

The Ministry of Finance didn’t immediately respond to a request for comment on the matter. China’s most-favored nation average tariff currently stands at 9.8 percent. The MFN rule requires all countries to be treated equally unless specific exceptions are agreed, and the U.S. is also covered by MFN status.

China still has a higher average tariff rate than many developed economies. The U.S.’ average applied MFN rate was 3.4 percent in 2017, and in general the Trump administration has accused China of being a protectionist economy. On Wednesday, Premier Li said that his government wouldn’t devalue the currency in order to boost its exports amid the trade war.

What Our Economists Say…

The timing of the cut would suggest the tariff tool is being used as a tactic in the trade war, taking into account both domestic and international considerations. Cuts across most trading partners, including the U.S., would signal an effort by China to ease tensions.

— Chang Shu, Bloomberg Economics

We “must uphold multilateralism, the rules of free trade,” he said. “No matter what changes are needed to the rules, it brings benefits. If there are problems, negotiation is needed to solve them.”

(Independent) Dalai Lama says ‘Europe belongs to the Europeans’ and suggests refugees return to native countries

(Independent) Dalai Lama says ‘Europe belongs to the Europeans’ and suggests refugees return to native countries

The Dalai Lama has sparked anger after declaring that “Europe belongs to the Europeans”.

The Tibetan Buddhist spiritual leader also said that refugees should return to their native countries and assist with developing them.

The 14th Dalai Lama was speaking at a conference in Malmo, Sweden which is home to a large immigrant population, according to the Business Times. 

“Receive them, help them, educate them … but ultimately they should develop their own country,” the 83-year-old said, when speaking about refugees.

“I think Europe belongs to the Europeans.”

He was speaking in the aftermath of a divisive election in Sweden in which a far-right party, Swedish Democrats, made electoral gains, although they were beaten by the country’s centre-left coalition.

The Dalai Lama also said that Europe was “morally responsible” for helping “a refugee really facing danger against their life”.

Social media users condemned the comments, calling the Dalai Lama a “bigot of the first order” and a “hypocrite”.

“Europe, for example Germany, cannot become an Arab country,” he said in an interview with German newspaper Frankfurter Allgemeine Zeitung in 2016, in which he also said that there were “too many refugees” in Europe.

The Dalai Lama is a refugee himself. He led thousands of his followers from Tibet to India in 1959 after the Tibetans protested against Chinese limits on their autonomy.

The 83-tear-old continues to live in exile in northern India today.

(NYT) China Once Looked Tough on Trade. Now Its Options Are Dwindling.

(NYT

A Chinese trade delegation during a tour of soybean fields in Missouri last month. American soybeans are an essential import in China, which will have trouble replacing them.CreditCreditDave Kaup/Reuters

BEIJING — President Trump imposed tariffs in July on $34 billion in Chinese goods. China matched them dollar for dollar with its own.

Then he hit an additional $16 billion in goods in August. China matched that, too.

Now, Mr. Trump has made his biggest move yet, announcing 10 percent tariffs starting in a week on $200 billion a year of Chinese goods. But this time, China can’t match them all — and that crystallizes a growing problem for Beijing.

On Tuesday, Chinese officials responded to the president’s latest move by following through on an earlier threat to impose tariffs on $60 billion in American goods — nearly everything China buys from the United States.

China’s responses have so far failed to thwart Mr. Trump’s trade offensive, and with the White House amping up the fight again, Chinese leaders aren’t sure how to respond, people briefed on economic policymaking discussions say.

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Chinese officials “are generally confused,” said Raúl Hinojosa-Ojeda, a trade specialist at the University of California, Los Angeles, who has been traveling around China speaking with officials, businesspeople and workers.

“They don’t know what to do,” he added. “They worry that the tit-for-tat model is playing into Trump’s hands.”

China does not import nearly enough from the United States to target $200 billion in American goods — let alone the additional $267 billion in Chinese goods that Mr. Trump has threatened to tax.

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A factory worker making socks for export in Huaibei, China. Because of the trade imbalance, China can’t match the United States tariff for tariff.CreditAgence France-Presse — Getty Images

But China’s leaders feel they cannot back down. They have presented the trade war as part of a broader effort by the United States to contain China’s rise.

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Mr. Trump has said as much, and did so again at a news conference on Tuesday. “China has been taking advantage of the United States for a long time, and that’s not happening anymore,” he said.

The Chinese public could see any effort to soothe tensions as capitulation. Some hard-liners want a more aggressive stance.

Lou Jiwei, who retired as finance minister in 2016 but is still the head of the country’s social security fund, suggested on Sunday that China could deliberately disrupt American companies’ supply chains by halting the export of crucial components mostly made in China. But Chinese trade experts dismiss that idea as impractical and not the government’s position.

Chinese officials know what they don’t want to do. They have rejected one idea that would replace the matching tariffs with a more sophisticated system, said the people briefed on the discussions, who spoke on the condition of anonymity because of the fragility of the deliberations. That response — discussed in detail within the Commerce Ministry and other agencies — would have led to lower tariffs on American goods in dollar terms, which could be seen as a fig leaf to the White House.

That approach would have recognized a potentially expensive new reality for Beijing: The tariffs may be here to stay. Mr. Trump is suffering from weak approval ratings and could lose influence in congressional elections in November. Democrats have opposed most of his agenda, but many have supported his attacks on trade with China. Even if Mr. Trump leaves office in two years, there is little guarantee that his China trade policies will be changed.

In Beijing, proponents of the new approach, which would scale down China’s tariffs in dollar terms to reflect the lopsided trade imbalance between the two countries, say Chinese leaders could still revisit the idea because it offers them a way to contain the damage and soothe tensions.

Imported cars at the port in Qingdao, China. Some of Beijing’s options beyond tariffs could cause China pain, eliminating jobs and damaging its reputation as a place to do business.CreditReuters

China’s leaders “don’t really want to engage in a dollar-for-dollar retaliation,” said Yu Yongding, a prominent economist at the Chinese Academy of Social Sciences. “Their purpose is to stop this trade war.”

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China’s other options are limited.

It could punish American businesses that depend on China. Already, its antitrust officials have effectively killed the $44 billion effort by Qualcomm, the semiconductor company, to buy a Dutch chip maker. China has also pledged to buy soybeans from other countries, but replacing voluminous American supplies will be difficult.

Other moves have already served as warnings, like delays at Chinese ports. Ford Motor’s Lincoln cars and other goods have sometimes been the subject of unusually lengthy customs inspections this summer, although the delays do not appear to have caused much financial harm.

“It is certain that China will have other, invisible retaliation against the United States,” said Mei Xinyu, a researcher at the Commerce Ministry’s policy research and training academy.

But more drastic moves, like closing factories or encouraging consumer boycotts of American goods, could eliminate Chinese jobs. They could also permanently damage China’s reputation as a place to do business and only accelerate corporate plans to look to other countries.

“It’s difficult to build a reputation, and easy to harm a reputation,” Mr. Mei said.

China could also guide its currency to a weaker level against the dollar. It has already nudged the currency a bit lower, making Chinese goods cheaper in the United States and partly offsetting the tariffs. But a weaker currency would make China’s imports more expensive, raise the risk of inflation and lead to a potentially damaging flight of money out of the country. It could also provoke further American retaliation.

The trade war has hit only a small part of the Chinese economy for now, but the damage could add up. Higher tariffs on American goods raise the cost of essential imports like soybeans and microchips. China still derives a big chunk of growth from making smartphones, clothing, chemicals and a raft of other goods and selling them to Americans.

How Trump’s Trade War Went From 18 Products to 10,000

The battle began when the United States imposed tariffs on solar panels and washing machines. It has led to a global tit-for-tat targeting billions of dollars of goods.

Already its currency and stock market have weakened as the trade war has intensified. China has taken steps to shore up its economy, but they could take months or years to kick in.

China has offered small concessions to the United States, like lowering its tariffs on imported cars from everywhere to 15 percent, from 25 percent; the United States, however, charges 2.5 percent. China has also allowed foreign companies to own greater shares of Chinese insurers, banks, asset management companies and car factories.

The new plan that Chinese officials rejected in recent weeks could have been more warmly greeted by the White House.

Under that plan, the United States and China would each levy tariffs based on proportions of trade rather than dollar amounts, people familiar with the discussions said. Because the United States imports nearly four times as much from China as it exports, that would lead to tariffs at different values.

For example, the United States has already levied tariffs on $50 billion in Chinese goods, one-tenth of what it imports from China. Instead of matching that with tariffs on $50 billion in American-made goods, China would levy tariffs on one-tenth of such goods, totaling $13 billion to $15 billion, depending on the details.

Proponents of the plan say letting Washington impose more tariffs than Beijing would actually hurt the United States more because tariffs are ultimately paid by consumers and businesses in the countries that levy them.

“The United States wants to hurt China by imposing tariffs on Chinese exports,” Mr. Yu, the Chinese Academy of Social Sciences economist, wrote in a journal in July. “In the end, it may be the United States itself” that is hurt, he wrote.

But other Chinese trade experts say tariffs on equal fractions of trade would be too big a compromise.

“It’s unrealistic, it’s difficult in practice, it’s not doable, and it’s against basic trade rules,” said Mr. Mei, the Commerce Ministry researcher.

 

(NYT) U.S. Weighs Sanctions Against Chinese Officials Over Muslim Detention Camps

(NYT

The Id Kah mosque in China’s Xinjiang region. Rights advocates say the mass detentions in Xinjiang are the worst collective human rights abuse in China in decades.CreditCreditJohannes Eisele/Agence France-Presse — Getty Images

WASHINGTON — The Trump administration is considering sanctions against Chinese senior officials and companies to punish Beijing’s detention of hundreds of thousands of ethnic Uighurs and other minority Muslims in large internment camps, according to current and former American officials.

The economic penalties would be one of the first times the Trump administration has taken action against China because of human rights violations. United States officials are also seeking to limit American sales of surveillance technology that Chinese security agencies and companies are using to monitor Uighurs throughout northwest China.

Discussions to rebuke China for its treatment of its minority Muslims have been underway for months among officials at the White House and the Treasury and State Departments. But they gained urgency two weeks ago, after members of Congress asked Secretary of State Mike Pompeo and Treasury Secretary Steven Mnuchin to impose sanctions on seven Chinese officials.

Until now, President Trump has largely resisted punishing China for its human rights record, or even accusing it of widespread violations. If approved, the penalties would fuel an already bitter standoff with Beijing over trade and pressure on North Korea’s nuclear program.

Last month, a United Nations panel confronted Chinese diplomats in Geneva over the detentions. The camps for Chinese Muslims have been the target of growing international criticism and investigative reports, including by The New York Times.

Human rights advocates and legal scholars say the mass detentions in the northwest region of Xinjiang are the worst collective human rights abuse in China in decades. Since taking power in 2012, President Xi Jinping has steered China on a hard authoritarian course, which includes increased repression of large ethnic groups in western China, notably the Uighurs and Tibetans.

On Sunday, Human Rights Watch released a detailed report that concluded that the violations were of a “scope and scale not seen in China since the 1966-1976 Cultural Revolution.” The report, based on interviews with 58 former residents of Xinjiang, recommended that other nations impose targeted sanctions on Chinese officials, withhold visas and control exports of technology that could be used for abuses.

Any new American sanctions would be announced by the Treasury Department after governmentwide consultations, including with Congress.

Chinese Muslims in the camps are forced to attend daily classes, denounce aspects of Islam, study mainstream Chinese culture and pledge loyalty to the Chinese Communist Party. Some detainees who have been released have described torture by security officers.

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Uighurs and their supporters near the United Nations in March protested Chinese surveillance of the ethnic group throughout northwest China.CreditSeth Wenig/Associated Press

Chinese officials have labeled the process “transformation through education” or “counter-extremism education.” But they have not acknowledged that large groups of Muslims are being detained.

The discussions over the mass detentions in Xinjiang highlight American efforts on issues that diverge from the president’s priorities. Mr. Trump has rarely made statements criticizing foreign governments for human rights abuses or anti-liberal policies, and in fact has praised authoritarian leaders, including Mr. Xi.

The Trump administration has confronted China over economic issues — the two countries are in the middle of a prolonged trade war — but has said little about rampant abuses by its security forces.

“The scale of it — it’s massive,” Senator Marco Rubio, Republican of Florida, said of the Muslim detention centers in an interview. “It involves not only intimidating people on political speech, but also a desire to strip people of their identity — ethnic identity, religious identity — on a scale that I’m not sure we’ve seen in the modern era.”

Ethnic Uighurs are a Turkic-speaking group that is mostly Sunni Muslim. With a population of around 11 million, Uighurs are the largest ethnic group in Xinjiang. Some of the desert oasis towns and villages that they consider their homeland are being emptied out as security officers force many Uighurs into large detention centers for weeks or months.

Gulchehra Hoja, a Uighur-American journalist who works for Radio Free Asia, which is financed by the United States government, said at a congressional hearing in July that two dozen of her family members in Xinjiang were missing, including her brother.

“I hope and pray for my family to be let go and released,” Ms. Hoja said. “But I know even if that happens, they will still live under constant threat.”

A Chinese law student in Canada, Shawn Zhang, has compiled satellite images that show the scale of some of the detention centers.

In their demand last month, Mr. Rubio and other lawmakers urged officials at the State and Treasury Departments to impose sanctions on Chinese companies that have profited from building the camps or the regionwide surveillance system, which includes the collection of biometric and DNA data. They singled out Hikvision and Dahua Technology for the surveillance.

Mr. Rubio said the Congressional-Executive Commission on China, of which he is a chairman, will also ask the Commerce Department to prevent American companies from selling technology to China that could contribute to the surveillance and tracking.

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Congressional lawmakers singled out Chen Quanguo, who became party chief of Xinjiang in 2016, for sanctions among seven Chinese officials.CreditNg Han Guan/Associated Press

For many years, Chinese officials have talked about the need to suppress what they call terrorism, separatism and religious extremism in Xinjiang. In 2009, ethnic violence began soaring in the region. Security forces carried out mass repression in response, but large-scale construction of the camps, which now hold as many as one million people, did not begin until the arrival of Chen Quanguo, who became party chief of Xinjiang in August 2016, after a stint in the Tibet Autonomous Region.

The congressional demand, outlined in an Aug. 28 letter, singles out Mr. Chen among the seven Chinese officials who would be sanctioned.

In Washington, officials grappling with the plight of the Uighurs and other Chinese Muslims are doing so in the shadow of the mass murders, rapes and forced displacement of Rohingya Muslims by Burmese military forces that began in Myanmar in August 2017. More than 700,000 Rohingya fled to neighboring Bangladesh and live in squalid camps.

Some American officials see the actions of the Chinese government as another form of the genocide that occurred in Myanmar, according to people with knowledge of the continuing discussions, who spoke on the condition of anonymity because they have not been authorized to talk publicly about the issue.

Sam Brownback, the State Department’s ambassador at large for international religious freedom and former governor of Kansas, supports taking a hard line against the Chinese government on the issue of Xinjiang, they said. Mr. Brownback declined to be interviewed.

In April, Laura Stone, an acting deputy assistant secretary for East Asian and Pacific affairs, told reporters on a visit to Beijing that the United States could impose sanctions on Chinese officials involved in the Xinjiang abuses under the Global Magnitsky Act. The law allows the American government to impose sanctions on specific foreign officials who are gross violators of human rights.

That same month, Heather Nauert, the chief spokeswoman for the State Department, called on China to release all those “unlawfully detained”after meeting in Washington with Ms. Hoja and five other ethnic Uighur journalists who work in the United States for Radio Free Asia. The journalists shared details of the mass detentions and of harassment of their own family members in the region.

The issue of the Uighurs was raised in July at the first international minister-level forum on global religious freedom, over which Mr. Pompeo and Vice President Mike Pence presided. Ahead of it, Mr. Pompeo wrote an op-ed that listed the Uighurs among several groups suffering religious persecution. “These episodes and others like them are abhorrent,” he wrote.

In a statement to The Times, the State Department said officials “are deeply troubled by the Chinese government’s worsening crackdown” on Muslims.

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“Credible reports indicate that individuals sent by Chinese authorities to detention centers since April 2017 number at least in the hundreds of thousands, and possibly millions,” the statement said.

The Trump administration has used an executive order tied to the Magnitsky Act once to impose sanctions on a Chinese official. In December, the White House announced sanctions against Gao Yan, who was a district police chief in Beijing when a human-rights activist died in detention.

(Economist) The perils of China’s “debt-trap diplomacy”

(Economist) Malaysia’s rethink of Chinese belt-and-road projects has lessons for other countries

IN AUGUST, three months after his opposition coalition trounced the Malaysian party that had ruled since independence, Mahathir Mohamad, the country’s 93-year-old new prime minister, travelled to Beijing. His aim was to tell President Xi Jinping that his country was now the Malaysia that can say no.

Dr Mahathir’s predecessor, Najib Razak, had hewed close to China. His loss at the polls resulted more than anything from the stench of corruption within his ruling United Malays National Organisation (UMNO). But his chumminess with China was also a factor. The two issues were entwined.

During Mr Najib’s rule, huge holes appeared in the finances of a state investment vehicle, 1MDB, which Mr Najib chaired. America’s Justice Department estimates that $4.5bn was stolen from the fund by insiders. (Around the same time, nearly $700m turned up in Mr Najib’s own bank accounts.) As 1MDB teetered, Chinese state entities stepped in, taking stakes in 1MDB ventures.

The relationship with China grew ever cosier. Chinese-funded projects in Malaysia were packaged as part of China’s Belt and Road Initiative, a global infrastructure-building scheme close to Mr Xi’s heart. Jack Ma of Alibaba, a Chinese tech giant, won the right to turn a site near Kuala Lumpur’s main airport into a Digital Free Trade Zone. Malaysia’s government tried to silence criticism of its state-to-state dealings. And China showed its gratitude. In the run-up to Malaysia’s general election in May, the Chinese ambassador appeared to lend open support to the ruling coalition. Many people were surprised that Dr Mahathir managed to win, despite UMNO’s gerrymandering. Mr Xi had reason to be aghast.

China is not used to recipients of its largesse challenging the terms on which it is offered. Yet growing numbers of them are struggling with debts to Chinese entities taken on to fund Chinese-staffed projects. The Centre for Global Development in Washington reckons that eight belt-and-road countries are at “particular risk of debt distress”, among them ones that border on China: Laos, Mongolia and Pakistan. That is why Dr Mahathir’s progress in disentangling his country from Chinese-funded ventures is being closely watched.

In Beijing Dr Mahathir was plain-speaking and deft. He said that Malaysia was cancelling the $20bn East Coast Rail Link, a massive belt-and-road project, as well as two oil pipelines in Sabah province. His message, in essence, was: very sorry—lovely projects, but since coming to office we’ve discovered we can’t afford them. Implicit was another point: we can’t afford them because we now know how inflated the costs are, and how skewed the deals are in China’s favour—or plain fishy. It appears the Najib government paid nearly 90% of the $2bn price of the Sabah pipelines, although they were only 15% complete. Part of a Chinese loan for them appears to have plugged financing gaps at 1MDB.

Since Dr Mahathir’s return, he has gone further, taking aim at a large, Chinese-led housing scheme in Johor state intended for wealthy investors in China. This week the prime minister declared that foreigners would not be given visas to live there. Most Malaysians, he complained, could not afford to live in the new development. (The government in Johor makes more reassuring noises to foreigners who might be interested.)

China has a tendency to launch into tirades against countries that confront it. In this case the response from Beijing has been muted. That may be partly because of Dr Mahathir’s careful choice of words. But Malaysia is an influential country in South-East Asia, a region that China wants to draw closer into its orbit. And China does not want to make enemies among belt-and-road countries. One of the main points of the project is to boost China’s influence over them. For other countries badly needing to renegotiate their deals with China, that is a lesson worth learning.

Of these, Pakistan, which also has a new prime minister, Imran Khan, is by far the biggest debtor to China. The China-Pakistan Economic Corridor, a collection of energy and infrastructure projects supposedly worth $60bn, is the biggest plank of China’s belt-and-road strategy. Not for the first time, Pakistan faces a balance-of-payments crisis. It wants out of its debt.

Mr Khan ought to do a Mahathir. And he is in an even better position. Far more than with Malaysia, there is a strategic dimension to China’s relations with Pakistan, says Husain Haqqani, a former Pakistani diplomat who is now at the Hudson Institute, an American think-tank. Officials in Beijing see Pakistan as a counterweight to India, China’s geostrategic rival. China needs Pakistan’s help in keeping Islamist extremism at bay. And it regards its neighbour as a vital route to the Arabian Sea. Unlike Dr Mahathir, Mr Khan himself seems not to grasp the problems of China’s debt embrace. But at least critics in Pakistan of the economic corridor are beginning to find their voice.

Debt divisions

China has more than its political ties with belt-and-road countries to consider. Chinese banks are getting worried about the safety of their lending. Commercial banks have sharply cut new belt-and-road financing since 2015. (So-called policy banks continue to lend.) And now the Belt and Road Initiative faces strong popular criticism at home. In part, the initiative is a victim of the Communist Party’s own propaganda: what debtors see as hard-to-service loans, state media paint as beneficent “aid”. That is a touchy word. At a summit in Beijing this week with African leaders, Mr Xi promised $60bn for the continent. Why, Chinese people asked on social media, is an indebted China spending so much abroad when it has pressing requirements at home? Censors rapidly shut down their criticisms of Mr Xi’s gesture.

China is right that many countries need more roads, railways and other infrastructure. But it is evident that the scheme it touts as a defining one of Mr Xi’s rule is losing its shine. Dr Mahathir’s trip may have taught some valuable lessons.

(BBG) China’s Trade Surplus With U.S. in August Reaches Record

(BBG) China’s trade surplus with the U.S. rose to a record in August, as President Donald Trump ramps up pressure on Beijing.

The nation’s trade gap with the U.S. widened to $31.1 billion during the month, according to Bloomberg calculations. The increase came despite exports climbing at the slowest pace since March. Shipments rose 9.8 percent in dollar terms, the customs administration said Saturday. Imports climbed 20 percent.

Chinese exporters are feeling the pain as trade tensions between the world’s two biggest economies get worse. Trump turned up the heat again on Friday, threatening to impose tariffs on an extra $267 billion in Chinese goods. That would be on top of duties on $50 billion already in force and another $200 billion in the works.

“Exports to the U.S. grew at a faster pace than the previous month as exporters front-loaded orders before the additional tariffs on $200 billion Chinese goods take effect,” said Gai Xinzhe, an analyst at the Bank of China’s Institute of International Finance in Beijing. Faster U.S. economic growth also pushed up demand, Gai said.

Trade talks last month between mid-level U.S. and Chinese officials led nowhere. China’s commerce ministry said the two sides have maintained contact on a working level since then.

Read more: Trump signals he’s ready to go all-in against China

“We believe the U.S. government will continue to escalate the scale and scope of trade and investment measures against China,” Raymond Yeung, chief greater China economist for Australia & New Zealand Banking Group Ltd. in Hong Kong, wrote in a recent note. “This policy direction is unlikely to change even after the U.S. mid-term elections in November. Besides retaliation, China is expected to offset the negative economic effects of the trade measures through a more proactive fiscal policy.”

While the yuan stabilized in August, rapid weakening in previous months would have supported exports. Last month shipments grew a faster-than-expected 7.9 percent in yuan terms.

WHAT OUR ECONOMIST SAYS:
“The People’s Bank of China’s move to halt a steep decline in the yuan suggests exports won’t get a boost from a more competitive exchange rate. In fact, by our estimates, the yuan remains overvalued — a headwind for exporters,” Wan Qian, China economist at Bloomberg Economics in Beijing, wrote in a note.

Trump said late last month that China was devaluing the currency in an attempt to make up for lack of demand. A cheaper yuan would make China’s exports less expensive, increasing their competitiveness in the international market.

(CNBC) China economy faces increased risks in second half of the year, says state planner

(CNBC)

  • China’s the economy faces increased risks in the second half of this year and that greater effort would be needed for policymakers to hit economic development goals as external challenges intensify, the head of the state planning department said.
  • The economy is starting to cool as data in the past few months show investment growth slowing, while retail sales growth and disposable income growth have also remained soft.

China’s state planner head has warned the economy faces increased risks in the second half of this year and that greater effort would be needed for policymakers to hit economic development goals as external challenges intensify.

“Targets in economic growth, employment, inflation and exports and imports can be achieved through effort,” He Lifeng told the standing committee of the National People’s Congress on Tuesday, according to a statement on the National Development and Reform Commission’s website.

“But to achieve growth goals in consumption, outstanding total social financing and urban disposable income will require bigger effort.”

He attributed the increasing difficulties to long-term structural challenges in the economy and risks from the external environment.

China’s economy is starting to cool with data in the past few months showing investment growth slowing while retail sales growth and disposable income growth have also remained soft.

And with U.S. trade tariffs clouding the outlook to growth, Chinese policymakers are shifting their priorities to reducing risks to growth.

To cushion the economy and revive investment, China has sped up infrastructure spending and kept liquidity in the financial system ample. It has also offered assistance to companies struggling with the high costs of and access to financing.

However, the growing stimulus and easier credit have raised fears that Beijing is putting its efforts to reduce debt risks in the economy on the back burner.

He said China will continue to deleverage the economy but control the pace and intensity of these efforts, echoing a central bank pledge that the country won’t resort to strong stimulus to prop up growth.

“China is determined to resolve problems with the property market… and resolutely curb rises in property prices,” said He.

He also said safeguarding employment remained a priority, and that authorities are closely watching price changes and market demand and supply of important products.

On trade, He said China should explore more diversified markets to stabilise foreign trade and boost imports.

In July, the state planner pledged to prevent trade friction with the United States from leading to large-scale unemployment.

China’s urban survey-based jobless rate rose to 5.1 percent in July from 4.8 percent in June. The government aims to keep the rate below 5.5 percent this year.

(SCMP) A new set of Chinese economic figures adds up to yet another headache for statisticians

(SCMP) A study of industrial profits highlights more anomalies in official numbers, the accuracy of which has long been questioned

Officials at the Chinese National Bureau of Statistics (NBS) are having a tough time explaining their latest set of data to anyone’s satisfaction.

This year, economists and analysts have been scratching their heads over an increasing number of statistical anomalies in some of the most watched data, such as industrial profits.

This is not a new problem for the NBS, whose results have been questioned by outside experts for years.

One of the most notorious examples is the long-standing problem with the country’s gross domestic product figures, where the combined provincial figures do not tally with the NBS’s national total.

The bureau’s calculations are vital for understanding and shaping policy towards the world’s second largest economy – including the basis on which it can be described as such.

But the methodology that underlines the figures has been subject to intense questioning by statisticians, and sceptics have noted that the end results often prove to be politically convenient.

“In an authoritarian system there is definitely an incentive for statistics officials to publish data that will please the government.

“At the same time, however, economic policy that is based on unreliable data can only be deficient and thus leads to outcomes that will not please the government,” said Carsten Holz, professor of economics from the Hong Kong University of Science and Technology, who has closely studied Chinese statistics for years.

The latest concerns centre on areas such as profits from large industrial companies, retail sales, electricity consumption, coal output, and company revenues in cultural and related industries.

One of the perplexing issues is that the NBS has often reported positive year-on-year growth rates in percentage terms, while growth in absolute yuan terms has been negative.

This deviation, which barely happened in the past, has reinforced scepticism over the quality of the data and fuelled the suspicion that the NBS generates data outcomes that match the policy goals of the Chinese government leadership.

In July, profits from industrial enterprises with more than 20 million yuan (US$2.9 million) in revenues rose 16.2 per cent year on year, according to the NBS.

But comparing this year’s absolute yuan levels with last year’s, profits dropped by 15.92 per cent, according to calculations by the South China Morning Post.

Cumulatively, the profits grew 17.1 per cent year on year in the first seven months, according to the official data, but fell 8.1 per cent in absolute terms.

The bureau explained in footnotes in its data report that it only compared firms that were included in the data sample both this year and the same time last year.

The bureau adjusts its sample periodically during the year, adding or deleting companies depending on whether they rise above or fall below the minimum revenue threshold.

Firms that are in only one sample appear to have been stripped out of the calculation, though the revisions in the samples used are not made public.

At the end of 2016, the number of industrial firms with revenues above the threshold stood close to 400,000.

Similar reasoning applies to first-half revenues from “above-scale” firms in cultural and related industries, which include tourism, media, libraries, and museums.

At the end of June, the NBS sample contained 59,000 companies as opposed to 54,000 during the same period last year.

Their operating revenues rose by 9.9 per cent year on year officially but dropped by 3 per cent in absolute terms.

Such methodology has drawn scorn from some observers for having special “Chinese characteristics” that are not used in other major countries.

But more importantly, it runs risks of overestimating or underestimating actual growth when the total number of firms in the sample drops or rises.

“If you are in a cycle where many companies exit or enter the pool, this methodology is problematic,” Xu Jianwei, Hong Kong-based senior China economist from French Bank Natixis, said.

“If it’s an accelerating cycle, new companies will enter the pool. Are you going to kick out these new companies when you do the math? If so, you are probably underestimating growth.”

As a consequence, Xu said, these official figures should be used only for reference. He tends to check audited books of large listed industrial firms to cross-reference for his economic analysis.

Failing to explain data discrepancies until the public raised the alarm was a major professional blunder by the NBS, Holz said.

On the other hand, he said, the changing methodology showed the NBS was desperate to find more reliable statistical measures.

A GAME OF CAT AND MOUSE

One China economist close to the NBS said there has been an internal debate over the clarification of data discrepancies.

It was very likely the NBS lowered last year’s base figures to make this year’s profit growth rate from industrial firms higher in percentage terms, the economist said.

The revisions form part of a campaign to clean false data from local authorities, who have been inclined to inflate figures to gain more fiscal support from the central government.

For instance, dividing this year’s first-half profits of “above-scale” industrial firms from each Chinese province by their reported year-on-year growth does not align with last year’s absolute numbers.

The difference signals the extent of overstatement at the local level.

Based on calculations by the Post, the provinces and regions that inflated their industrial profit data by more than 30 per cent last year include Tianjin, Hebei, Inner Mongolia, Jilin, Jiangxi, Shandong, and Guangxi.

The result is not surprising because some of those provinces in question had already been exposed for forging data. For example, the Binhai New Area, an economic zone in Tianjin, was exposed for having inflated its 2016 GDP growth by a third.

Inner Mongolia also admitted earlier this year that it had overstated industrial output by 40 per cent and fiscal revenues by 25 per cent in 2016.

Another sign of the NBS cleaning up local data is the plunging growth of fixed-asset investment (FAI), a key part of national GDP.

During the first seven months of this year, figures show investment by state-controlled firms and private ones increased by 1.5 per cent and 8.8 per cent respectively, compared to 10 per cent and 6 per cent for the whole year of 2017.

“How can the partial year 2018 data have such an extreme flip compared to 2017? It is not credible that state FAI is growing at only one-sixth the pace of the private one, the lowest ratio ever, especially when the press is filled with stories on the difficulties of private firms getting bank loans,” Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics, said.

“For the FAI data, they are beginning to wring out some of the vast overstatement of capital formation so the per cent change reported most recently is calculated against a prior number that has been adjusted.”

Ning Jizhe, the director of the NBS, told Bloomberg in a recent interview that China had done well in cleaning up problems with false data, with a special crew of 60 people now investigating local data methodology and practice.

However, the battle between local governments and Beijing over the accuracy of data, sometimes described as a cat-and-mouse game, is hardly over.

study written by analysts from the US research firm Rhodium Group in 2015 found that because of different data reporting systems, local authorities tended to overstate growth, which it turn made the central government adjust its national calculations in an attempt to factor this in.

In the past, the NBS has tried different ways of containing local data misreporting, such as embedding tracking chips in excavators and other construction equipment to measure their operating times, which can be compared with reported data on construction activity.

The bureau has also cut down on layers of local bureaucracy that might influence local data by asking industrial firms to report their profits directly to the NBS online.

But this has been undercut by local officials who have been known to go directly to local companies to “help” them fill their numbers.

Even inside the NBS, there is a mistrust of the data generated by different departments. According to the 2015 Rhodium study, the department that calculates the headline figures does not trust the information provided by its own industrial statistics department, which compiles data directly reported by individual firms.

“The statistical system is target-driven, so if consumer spending is targeted to grow at 10 per cent, say, then the statistics collectors make adjustments in order to reach 10 per cent.

“That might [cause the NBS to] change the number of companies being sampled, change the standards for inclusion in the samples, or even (in a case we ran into) call companies and suggest that they reduce last year’s numbers to create a more attractive comparison,” Anne Stevenson-Yang, co-founder of J Capital Research said.

Being wary of the accuracy of official data, economists around the world have resorted to other indicators, such as monitoring satellite images of the intensity of artificial night lights or rises and fall in energy consumption, to monitor the country’s economic activity.

But even these alternative measures seem to be losing their appeal.

Last month, China’s National Energy Administration said the country’s primary industry (the official term for the agriculture sector) used 6.5 billion kilowatt-hours of electricity in June, an increase of 6.6 per cent from the same month in 2017.

But compared with the figures reported last June, that represented a drop of about 46 per cent. In the face of intense public suspicion, the agency later admitted that its calculations were based on a lower figure for last year, which excluded some support services based on a new definition of the agricultural sector.

It is the lack of transparency into data calculation methodology that most annoys economists. While NBS chief Ning now says China’s official data is comparable to that of other countries, its reporting standards have yet to catch up with global standards.

In the United States, when a new methodology is introduced, data calculated using the old methodology is still made public for comparison.

“Indeed the US economy is less volatile than China’s and its local data is more accurate,” the economist close to the NBS said.

The economist said this raised the question why the NBS could not disclose its margin of error or release two sets of data using both the old and new methodology.

“I have repeatedly asked them about this, and they say they can’t. I asked why. They said ‘why invite confusion as it would take lots of effort to explain to laymen why you published two numbers?’.”

(EuroNews) China central bank warns against illegal fund-raising by virtual currency, blockchain firms

(EuroNews) China central bank warns against illegal fund-raising by virtual currency, blockchain firms

China central bank warns against illegal fund-raising by virtual currency, blockchain firms
@ Copyright :

Petar Kujundzic(Reuters)

China’s central bank issued a warning on Friday on the risks of illegal fund-raising by companies marketing virtual currencies and blockchain technology.

In a post on its website, the People’s Bank of China said those so-called “financial innovation” activities are akin to ponzi schemes, adding that people should hold a rational attitude towards blockchain rather than put blind trust in it.

(CNBC) No breakthrough in US-China trade talks as new tariffs kick in

(CNBC)

  • The much-anticipated trade talks between U.S. and Chinese officials ended on Thursday without major developments, as the world’s two largest economies activated another round of dueling tariffs on $16 billion worth of each country’s goods.
  • Implementation of the latest 25 percent tariffs on Thursday did not derail the talks.
  • The talks were the first face-to-face U.S.-China meetings since early June to try to find a way out of a deepening trade conflict and escalating tariffs.
Containers are transported at a port in Lianyungang, eastern China's Jiangsu province.

AFP | Getty Images

Containers are transported at a port in Lianyungang, eastern China’s Jiangsu province.

U.S. and Chinese officials ended two days of talks on Thursday with no major breakthrough as their trade war escalated with activation of another round of dueling tariffs on $16 billion worth of each country’s goods.

“We concluded two days of discussions with counterparts from China and exchanged views on how to achieve fairness, balance, and reciprocity in the economic relationship,” White House spokeswoman Lindsay Walters said in a brief emailed statement.

The discussions included “addressing structural issues in China,” including its intellectual property and technology transfer policies, Walters said.

The mid-level Trump administration officials participating in the talks would brief the heads of their agencies on the discussions, she added.

Implementation of the latest 25 percent tariffs on Thursday did not derail the talks, led by U.S. Treasury Under Secretary David Malpass and Chinese Commerce Vice Minister Wang Shouwen. They were the first face-to-face U.S.-China meetings since early June to try to find a way out of a deepening trade conflict and escalating tariffs.

Earlier, a senior Trump administration official downplayed chances for success, saying China had yet to address U.S. complaints about alleged misappropriation of U.S. intellectual property and industrial subsidies.

“In order for us to get a positive result out of these engagements, it’s really critical that they (China) address the fundamental concerns that we have raised,” the official said on a press call on the new U.S. security review law for foreign acquisitions. “We haven’t seen that yet, but we are going to continue to encourage them to address problems that we have raised.”

In a brief statement on Friday, the Chinese commerce ministry said both sides had a “constructive” and “candid” exchange over trade issues, and will stay in touch on the next steps.

A spokeswoman at China’s embassy in Washington could not immediately be reached for comment.

China’s Commerce Ministry said in Beijing that it has filed a complaint with the World Trade Organization over the latest round of U.S. tariffs. The two countries have now targeted $50 billion of each other’s goods and threatened duties on most of the rest of their bilateral trade, raising concerns that the conflict could dent global economic growth.

Trump administration officials have been divided over how hard to press Beijing, but the White House appears to believe it is winning the trade war as China’s economy slows and its stock markets tumble.

Economists reckon that every $100 billion of imports hit by tariffs would reduce global trade by around 0.5 percent.

They have assumed a direct impact on China’s economic growth in 2018 of 0.1 to 0.3 percentage point, and somewhat less for the United States, but the impact will be bigger next year, along with collateral damage for other countries and companies tied into China’s global supply chains.

Hard line rattles Beijing

Business groups expressed hope that the meeting would mark the start of serious negotiations over Chinese trade and economic policy changes demanded by Trump.

However, Trump on Monday told Reuters in an interview he did not “anticipate much” from this week’s talks.

His hard line has rattled Beijing and spurred rare criticism within the highest levels of China’s ruling Communist Party over its handling of the trade dispute, sources have said.

Beijing has denied U.S. allegations it systematically forces the unfair transfer of U.S. technology and has said it adheres to World Trade Organization rules.

Foreign Ministry spokesman Lu Kang would not reveal any details of the talks during a daily news briefing.

“We hope that the U.S. side can meet China halfway, and with a rational, pragmatic attitude, conscientiously with China get a good result,” Lu said.

Semiconductors, plastics hit

Washington’s latest tariffs apply to 279 product categories, including semiconductors, plastics, chemicals and railway equipment, that the Office of

the U.S. Trade Representative has said benefit from Beijing’s “Made in China 2025” industrial plan to make China competitive in high-tech industries.

China’s list of 333 U.S. product categories hit with duties includes coal, copper scrap, fuel, steel products, buses and medical equipment.

Though it is too early for trade damage to show up in much economic data, tariffs are beginning to increase costs for consumers and businesses on both sides of the Pacific, forcing companies to adjust supply chains and pricing, with some U.S. companies looking to decrease reliance on China.

John Neuffer, president of the Semiconductor Industry Association, said the tariffs would hurt U.S. companies more than Chinese firms, since most semiconductor products imported from China started out as chips fabricated in the United States.

“Putting tariffs on semiconductors specifically doesn’t give the administration additional leverage. The Chinese don’t sell their own semiconductors to America so Chinese enterprises won’t be hurt by this,” Neuffer said.

(CNBC) Beijing retaliates as new US tariffs kick in on $16 billion of Chinese goods

(CNBC)

  • U.S. tariffs on $16 billion worth of Chinese imports took effect on Thursday.
  • Officials from both countries are meeting Washington, but many are not expecting an easy compromise.
  • The duties will impact the global supply chain.

 President Donald Trump welcomes Chinese President Xi Jinping at Mar-a-Lago state in Palm Beach, Florida, U.S., April 6, 2017. 

Carlos Barria | Reuters
 President Donald Trump welcomes Chinese President Xi Jinping at Mar-a-Lago state in Palm Beach, Florida, U.S., April 6, 2017.

A new round of U.S. tariffs on $16 billion worth of Chinese importskicked in on Thursday, prompting Beijing to retaliate with its own levies on American goods worth the same amount.

The latest trade escalation comes as officials from the world’s two largest economies meet for tariff negotiations in Washington.

At 12.01 a.m. EDT on Thursday, the U.S. began collecting additional 25 percent duties on 279 Chinese import product categories identified by U.S. Trade Representative. Key products that will be hit by the duties include semiconductors, chemicals, plastics, motorbikes and electric scooters.

Beijing retaliated with its own fresh tariffs on $16 billion worth of additional imports from the U.S. including fuel, steel products, autos and medical equipment. The levies took effect the same time that the U.S. tariffs were imposed on Thursday, state news agency Xinhua reported, citing an announcement from the Customs Tariff Commission of the State Council.

China “resolutely opposes” the latest tariffs by the U.S. and will fight back against the latest duties, the Chinese Commerce Ministry saidin an online statement, adding that Beijing will file a complaint to the World Trade Organization against the U.S.

The latest American tariffs — which come on the back of $34 billion worth of Chinese goods that were implemented in July — have spurred U.S. importers to place additional orders to be shipped and delivered ahead.

That has already contributed to higher ocean and air freight rates, and elevated warehousing costs in America, said Henry Ko, managing director for Asia at Flexport, a U.S.-based freight forwarding company. Overall, the entire supply chain will incur additional costs, added Ko.

“If trade war actually continues, prices for products across many industries will increase,” Ko told CNBC.

Little respite seen

U.S. and Chinese officials met on Wednesday in Washington for a new round of trade talks, but many are not expecting an easy compromise.

Even the U.S. president is not expecting much progress. Donald Trump told Reuters on Monday that he did not “anticipate much”from the talks led by U.S. Treasury Under Secretary David Malpass and Chinese Commerce Vice Minister Wang Shouwen.

The talks are the first formal interaction between U.S. and Chinese officials since June, when U.S. Commerce Secretary Wilbur Ross unsuccessfully sought to secure major Chinese purchases of U.S. soybeans and liquefied natural gas.

“I don’t see this ending soon, that’s for sure,” said Scott Kennedy, deputy director of the Freeman Chair in China Studies at the Center for Strategic and International Studies.

“The gulf between the Trump administration and the Chinese is as wide as the Pacific and it looks like it’s getting wider because the Trump administration thinks they are winning,” Kennedy told CNBC.

How do tariffs work?

How do tariffs work?  

“The Chinese don’t look like they want to give in either. So I think the way this continues to play out is further escalation, finger-pointing and blaming, not a settling down of this anytime soon,” Kennedy added.

Trump has threatened to impose duties on over $500 billion of Chinese goods exported annually to the U.S. unless China agrees to sweeping changes in its intellectual property practices, industrial subsidy programs and tariff structure.

Beijing has denied Washington’s allegations that it systematically forces the unfair transfer of U.S. technology and insists it adheres to World Trade Organization rules.

“I think really if the hawks in the Trump administration get their way, where this ends is in a disengagement of the two economies, not in a settlement through the kinds of negotiations that have been going on in Washington today,” said Kennedy.

Afterall, these are “two sides who still think they have the upper hand if not the ability to withstand pressure from the other side,” Kennedy added, noting that the Chinese economy is still growing even though its stock markets have taken a hit recently.

Markets should expect bilateral tit-for-tat trade actions to continue for the foreseeable future as both the U.S. and China have managed to convince themselves that they wouldn’t “lose out in this trade war too much,” said Bo Zhuang, chief China economist at investment research firm, TS Lombard.

Beijing will allow the Chinese yuan to “passively devalue” in order to cope with the impact of the U.S. tariffs although authorities will likely blame any decline in thecurrency on the markets, Zhuang said.

“One way or the other, they have to do something. Otherwise the Chinese economy is going to tumble,” Zhuang added.

(MW) China says it will resume trade talks with U.S.

(MW) China will send a delegation to the U.S. later this month for trade talks. the Chinese Commerce Ministry announced Thursday, according to multiple reports. In a short statement, the ministry said Vice Commerce Minister Wang Shouwen will meet with David Malpass, the U.S. Treasury Department’s under secretary for international affairs, to discuss “economic and trade issues between China and the U.S.” The statement said China continued to oppose “unilateralism and trade protectionism.” The meeting would be the first high-level talks between the world’s biggest economic powerhouses since July. The two countries have imposed billions of dollars in tariffs on each other’s goods in recent months, and President Donald Trump has threatened to impose tariffs on all Chinese imports. News of the talks had an immediate effect on Asian stock markets, which pared steep early losses, although most were still negative on the day.

(Nikkei) China hits back at US with $16bn tariffs, effective Aug. 23

(Nikkei) Domestic politics stoke both sides of Washington-Beijing trade warU.S. President Donald Trump continues to double down on economic nationalism heading into November’s congressional races, while Chinese President Xi Jinping faces increased scrutiny from Communist party heavyweights.   © Reuters

WASHINGTON/BEIJING — Beijing announced plans on Wednesday to impose additional 25% tariffs on $16 billion in U.S. imports, equal in scale and rate to Washington’s levies on Chinese goods finalized the previous day. The added tariffs imposed by the U.S. mark the second tranche of duties announced back in June. Both measures take effect Aug. 23.

The duties announced by China’s Commerce Ministry differ considerably from the original list released in June. The ministry removed crude oil from the list, likely because the country — a net oil importer — would suffer if high tariffs raised prices. But the range of autos subject to additional levies increases sharply.

In the announcement, the commerce ministry said “Once again, they have placed domestic law over international law. This is a very unreasonable practice,” in criticizing Washington’s latest round of 25% tariffs on $16 billion of Chinese goods.

As the U.S. and China continue their cycle of retaliatory tariffs, the political landscape in each country leaves little reason for leaders to back down, even as the trade war exacts a growing cost on the world’s two largest economies.

With his hard line on China, President Donald Trump looks to apply the lessons of his surprise victory in the 2016 election to midterm congressional races in November that are likely to be closely fought. The ideas of former White House chief strategist Steve Bannon, the ideological polestar of Trump’s campaign, are central to this effort.

Bannon played a key role in codifying Trump’s “America first” philosophy, focusing on a protectionist vision of economic nationalism along with anti-immigrant sentiment and an isolationist foreign policy. The campaign’s anti-establishment tone won over the white working-class voters whose support carried Trump to the presidency.

Bannon departed in August 2017, seemingly forced out amid clashes with other White House figures, particularly chief of staff John Kelly. But with the influence of Kelly and his allies waning and the midterms looming, Trump is turning to the formula that worked so well for him in 2016 as he seeks to motivate his base.

“In its substance, this is a Bannonite government,” Financial Times columnist Janan Ganesh wrote last month. “More Bannonite, in fact, than when he was a part of it.”

The Trump administration’s tough stance on trade has pushed Chinese President Xi Jinping to respond in kind. Communist Party newspapers that earlier refrained from directly criticizing Trump have gone on the attack this month. Foreign Minister Wang Yi has made clear that China will respond to any U.S. trade offensives.

The change in tone comes amid signs of growing pressure on Xi from party elites and elders displeased with his tightening grip on power. Current and retired political heavyweights have reportedly gathered for their annual meeting at the seaside resort of Beidaihe, and the trade tensions with the U.S. top the agenda of the unofficial talks, a party source says.

After Xi met with Trump in April 2017, Beijing sought to tout more stable relations with Washington. Xi’s government toned down criticism of the U.S., calling instead for peaceful coexistence. But with the two countries now mired in a trade war, some China watchers say Xi may be taking heat at Beidaihe for this cooperative stance.

Xi’s position in some ways seems more solid than ever. He retains a firm base of support within the party, and a decision in March by the National People’s Congress to eliminate presidential term limits leaves him set to rule beyond the end of his second five-year term in 2023.

But the trade war has left him more exposed to criticism on issues such as his appointment of close allies to key posts and his government’s fawning propaganda. Tsinghua University law professor Xu Zhangrun recently released an essay denouncing Xi’s cult of personality and the scrapping of term limits. Compromise with the U.S. would make it that much harder for the president to quiet his critics.

The difficult political calculus facing the two leaders has led both governments to make decisions that defy economic rationality, at the expense of businesses and consumers.

With the tariffs being imposed by the U.S. this month, about 70% of the list by value consists of machinery and electrical equipment. This includes many semiconductor-related items such as processors and memory chips — essential parts for computers and servers.

American companies and lawmakers firmly oppose tariffs on chips and electronic components, which often are designed or produced by U.S. businesses in China. And the impact of duties on motors and other parts used widely in home appliances seems sure to ripple out to households.

Levies on plastic products, which comprise more than half the entries on the 279-item list, will reverberate through supply chains for industrial and consumer goods alike.

The Trump administration has threatened to impose a third round of tariffs in September covering $200 billion worth of imports, including finished goods such as refrigerators and washing machines, along with fruits, vegetables and seafood.

(Irish Times) China vows to impose tariffs on $60bn of US imports

(Irish TimesChina and US ministers meet in Singapore to talk about rising tensions

Rhetoric on both sides of the US/China trade dispute is heating up.  Photograph: iStock

Rhetoric on both sides of the US/China trade dispute is heating up. Photograph: iStock

China has said it would impose new tariffs on $60 billion (€52 billion) worth of imports from the US, should the White House carry out its threat made earlier this week to raise tariffs on Chinese goods.

In a statement late on Friday, China’s commerce ministry said that its decision was a response to US proposals that could increase the rate of tariffs on $200 billion worth of Chinese exports to 25 per cent, up from the White House’s original plan of 10 per cent.

The ministry said the “carrot and stick tactic” would not work.

“China has been fully prepared and will have to retaliate to defend national dignity and the people’s interests, defending free trade and the multilateral system, as well as the interests of all countries globally,” the ministry said.

The US tariffs were aimed not at addressing trade issues, but at harming China’s peaceful development, the ministry said.

As the thunderous rhetoric continued to jangle nerves around the region and more widely, hitting stock market sentiment, there were signs that China and the US were trying to find a way back to the negotiating table.

China’s foreign minister Wang Yi met his US counterpart, secretary of state Mike Pompeo, on the fringes of a regional forum in Singapore on Friday for discussions ahead of a formal sit-down.

On Wednesday, president Donald Trump said he was planning to raise tariffs to 25 per cent from 10 per cent on $200 billion worth of Chinese imports. To date Washington has levied tariffs on $34 billion worth of imports from China as part of a first tranche of sanctions on $50 billion of goods.

Trade deficit

Mr Trump accuses China of operating a too-high trade deficit with the US, and also of trade imbalances, of stealing intellectual property, of unfair trade practices and illicit technology transfers.

The new duties could be imposed after a comment period closes on September 5th.

On Thursday this week, Mr Wang urged US trade policy-makers to “calm down, carefully listen to the voices of US consumers and businesses and hear the collective call of the international community.”

“The US method of exerting pressure will not have any effect, not now, and never will,” said Mr Wang.

While China is playing its cards close to its chest in the trade negotiations, there has been some pushback against those trying to assert too much Chinese superiority.

In an open letter by hundreds of graduates of the prestigious Tsinghua University, the economics professor Hu Angang has come under fire for his suggestion that China has already overtaken the US as a world leader in terms of economic and technological power.

In a rare sign of dissent, some graduates have even called for Mr Hu to step down over his “triumphalist” claims.

(Intercept) GOOGLE PLANS TO LAUNCH CENSORED SEARCH ENGINE IN CHINA, LEAKED DOCUMENTS REVEAL

(InterceptGOOGLE IS PLANNING to launch a censored version of its search engine in China that will blacklist websites and search terms about human rights, democracy, religion, and peaceful protest, The Intercept can reveal.

The project – code-named Dragonfly – has been underway since spring of last year, and accelerated following a December 2017 meeting between Google’s CEO Sundar Pichai and a top Chinese government official, according to internal Google documents and people familiar with the plans.

Teams of programmers and engineers at Google have created a custom Android app, different versions of which have been named “Maotai” and “Longfei.” The app has already been demonstrated to the Chinese government; the finalized version could be launched in the next six to nine months, pending approval from Chinese officials.

The planned move represents a dramatic shift in Google’s policy on China and will mark the first time in almost a decade that the internet giant has operated its search engine in the country.

Google’s search service cannot currently be accessed by most internet users in China because it is blocked by the country’s so-called Great Firewall. The app Google is building for China will comply with the country’s strict censorship laws, restricting access to content that Xi Jinping’s Communist Party regime deems unfavorable.

The search app will “blacklist sensitive queries.”

The Chinese government blocks information on the internet about political opponents, free speech, sex, news, and academic studies. It bans websites about the 1989 Tiananmen Square massacre, for instance, and references to “anticommunism” and “dissidents.” Mentions of books that negatively portray authoritarian governments, like George Orwell’s 1984 and Animal Farm, have been prohibited on Weibo, a Chinese social media website. The country also censors popular Western social media sites like Instagram, Facebook, and Twitter, as well as American news organizations such as the New York Times and the Wall Street Journal.

Documents seen by The Intercept, marked “Google confidential,” say that Google’s Chinese search app will automatically identify and filter websites blocked by the Great Firewall. When a person carries out a search, banned websites will be removed from the first page of results, and a disclaimer will be displayed stating that “some results may have been removed due to statutory requirements.” Examples cited in the documents of websites that will be subject to the censorship include those of British news broadcaster BBC and the online encyclopedia Wikipedia.

The search app will also “blacklist sensitive queries” so that “no results will be shown” at all when people enter certain words or phrases, the documents state. The censorship will apply across the platform: Google’s image search, automatic spell check and suggested search features will incorporate the blacklists, meaning that they will not recommend people information or photographs the government has banned.

Within Google, knowledge about Dragonfly has been restricted to just a few hundred members of the internet giant’s 88,000-strong workforce, said a source with knowledge of the project. The source spoke to The Intercept on condition of anonymity, as they were not authorized to contact the media. The source said that they had moral and ethical concerns about Google’s role in the censorship, which is being planned by a handful of top executives and managers at the company with no public scrutiny.

“I’m against large companies and governments collaborating in the oppression of their people.”

“I’m against large companies and governments collaborating in the oppression of their people, and feel like transparency around what’s being done is in the public interest,” the source said, adding that they feared “what is done in China will become a template for many other nations.”

Patrick Poon, a Hong Kong-based researcher with human rights group Amnesty International, told The Intercept that Google’s decision to comply with the censorship would be “a big disaster for the information age.”

“This has very serious implications not just for China, but for all of us, for freedom of information and internet freedom,” said Poon. “It will set a terrible precedent for many other companies who are still trying to do business in China while maintaining the principles of not succumbing to China’s censorship. The biggest search engine in the world obeying the censorship in China is a victory for the Chinese government – it sends a signal that nobody will bother to challenge the censorship any more.”

It is unclear whether Google will eventually launch a desktop version of its censored China search platform. For now, the company is focused on initially rolling out the Android app, which a large portion of China’s population will be able to access. Researchers estimate that more than 95 percent of people accessing the internet in China use mobile devices to go online, and Android is by far the most popular mobile operating system in the country, with 80 percent of the market share.

The documents seen by The Intercept suggest that Google will operate the search app as part of a “joint venture” with an unnamed partner company, which will presumably be based in China. However, much of the work on the Dragonfly project is being carried out at Google’s Mountain View headquarters in California, about 14 miles northwest of San Jose, the heart of Silicon Valley. Other teams participating in the project are based out of Google offices in New York, San Francisco, Sunnyvale, Santa Barbara, Cambridge, Washington, D.C., Shanghai, Beijing, and Tokyo.

PREVIOUSLY, BETWEEN 2006 and 2010, Google had maintained a censored version of its search engine in China. At the time, the company faced severe criticism in the U.S. over its compliance with the Chinese government’s policies.

During a February 2006 congressional hearing that focused on the activities of American technology companies in China, members of the House International Relations Committee called Google a “functionary of the Chinese government” and accused it of “abhorrent actions” for participating in censorship. “Google has seriously compromised its ‘don’t be evil’ policy,” declared Rep. Chris Smith, R-N.J. “Indeed, it has become evil’s accomplice.”

The controversy eventually became too much for Google. In March 2010, it announced that it was pulling its search service out of China. In a blog post published at the time, the company cited Chinese government efforts to limit free speech, block websites, and hack Google computer systems as reasons why it “could no longer continue censoring our results.”

Sergey Brin, Google’s co-founder, was born in the Soviet Union and seemed particularly sensitive to concerns around censorship, having had personal experience under a repressive regime. After Google ceased its search service in 2010, Brin said that the company’s objection related to “forces of totalitarianism,” and added that he hoped the decision to pull the search platform out of the country would help lead to a “more open internet.”

“Companies operating in China must be prepared to turn over user data to security agencies.”

Since then, however, censorship and surveillance in China has become more pervasive. In 2016, the country’s government passed a new cybersecurity law, which Human Rights Watch said “strengthens censorship, surveillance, and other controls over the internet.” The government is using new automated systems to monitor and censor the internet, and it has cracked down on privacy technologies that Chinese people were using to circumvent the restrictions.

“It has been a requirement that companies operating in China must be prepared to police their users and turn over user data to security agencies upon request,” said Ron Deibert, director of Citizen Lab, an internet research group based at the University of Toronto. “We have also found overall that internet censorship [in China] is evolving towards less transparency, with less notification to users when messages are censored or removed across all platforms.”

Despite the continued repression, opinions have changed at the highest levels of Google. China now has more than 750 million internet users, equivalent to the entire population of Europe. It therefore represents a potentially massive revenue stream for the internet giant, which is likely a factor in its decision to relaunch the search platform in the country.

Another reason for the planned policy reversal may be that since Google last operated its search tool in China, the company’s leadership structure has markedly changed. Co-founders Brin and Larry Page have adopted less hands-on roles, though they still serve on the company’s board of directors.

Google’s China rapproachment has been spearheaded by Pichai, Google’s current CEO, a 46-year-old Indian-American who took the helm in October 2015. At a June 2016 conference in southern California, Pichai made his intentions clear. “I care about servicing users globally in every corner. Google is for everyone,” he said. “We want to be in China serving Chinese users.”

In December 2017, sources say Pichai traveled to China and attended a private meeting with Wang Huning, a leading figure in the Communist Party. Huning is President Xi’s top foreign policy adviser and has been described as “China’s Kissinger.” Pichai is said to have viewed the meeting as a success. The same month, Google announced that it was launching an artificial intelligence research center in Beijing. That was followed in May 2018 with the release of a Google file management app for Chinese internet users. Then, in July, Google rolled out a “Guess The Sketch” game on WeChat, a popular Chinese messaging and social media platform.

The finale would be the launch of the search app — the Dragonfly project. According to sources familiar with the plans, timing for the app’s release will depend on two main factors: approval from the Chinese government and confidence within Google that its app will be better than the search service offered by its main competitor in China, Baidu.

Google insiders say that it is not known when the company will obtain the approval from officials in Beijing because an escalating trade war between the U.S. and China has slowed the process. However, Google’s search engine chief Ben Gomes told staff at a meeting last month that they must be ready to launch the Chinese search app at short notice, in the event that “suddenly the world changes or [President Donald Trump] decides his new best friend is Xi Jinping.”

Google and the Chinese government’s Ministry of Foreign Affairs did not respond to multiple requests for comment on this story.

(Economist) A vaccine scandal shakes trust in China’s government

(Economist) More than 200,000 babies may have been given substandard jabs

“IT SEEMS Beijing does not have this problem,” says a father leaving the Capital Institute of Paediatrics with his two young boys on a sweltering afternoon. The parent, who gives his name as Mr Wu, says Beijing health officials have promised worried local people that they did not purchase any of the medicines involved in China’s latest scandal over defective childhood vaccines—namely some 110,000 doses of rabies vaccine for which production data were allegedly faked by Changchun Changsheng Life Sciences, one of China’s largest vaccine-makers.

Beijing officials also insist that they did not buy any of a batch of 250,000 doses of jabs for diphtheria, pertussis and tetanus (DPT) sold by the same firm in 2017—which it now emerges were declared “substandard” by regulators, though that finding only became public nine months later, on July 17th. Officials in the eastern province of Shandong, where 215,000 children were given the defective vaccines, told the Dazhong Daily that the medicine is not thought to be harmful. But when asked whether he accepted official assurances, Mr Wu looks stricken: “You have to believe the government, there’s no other way.” A mother fanning a three-month-old baby says she trusts foreign vaccines far more, adding resignedly that such luxuries are for those who can seek treatment abroad.

This mix of helplessness and fear, evident among parents across the country, has prompted China’s rulers to make an unusually direct response to the scandal. President Xi Jinping interrupted a red-carpet tour of Africa to call the vaccine-maker’s actions “vile” and “shocking”. Police detained Changsheng’s chairwoman along with 14 other people.

The scenes at the Beijing hospital gates point to why this affair is so damaging. Many urban Chinese grow up with advantages unknown to previous generations. The Capital Institute of Paediatrics draws families from far outside Beijing: sick children brought by grandparents and parents in anxious huddles, shaded with umbrellas from the July sun or bought ice-creams and balloons. But for parents, modern life also feels fragile. They cannot reliably give children clean air to breathe or safe food to eat or know that medicines prescribed for them are genuine—despite repeated promises from their Communist rulers to fight air and water pollution, clean up the food industry and keep dangerous fake products off the market. To this day families that can afford it buy foreign milk and infant formula, though a decade has passed since six babies died and thousands were made ill by Chinese powdered milk adulterated, for profit, with melamine, an industrial chemical.

In 2007 Zheng Xiaoyu, a former head of the State Food and Drug Administration, was executed for taking bribes to approve untested medicines and equipment. Since taking power in 2012 Mr Xi has led a vast and popular anti-corruption campaign. But that hasn’t stopped the scandals.

Responding to public outrage, state media have been a bit bolder than usual in covering this fresh crisis. China Daily noted that employees of or distributors for Changchun Changsheng Life Sciences and its parent company have been named in at least ten court judgments in the past decade for paying bribes to hospital or health officials. This rarely resulted in prosecutions of bribe-payers, it said, as too many companies were doing the same thing. Global Times, a popular tabloid, called for the government to calm the public with more authoritative information, arguing in an editorial that: “many may believe that it is lax supervision and light punishment that led to multiple scandals created by companies like Changchun Changsheng.” Social-media users noted revelations that at least two batches of DPT vaccines from the firm had been found defective in 2016 and 2017, leading to 3.4m yuan ($500,000) in fines for Changsheng, which reported 566m yuan in net profits last year.

It is not only domestic drug firms that have incentives to cut corners. Chinese hospitals make much of their revenue from selling medicines. Whistle-blowing is a risky pastime: in 2010 an investigative reporter and his editor lost their posts at the China Economic Times for detailing how mishandled vaccines led to the deaths of four children in Shanxi province. Meanwhile in Hong Kong, where a (more or less) free press and independent judiciary hold medical institutions to account, doctors have been told by health officials to brace for an influx of mainlanders seeking safe vaccines for their children.

(Reuters) Pakistan dismisses U.S. concerns about IMF bailout and China

(Reuters) Pakistan on Wednesday dismissed U.S. concerns that any new International Monetary Fund bailout for the South Asian nation would be used to repay Chinese debt as “totally wrong”.

Pakistan’s economy has hit severe turbulence over the past year and most analysts expect the nuclear-armed nation to seek a bailout, either from the IMF or closest ally China, to avoid a currency crisis.

Beijing has pledged $57 billion in loans for Pakistan as part of China’s vast Belt and Road initiative, deepening economic and diplomatic ties between the neighbors at a time when relations between Islamabad and Washington are fraying over how to deal with Islamist militants waging war in Afghanistan.

U.S. Secretary of State Mike Pompeo on Monday warned that any potential IMF bailout for Pakistan’s incoming government should not provide funds to pay off Chinese lenders.

In response, Pakistan’s finance ministry sought to de-couple the link between any potential IMF bailout and Beijing’s loans for the China-Pakistan Economic Corridor (CPEC), which spans mostly energy and transport infrastructure.

“First and foremost it is totally wrong to link the IMF package with CPEC. It is affirmed that Pakistan Government is fully committed to undertake and complete CPEC projects in their totality,” the finance ministry said in a statement.

“Third parties cannot weaken our collective resolve to make CPEC a success story.”

CPEC is billed as Pakistan’s most important national project, while Beijing has touted CPEC as the “flagship” project in the vast Belt and Road initiative to build rail, road and maritime links across the globe.

Both countries are very sensitive of any criticism about CPEC.

The United States has been concerned that China is saddling smaller countries with debt as a way to gain influence and control around the globe.

Pakistan obtained a $6.7 billion IMF bailout in 2013 and near-identical balance of payments problems pose a major headache for the incoming government of Imran Khan, Pakistan’s former cricket hero who is seeking coalition partners to form a government.

“Make no mistake. We will be watching what the IMF does,” Pompeo said.

“There’s no rationale for IMF tax dollars, and associated with that American dollars that are part of the IMF funding, for those to go to bail out Chinese bondholders or China itself,” Pompeo added.

Asad Umar, widely tipped to become the new finance minister, told Reuters last month that Khan’s government would not rule out either Chinese or IMF support.

On Tuesday, Chinese Foreign Ministry spokesman Geng Shuang said the IMF had its own standards and operating rules when cooperating with countries.

“I believe they will handle it appropriately,” he told reporters, without elaborating.

30-YEAR LOANS

Miftah Ismail, Pakistan’s finance minister in the previous government until late May, said the Chinese debt repayments were nowhere near as big as Western nations imagine.

He told Reuters that ministry of finance calculations showed that for the next five years, Pakistan’s total annual debt repayments and profit expatriation by Chinese companies would be below $1 billion.

“All of those things combined will not go to $1 billion up until 2023,” he said.

Ismail added loans given by China to Pakistan had a 30-year length and a five-year grace period, meaning there were no repayments for the first five years.

The lending was a combination of zero-interest debt, concessionary and some market rate loans, Ismail said, adding that the “weighted average” interest rate for these loans was 2 percent

“These are not loans that will break our back,” he said.

Ismail said the problems hitting Pakistan’s economy were not linked to debt but rather to current account problems, which was not China’s fault.

Pakistan’s finance ministry said it was engaged in “technical discussions” with the IMF but the interim caretaker government did not have a mandate to decide on any IMF package, which will be down to the new administration.

(MacauHub) Portugal close to issuing debt in the Chinese market

(MacauHub) The process of Portugal issuing public debt in the Chinese market by means of Panda bonds or debt contracted by foreign entities in Chinese currency is in its final phase, Finance Minister Mário Centeno recently stated.

The Portuguese government hopes to raise up to 380 million euros (nearly 3 billion yuan) in bonds in Chinese currency, an operation that has been worked on for more than a year, following the finance minister’s visit to Beijing in May 2017.

In September of that year Portugal announced the issue of public debt in Chinese currency and named the Bank of China, HSBC and Portugal’s state bank Caixa Geral de Depósitos to work on issuing the Panda bonds authorised by Beijing.

On that occasion Minister Mário Centeno announced that the bonds to issue would have a maturity of five years.

Portugal has become one of the main destinations of Chinese investment in Europe, with Chinese companies acquiring significant parts of EDP Energias de Portugal, Redes Energéticas Nacionais (REN) and the Fidelidade insurance company, for example.

Last May the state group China Three Gorges launched a bid to take shareholding control of the groups EDP Energias de Portugal and EDP Renováveis. If it succeeds, that operation will require a financial effort of more than 10 billion euros. (Macauhub)

(Reuters) China to use ‘counter-cyclical’ measures to curb FX volatility

(Reuters) China’s foreign-exchange regulator said on Thursday it was well-equipped to keep currency markets stable amid intensifying trade frictions with the United States and prepared to counteract cross-border capital outflow volatility if it arises.

Wang Chunying, spokeswoman at the State Administration of Foreign Exchange (SAFE), told reporters the regulator would bolster “macro-prudential management” and “micro-level market supervision” and use “counter-cyclical” measures to deal with instability.

While Wang did not elaborate on details of such counter-cyclical measures, analysts see her comments as a warning that the central bank would not tolerate aggressive one-way speculation against the currency.

“We will make counter-cyclical adjustments to cope with short-term volatility in foreign exchange markets to maintain stability in the financial system and balance in international payments,” she told a media briefing.

The remarks did not appear to halt the decline in the yuan in onshore CNY=CFXS or offshore CNH=D3 markets, where the currency has weakened about 7 percent against the dollar since the end of the first quarter and continued to slip on Thursday.

The yuan’s declines have come as Washington and Beijing stepped up their tit-for-tat exchange of tariffs and threats of tariffs on eachother’s goods.

As of 0805 GMT, the onshore spot was trading at 6.7583, 378 pips or 0.56 percent weaker than the previous late session close. Its offshore counterpart was trading 0.41 percent weaker than the onshore spot at 6.7860 per dollar.

Ken Cheung, senior Asian FX strategist at Mizuho Bank in Hong Kong, said Wang’s remarks signaled that the foreign exchange regulator still had many tools at its disposal to deal with yuan depreciation expectations.

“If the yuan falls too fast over too short a period of time, the central bank would still take some action and make some comments,” Cheung said.

He added, however, that Thursday’s comment was not as strong as what the People’s Bank of China (PBOC) governor Yi Gang offered when the yuan hit 6.7 per dollar two weeks ago, which had a calming effect on the market.

“(The comments) shouldn’t affect the market until the day when the policy is implemented,” said a trader at a foreign bank in Shanghai, referring to counter-cyclical measures.

Traders and economists have been on alert for intervention or other attempts to slow the yuan’s slide since it posted its worst month on record in June.

Wang said SAFE is paying close attention to cross-border capital flows and that it had been improving “contingency plans and policy reserves”.

While her comments about “counter-cyclical” measures did not make reference to specific market tools, some analysts have speculated in recent weeks that authorities may re-apply a “counter-cyclical factor” in their daily foreign exchange management to dampen depreciation expectations and slow the yuan’s latest downtrend.

In May 2017, after a period of decline for the yuan, the PBOC added the secret counter-cyclical factor to its formula for calculating the midpoint reference rate for trading of the currency. The central bank effectively removed the x-factor at the start of this year, as the yuan rebounded.

Policy insiders told Reuters earlier this month that Beijing was expected to make use of other tools it has honed since 2015 to curb speculation and volatility in the yuan.

SAFE spokeswoman Wang said on Thursday the foreign exchange regulator could adjust its tool kit for managing cross-border capital flows, which includes the previously used FX risk reserves.

China’s central bank implemented reserve requirements for financial institutions settling foreign exchange forward yuan positions in July 2016 before scrapping the requirements last September, when Beijing was anxious to quash one way bets on the yuan as outflows ease and exporters face strain.

Wang told the briefing that China’s foreign debt levels were under control and that SAFE would closely monitor any changes and provide policy guidance as needed.