China - Geostrategic & Geopolitical.

[Ananda]

China Is Coming Out Of The Shadows To Defend Its Oil Interests | OilPrice.com

The seizure of two oil tankers last week in international waters was by no means a standalone event, and sources now suggest that China silently approved the Iranian actions

oilprice.com

I decide to post this in Chinese Geopolitics thread then Middle East Security thread. This article more on analysis that the recent Iranian seizure for two oil tankers bound to US, has blessings and support from China as tit for tat action against previous US seizure of Tanker with Iran oil bound to China.

Now this is just analysis but shown potential challenge on US lead unipolar order. China seems not going only to use their direct capabilities on this (after all their Naval operation still limited toward near maritime line), but also using 'allies' against US interest on area where China direct action still limited.

In some way it is also shown China growing influence on potential allies Internationally.

 

[Ananda]

China appears to have lots of cash but their massive defence budget is only exceeded by their internal security (repression) budget.

@John Fedup I'll answer your post in this thread, as it's more relevant topic for this thread. Increasing defence budget matter, but as you have point out both China and US have increasing Banking problem. This actually make further credit lines for some less developed Global South going to be difficult.

This is part of problem why China so far not wanting to call debt restructuring plan for much of their debt in Global South. I suspect they will eventually go that way, but with problem on domestic housing credit (which although not yet as much of 2008 sub prime mortgage in US and West), their room for restructuring credit not as big as before.

Compounding with problem loans in Africa and South Asia, many in financial market see Chinese Banks need to recover some of their domestic collateral for fast recovery. Thus this potentially why Banks in China will call some bad loans collateral. For those problem credit line of them in South Asia and Africa, it is going to be bit different to handle. More likely they will ask those government either pledge future infrastructure projects cash flow to the escrow accounts, on guarantee further payments schedule. In sense they'll control those projects cash flows.

This is what some in Western media call as Chinese Debt Trap. However all creditors including IMF and World Banks will do similar thing. IMF and World Bank more likely demand tightening of government spending so the money can shift away for loan restructuring. China financial institutions will demand escrow accounts set up from futures proceed of projects income.

Bit different method but in the end the results more or less the same. Those government need to reduce and tightening their spending for increasing fund toward creditors payments.

 

[Musashi_kenshin]

This is what some in Western media call as Chinese Debt Trap. However all creditors including IMF and World Banks will do similar thing. IMF and World Bank more likely demand tightening of government spending so the money can shift away for loan restructuring. China financial institutions will demand escrow accounts set up from futures proceed of projects income.

That's not strictly true. The IMF and World Bank might demand monetary tightening, but they don't take critical infrastructure as security for their loans.

It's called the Chinese debt trap because it's specifically that - a trap to gobble up ports, mines, etc.

 

[Ananda]

The IMF and World Bank might demand monetary tightening, but they don't take critical infrastructure as security for their loans.

The method of IMF and World Bank is to finance directly to Government budget, the Chinese loans goes to infrastructure projects back by Government guarantee. However in the end both method will be guarantee by Host country Government income.

In sense Chinese loan behave like commercial loans to company or conglomerate of companies, and back by their ultimate owner. In this case the ultimate owner is the host country. So by nature of loan, their collateral goes directly to cash flow of each projects.

IMF and World Bank even tough don't goes directly to each projects, but can demand (as creditors) government Liquidate or sell some of their assets to get more cash, if got problem with cash flow. After 1998 Asian Financial crisis Indonesia like several Asian Economies come under IMF and World Bank 'stewardship'. So IMF then demand some of the assets under Government control goes to market to raise more cash which in the end to keep loan installment paid as part of loan restructuring.

For the case of Chinese loans, the host government (in this case as the project ultimate shareholders) can choose not to honour their guarantee. However if they do that, then their portion of control on the project being forfeited, and the control move to creditors. It is basically not much different then any commercial projects financing loan. Creditors in commercial loan projects can ask guarantee on the cash flow back by shares on the project which then again guarantee by Ultimate Owner/Holding Company cash flow support.

That's why I put in my post, the method bit different but end results more or less the same. All the loans in the end back by Government income.

The 'debt trap' analogy accusations from Western media and Government being base on those projects financed by China is basically given to countries with low credit rating (below investment grade). In such many in market considering this in principe not much different then Sub Prime Mortgage. Mortgages that in US being given to low income low/sub par credit rating families.

But then that's the question of dilemma. Low income countries like low income families need to have infrastructure (for family is home, for countries infrastructure to support logistics and basic services). Their choices for financing is very limited compare to mid or high income peers. Thus they will go to whoever willing to provide financing, even tough they know the cost of financing is bit higher.

 

[T.C.P]

It's called the Chinese debt trap because it's specifically that - a trap to gobble up ports, mines, etc.

Except its not. Guess what developing countries want to be developed and for that we need infrastructure. No one but China is willling to work with us on that. We will take whatever scraps that we can get.

Its not China's fault govt use their money for white elephant projects that have no way of generating icnome to pay off loans.

Just look at the bs the world bank gave my country to fund a critical bridge, with blown out corruption allegations. Of course there is going to be corruption. what third world country is free from that? I cant tell you the national satisfaction we received when the PM on her recent meeting with the WB handed them a photo of the now completed bridge.


Luckily we have Japan and Korea handing out a lot of infrastructure loans and grants as well and acts as a balancer to China. Wish the developed West did a bit of that as well. If the US had spent a fraction of what they wasted in Iraq and Afghanistan on infrstatructure loans for the developing world, the world would have been better off.

 

[Musashi_kenshin]

Just look at the bs the world bank gave my country to fund a critical bridge, with blown out corruption allegations. Of course there is going to be corruption. what third world country is free from that?

Not every third world country is as bad as the other when it comes to corruption.

2022 Corruption Perceptions Index: Explore the results

How does your country measure up in the 2022 Corruption Perceptions Index?

www.transparency.org

Botswana, for example, is ranked almost twice as highly than South Africa. It's actually ranked as highly as Spain. Now is that down to random chance or good governance?

The problem with overlooking corruption is that it normalises it. The reason that man at immigration control expects a "gift" to actually deal with your passport and not keep you waiting for hours whilst it's "checked" is because all the other foreign business travellers pay up. Similarly, poorer countries won't be able to deal with corruption if international institutions waive away concerns. Sometimes checks and balances mean false positives come up, but it doesn't mean the system itself isn't required.

Its not China's fault govt use their money for white elephant projects that have no way of generating icnome to pay off loans.

It sort of is. China frequently knows that the money is for. In fact, studies have shown that Chinese money is far more likely to be spent in areas that are key constituencies for the incumbant government. Beijing could impose controls to ensure the money is spent fairly in a way that benefits as many people as possible, as other countries do. It chooses not to.

 

[T.C.P]

Not every third world country is as bad as the other when it comes to corruption.

2022 Corruption Perceptions Index: Explore the results

How does your country measure up in the 2022 Corruption Perceptions Index?

www.transparency.org

Botswana, for example, is ranked almost twice as highly than South Africa. It's actually ranked as highly as Spain. Now is that down to random chance or good governance?

The problem with overlooking corruption is that it normalises it. The reason that man at immigration control expects a "gift" to actually deal with your passport and not keep you waiting for hours whilst it's "checked" is because all the other foreign business travellers pay up. Similarly, poorer countries won't be able to deal with corruption if international institutions waive away concerns. Sometimes checks and balances mean false positives come up, but it doesn't mean the system itself isn't required.

I dont know much about Botswana, but its just one country, for every one Bostwana, there is 10 Bangladesh.. Corruption is a natural part of development. As a country gets more developed, richer, educated and its people more informed and infrastructure and institutions become more robust, petty corruption dies down.

Corruption should not be overlooked but one cannot wish it away. Its a gradual development. China understands this as they had to go through with this as well. South east Asia had a similar curve. Its not about financial institutions waving away corruption its them being realistic that a certain amount will exist and to try and calculate for its effect into their loan terms.

You think Japan was unaware of corruption in Bangladesh before they funded all their mega projects, or China or South Korea. They knew about the corruption and have their own acceptable margin rates for corruption in their developing partners and this allows them to invest and help developing nations grow.

 

[swerve]

Its not China's fault govt use their money for white elephant projects that have no way of generating icnome to pay off loans.

Isn't it? Surely, Chinese lenders lend money for specific purposes. I know that if I went to a bank & asked for a business loan I'd have to explain how I was going to use it, & convince them that I'd be able to pay it back.

If you lend money to a government with a history of building white elephants & you don't do due diligence, you're almost as responsible as the borrower. You're encouraging their behaviour.

There have been accusations that some Chinese loans are meant not to be repaid, so the Chinese can take ownership of the assets pledged against the loan.

 

[Rob c]

I dont know much about Botswana, but its just one country, for every one Bostwana, there is 10 Bangladesh.. Corruption is a natural part of development. As a country gets more developed, richer, educated and its people more informed and infrastructure and institutions become more robust, petty corruption dies down.

I disagree with this, With time and development in corrupt countries the corruption if not dealt with just becomes more imbedded in the culture and more difficult to eliminate, you only have to look at the Russian example to see this or is it suggested that Russia is not developed. Once corruption is an excepted part of normal life, it becomes ingrained in the culture and extremely difficult to eliminate.

 

[seaspear]

There are reports that France has sold the Kerguelen islands to China for sixty billion Euros this is sited between Antartica and Australia and 1900 miles to south west of Australia it is of the size of California , A question might be is there a strategic opportunity for China in this?
After Macron came to China, France to sell a 6,675 square kilometer island to China - YouTube
France sells an isolated island for 60 billion yuan, can China buy it? Who will Kerguelen end up with? - iMedia (min.news)

 

[Musashi_kenshin]

There are reports that France has sold the Kerguelen islands to China for sixty billion Euros this is sited between Antartica and Australia and 1900 miles to south west of Australia it is of the size of California , A question might be is there a strategic opportunity for China in this?

That sounds like nonsense to me for the following reasons:

1. There's no one else reporting this (some random Youtube site and "min.news" don't cut it);
2. The links you've provided don't seem to agree on whether it's yuan or euros; and
3. I doubt that Macron can sell French territory by presidential decree.

 

[SolarisKenzo]

Macron cannot sell French territory without violating at least half of the french constitution first paragraph's articles...
Complete nonsense.

https://www.conseil-constitutionnel.fr/sites/default/files/as/root/bank_mm/anglais/constiution_anglais_oct2009.pdf

 

[seaspear]

My apologies gentlemen

 

[swerve]

There are reports that France has sold the Kerguelen islands to China for sixty billion Euros this is sited between Antartica and Australia and 1900 miles to south west of Australia it is of the size of California , A question might be is there a strategic opportunity for China in this?
After Macron came to China, France to sell a 6,675 square kilometer island to China - YouTube
France sells an isolated island for 60 billion yuan, can China buy it? Who will Kerguelen end up with? - iMedia (min.news)

Not only is it obviously a false report, Kerguelen isn't the size of California: it's about 1.5% of the size. California has 58 counties, & some are bigger.

P.S. It'd be interesting if it was the size of California. It'd change weather patterns a bit by breaking up the massive reach across the Southern Ocean. It could be quite hospitable (at least the east side), as if the South Island of New Zealand stretched further south. Imagine a few million Frenchmen growing apple trees & making Norman/Breton-style cidre, rearing moutons, etc.

 

[Ananda]

Argentina makes IMF payment as deal talks grind on

The International Monetary Fund said on Friday that Argentina is current in its payment obligations, after the government said it made a $2.7 billion payment to the fund using its existing stock of the IMF's reserve assets, and Chinese currency.

www.reuters.com

This is quite interesting, Argentina will pay part of their debt to IMF with Chinese currency. Other part will use their SDR (basically their stock in IMF). I don't know the detail of transaction yet, but it seems to me Argentina central bank conduct swap agreement with Chinese counterparts.

If this is right, then basically Argentina will use some of its own peso to get Chinese yuan to pay to IMF. This in theory possible as IMF then can trade the Chinese Yuan payment in the market for other currency their choice (potentially USD). For China this is part of their financial market reach out to make Yuan more acceptable as currency of choices (for non Chinese trade).

I suspect Argentina buy something from China, and use their own peso as payment. Chinese then give Yuan in return. That peso can be use by China to trade with other Argentinian product or commodity. This is part of China work to reach Global South to ditch USD and use Yuan instead.

This means China willing to give prefer rate for Argentina that's better then what Argentinian Peso now traded in market. I do suspect China willing to do that, as they have Argentinian goods they already aim to be paid by their own peso.

 

[Ananda]

Is Relocation from China due to business or politics?

Moving Manufacturing from China to Southeast Asia: An Introduction - ARC Group

Foreign companies have used low-cost country sourcing strategies for decades with a strong focus on China. In the past years, we’ve seen a new trend where increasingly more companies look for alternative sourcing markets in Asia. In this article, we explore why this move is happening, specific...

arc-group.com

Moreover, manufacturers around the world still depend a lot on Chinese raw materials and semi-final products. For example, clothing producers from Vietnam and Bangladesh must import most of their fabrics and threads from China; European manufacturers of cars must import wiring from China. This ecosystem makes China dominant in global manufacturing.

Trillora Packaging Solutions

Trillora Packaging Solutions, formerly Billerud Managed Packaging, offers customized packaging solutions to global brands and retail chains.

www.billerud.com

Brands are not abandoning Chinese manufacturing altogether, but diversifying their supply chains.

I put this two assessments from consulting firm that often being use by manufacturer for assessing their supply chain management. I put assessments from consultant not from media even financial-business specific media, to give more assessments from business people.

Assessments on this shown even tough many global OEM are relocating from China, but it is also not means they're decoupling from China. Yes political tensions matter, but in the end Business decisions that matters. Experience due to China draconian COVID policy is matter more for business decisions to reduce their dependence on China supply chain, rather then Biden (or previously Trump) policy.

China become Global Manufacturer is not because simply low wages (as many Westerners and Western media believes). They become the global manufacturer because combination of Labor Productivity, Strong Infrastructure, Easy Access to Financial Markets, and Supportive Bureaucracy. This enable them to build complete supply chain ecosystem in one big market that call Greater China.

Relocation is not as simple as many Western Politicians call. Even India is still far from building complete supply chain ecosystem like China did, and many doubt they'll ever can. Let alone the ASEAN 5 (Vietnam, Indonesia, Malaysia, Thailand and Philippines), or even Mexico and Bangladesh. Those are countries that touted as target for most relocation.

What happens more is that those countries will increase their share on Global Supply Chain, but doesn't means it can (so far) decoupling from China. Vietnam for example getting the largest share of relocation because it has land border with China. This make transportation from China of components needed for final assembly in Vietnam, easier and cheaper to transport.

The relocation also being done by Chinese OEM, and yes at this moment China own OEM become increasingly larger players on Global market. Some can't easily to relocate tough. Those who works on manufacturing larger and more complex engines or more cutting edge tech, will be harder to move on toward those relocation countries.

For four decades, China rise as Global Manufacturer also play on both sides. Politicians in West now say Western business should not easily rely on China manufacturer. Well the truth is, that's part of survival on both sides. Western OEM need China manufacturer also for their efficiency. This is part to make their products affordable.

In the end this kind of thing matter more on Business calculations, then just Geopolitics calculations.

Treasury Secretary in China: Yellen Says Visit Won’t Solve Challenges ‘Overnight’ (Published 2023)

Janet Yellen concluded a trip that produced no breakthrough but helped thaw frosty ties between the world’s two largest economies. She emphasized the need to “stabilize the relationship.”

www.nytimes.com

https://www.cnn.com/2023/07/08/economy/us-china-yellen-visit-presser-intl-hnk/index.html

"The World is Big Enough for both US and China to thrive". Yellen clearly try to tone down the tensions. China OEM now is big enough to carve out their own brand in the Market. Some people in the West saying that China Brand is good only for cheap unreliable products. Guess what, that's where Japan OEM in 60's and 70's being call and not few years ago so does South Korean OEM.

Thus decoupling with China has very different economic calculations compare decoupling with Russia. Even the decoupling with Russia also cost West and Russia as so far being seen equally costly. Will West really want to decoupling with China? Most importantly can West afford it? Relocation so far shown it is not decoupling with China, as China still part of value chain.

 

[Musashi_kenshin]

Relocation is not as simple as many Western Politicians call.

It isn't simple, but it is likely to become increasingly necessary. China's demographic crisis is not just inevitable - it's already here. This means wages in Chinese factories will rise until eventually there won't be enough workers for everyone - at least at a price foreign companies will tolerate. The CCP will not allow mass migration to fill their worker shortages.

The sooner foreign companies accept they will need to diversify their supply chains the better for them. The longer they wait, the most costly and disruptive it will be in the future.

 

[Ananda]

The changes of China demographics in fact already been calculated by most business that operational in China since at least a decade even slightly more. That's why the low paying job already move for sometimes since a decade ago to Bangladesh, Vietnam or Philippines (as example)

The so call demographics dividends theory is only calculate the quantity of growing age workforce but not the quality. Just like Japan and ROK before, China's average work forces already moving up value chains. This is against popular thinking that mostly still reveberate in West. The thinking that China become Global Manufacturer only because low paying workforce.

China workforce already become the one of the most expensive in Asia save those OECD Asians like Japan, ROK, and Singapore. That's why the relocation already happening even before COVID. Drakonian COVID policy by Beijing that fasten the relocation.

However the relocation so far also still base on business cycles. This is just part of manufacturing cycles. Most of the current relocation deals with lower paying grade final assemblies lines. On LCD TV as example, final assembly can move but the production of LCD panels still mostly done in China. The semiconductor (the mass market ones not the upscales 7 and 14nm) still coming from China.

It is part of maturing Workforce that ROK and Japan face before. Their workforce quantities will be dwindling as time by, but not their qualities. This means what's left in China increasingly the more sophisticated part of value chains.

Even if most Western OEM totally left China (which many business analysts that deal on real situation doubt it), Chinese own OEM already gaining more market shares in the Global market. This means China will always stay in value chains one way or another.

 

[Musashi_kenshin]

Even if most Western OEM totally left China (which many business analysts that deal on real situation doubt it), Chinese own OEM already gaining more market shares in the Global market. This means China will always stay in value chains one way or another.

That's on the assumption that China can age gracefully. There's a real risk that it can't because it won't have the tax base to pay for its pensioners.

You and others frequently talk about South Korea and Japan, but they became economically developed/advanced before age became an issue. That hasn't happened to China.

It doesn't mean it will be a disaster, but I think there's a lot of denial about the risks of keeping all the eggs in one basket (China).

 

[Ananda]

doesn't mean it will be a disaster, but I think there's a lot of denial about the risks of keeping all the eggs in one basket (China).

Whose saying business are keeping the eggs in one Basket? They already diversify and begin relocation before Trump or Biden or Xi in Power. Seems what you and some in West don't want to accept is China will always part of manufacturing value chains. Business is business, they will find and reshaping their value chains.

However the OEM's no matter how far they are relocating some of their value chains, they will keep some in the place where they believe it is more efficient (for that part of chains). China like it or not still attractive, and many business even believe that for foreseable future. Again doesn't means they are not going to do relocation, cause it is just part of value chains realignment process.

frequently talk about South Korea and Japan, but they became economically developed/advanced before age became an issue. That hasn't happened to China.

Are China already in the level of aging demographics like Japan and South Korea? No, China demographics now is what Japan face in the 80's and South Korea in 90's. They are begin facing aging demographics. Remember they are much larger in population then South Korea and Japan. Quantities matter for demographics slide down process on aging population as whole.

One other thing, you are too much fixiate on this population aging. Even Japan with their aging and birth problem, still very much in manufacturing value chains ecosystem. Qualities usually follow the drop of quantities in Population. They are just in different part of value chain ecosystem. That's where South Korea moving to, and China also (in next two decades at least).