China Center Program Manager Shane Leary joins Miles Yu to discuss the China’s National Development and Reform Commission’s efforts to stimulate China’s private sector as the economy falters. They then talk about Henry Kissinger’s peculiar visit with Xi Jinping, and Miles frames the meeting as elder abuse. Finally, the hosts address a recent Russian missile strike, which accidentally damaged the Chinese consulate in Odesa, and China’s reaction. Follow the China Center's work at: https://www.hudson.org/china-center
China Center Program Manager Shane Leary joins Miles Yu to discuss the China’s National Development and Reform Commission’s efforts to stimulate China’s private sector as the economy falters. They then talk about Henry Kissinger’s peculiar visit with Xi Jinping, and Miles frames the meeting as elder abuse. Finally, the hosts address a recent Russian missile strike, which accidentally damaged the Chinese consulate in Odesa, and China’s reaction.
Follow the China Center's work at: https://www.hudson.org/china-center
Miles Yu:
Welcome to China Insider, a podcast from Hudson Institute's China Center.
Shane Leary:
It's Tuesday, July 25th. I'm Shane Leary, program manager of the China Center at Hudson Institute, and I'm sitting down with senior fellow and our center's director Miles Yu. We have three topics for this week. The first are the new efforts from China's National Development Reform Commission to stimulate China's non-state economic sector and attempt to court much needed capital as their economy falters. The second is a historic and peculiar visit from Henry Kissinger to Beijing in which he met personally with Xi Jinping. And the third is the recent accidental damage to the PRCs Consulate in Odessa Ukraine during a Russian missile strike. Miles, how are you?
Miles Yu:
Very good, Shane.
Shane Leary:
Wonderful. So for our first topic, as we've talked about for some time, China's economy has been struggling immensely since Covid and more generally as a result of the unpredictable and unsafe business environment the Chinese Communist Party has cultivated through its own policy. It seems like they're trying to correct that, now with the party unveiling new measures to revitalize China's private sector, these are coming out of the National Development and Reform Commission. Among dozens of new policies they claim this will include strengthening protection rights and incentivizing and opening up investment in key industries. After announcing this, a rare symposium occurred in Beijing with more than 30 global venture capital and private equity firms, including executives from Blackstone and the Carlisle Group, among others being courted in an attempt to bring capital into the country. Miles, what do you make of this? Could you tell us about these new measures and the role of the National Development Reform Commission?
Miles Yu:
First of all, private sector, this is a misnomer in China. There's no constitutionally guaranteed private ownership of property. I prefer the phrase non-state sector. Having said that, for nearly three years, Xi Jinping has been on overdrive to cracking down on the non-state sector In China, the non-state sector actually has been the primary drive of China's economic growth. Almost a hundred percent of China's economic growth in the last several decades has come from this non-state sector, which supports the parasitic state-owned enterprise and a huge state bureaucracy. So right now, because of COVID national lockdowns, millions of business are closed. So the Chinese Communist Party began to panic because that caused a huge unemployment population in China, which basically is a time bound on top of that, China has been substantially reduced its share of global trade volume. So that basically caused even bigger problem for China, not only in terms of revenue generation, but also caused a lot of unemployment as well, because many foreign companies were leaving China right now.
So that's why last week the Chinese government in a very desperate move issued something called a 31 notices or 31 new policies trying to assure the confidence of the non-state sectors to urge them to open up business again, to urge them to start hiring again. This is all very, very futile because the same day, the 31 notices were issued the stock market tanked both in Hong Kong and the Chinese stock market exchanges inside the country. So most people do not have confidence in China's new promises as well because it is all about investment confidence and also confidence comes with the credibility of the party. The party has very little credibility left.
Shane Leary:
It sounds like from what you're saying, there are sort of structurally within the People's Republic of China, barring fundamental changes, we're not going to see a move towards economic liberalization, but they might be trying to do that in the short term to save their economy. What do you say to people who would say that this is evidence of economic liberalization in China and that this is maybe an indication that they're not really buying the ideology they're selling and we shouldn't think of them as sincerely communist?
Miles Yu:
The Chinese Communist Party drives domestic policies, particularly economic policies. Right now there is unprecedented centralization of the economic decision making power, not through the State Council, but in the Chinese Communist Party Central Committee. So Xi Jinping runs all the economic policies in China, and that really does not really increase constant confidence. It's not just unemployment, it is just the people in China just give up trying even to find a good job. So on July 17th, the Chinese government issued the official unemployment data in June, China's youth 16 to 24, their unemployment rate officially is 21.3%. That is very, very high, but that definitely is actually a watered down estimate. The same day when the Chinese National Statistic Bureau issued that 21.3% unemployment number, there's a professor, economics professor from Beijing University, Professor Zhang published an article, and according to this professor's estimate in March of this year, China's youth unemployment actually could reach 46.5%.
That is much higher than then publicly published the number of 19.7%. So I don't think that has really changed that much because most people just give a trying young people. I mean this is a problem. Another problem that's aggravated the China's economic situation is really China's global share of trade. The US Commerce just published a news data last week. It says in the first five months of 2023, China's export to the United States has dropped by 25% year to year compared to the year before. And that basically accounts for only 13.4% of the US entire import share. This is the 19 year low. Mexico, Canada have surpassed China as number one and number two trading partner. This also means that a lot of unemployment for China, so the economic situation in China is very dire. I don't think China has issued any new policy that would change the institutional structure of China's economy. China is still a non-market economy, is a command economy. So that nature is not changed and I don't see any future of China's economic revival in a very substantial way.
Shane Leary:
Moving on to our next topic. Last week we talked about the March 2023 phone call with Biden and Xi Jinping and your concern that the US is on the verge of remaking what you see as the mistakes of the Nixon administration in our relationship with China. That is seeding fundamental strategic objectives and ideological differences for the sake of cooperation on narrow issues. Now, Henry Kissinger, the architect behind the Nixon Administration's strategy towards China and the historic normalization of US-China relations in 1971 is back in China. Kissinger a hundred years old today as he made this visit, did not take cabinet level meetings as Blinken, Yellen, and Kerry have in the past weeks. Instead, Kissinger met with Xi Jinping himself. This seems to be certainly a historic moment and we've seen some optimism come out of these recent meetings, but especially with this one with some outlets framing this as the red carpet being rolled out for an old friend. I have a couple questions for you regarding this visit, but first let me ask you the most obvious one you've told us before on this show that we have to understand Kissinger as a fixer. What do you expect out of this visit and is there a way in which he can fix the problem of US-China relations as it stands right now?
Miles Yu:
Mr. Kissinger was a great fixer during the Nixon administration. That was more than 50 years ago. Kissinger's trip to China last week was nothing but senior abuse by the Chinese Communist Party. This man is over a hundred years old. He's very frail. China used him as a prop for one purpose only. That is to snub the Biden demonstration, to humiliate the Biden demonstration because when Kissinger was in China being treated with the red carpet and grandiose reception by Xi himself, presidential envoy, UNC climate Kerry was in China. He was basically [left to] languish in oblivion almost. This was a well-designed effort by the Chinese Communist Party to send a message in coordination with this very coordinated Wall Street lobbying campaign. Basically to urge the administration to ease up on China and to basically appease China. You can see this following Henry Kissinger, the former Secretary of Treasury, Hank Paulson thinks along basically the same lines.
And in the meantime, senior executives of seven Silicon Valley tech firms came to Washington DC to lobby for less strict enforcement of export control ban on the PRC. This is a very, very similar tactic that China has been using for decades. That is to exploit the divisiveness of the American society, play one side against another to reach its own goal. By the way, it's not just on the US. Last week, Xi Jinping also did a number on the Philippines because the Filipino government under President Marcos has strengthened his title with the United States, has toughened up its stance on China's unreasonable and ridiculous claim of South China Sea. And Xi Jinping is not very happy with the Filipino government right now. So what he did, he invited former President of Philippines Duterte to China, and treat him with the extravaganza - to send a message to President Marcos in the Philippines right now. It's always the same game and it's always well-coordinated. So and I think people in the know should clear eyes on all this machination.
Shane Leary:
You've just sort of laid out this visit from the Chinese perspective. How do you understand Kissinger's role right now in relation to the White House? Do you believe he's acting in a perfectly private and non-official capacity or was there some coordination there?
Miles Yu:
I don't think there is any substantial coordination. As I say, China treat Henry Kissinger like the lost brother used fund, I mean to humiliated by demonstration. And I've heard some remarks from the White House to express their displeasure. China always does this. I mean, in the past there's always opportunistic Americans who try to establish second channel to upend official policy of the US government. And you can see this in not only the China policy in North Korean policy too. I mean Jimmy Carter, Bill Richardson in the past, they always do something that's very, very detrimental to US sovereign policy and I think that actually is not good for America.
Shane Leary:
So as a last question, what effect do you think this might have on the Biden administration's policy? Last week it sounded like maybe we were starting to begin to see a sort of a shift already in the Biden administration's disposition towards the PRC. Do you think this is going to have a meaningful effect or change the tide in any way?
Miles Yu:
I hope not. I don't think it's going to have a meaningful impact. I mean, the prime time for lobbyists like Mr. Henry Kissinger has long gone. I mean, it didn't work in the last administration. I don't think it has any substantial impact on the current administration as well because there is a bipartisan consensus on the China threat. There is a partisan consensus on the modality through which China conducted its business with the United States. So, which is not really that sanguine, really that good, this idea of resorting to a civilian channel and to resort to some kind of secret diplomacy to change the American's national policy. The time is different now. I mean, there is a much more democratic participation in American’s foreign policy formulation than ever before. So the congress, the NGOs and I might say also say thinktanks, they play a very important role nowadays.
Shane Leary:
For our last topic, I'd like to turn our attention to the war in Ukraine. This past week, Russia accidentally damaged the PRC consulate in Odessa during a missile strike. What has been the reaction inside China to this and how serious do you think this is in terms of potential friction and possibly pushing the boundaries of the so-called “no limits” partnership between Russia and China?
Miles Yu:
China's official stance on war in Ukraine domestically is a hundred percent one-sided. It's pro-Russia and it is pro-Putin. So China uses monopoly on information to funnel a fanatic pro-Russia sentiment domestically. So when the Chinese consulate in Odessa was damaged, there has been sort of a collective silence, it's a muted response to this issue. The only official report was just a factual report by the Chinese foreign ministry spokesperson who said, our consulate in Odessa was impacted by a bombing nearby windows and doors were shatter and that’s it, without any sort of protest or complain or condemnation of this act. This is kind of very embarrassing to a lot of people inside China who are now thinking otherwise. This is also is in sheer contrast to the 1999 accidental bombing of Chinese embassy in Belgrade during the Kosovo War. So the difference is that at the time China used that incident to sort of manufacture a huge anti-American campaign and also differences in this case of the Odessa bombing, the Chinese personnel had been completely evacuated. Nobody stayed there. In the 1999 embassy bombing in Belgrade, in the heat of the war, where missiles and cannons were flying all over the place, the Chinese embassy maintained almost fully staffed. What the heck were they doing there? So this is a very, very interesting contrast. So this kind of reaction by the Chinese government toward the Odessa Consulate bombing reflects China's state policy, which is very pro-Russia, and they're embarrassed, but they don't want to say anything in protest.
Shane Leary:
I think this gives us another opportunity to discuss what is really a complicated relationship that doesn't get enough attention. That is the curious position of Ukraine between Russia and China. Today, we're inclined to think of Russia and China as committed partners, and we're very concerned about the PRC potentially assisting Russia and its war against Ukraine. What sort of falls out of our mind, which you've talked about is that in reality, Russia and China are old enemies and new friends, but Ukraine and China actually do have a longstanding partnership, particularly before the war with Ukraine. Having played an integral role in modernizing the PLA. Is this bizarre strategic triangle between the three countries being strained. I'm just curious, how do you see Ukraine, China relations playing out in the long run as this war continues?
Miles Yu:
I'm all for Ukrainians heroic effort fighting against the unprovoked aggression from Russia, and I think Mr. Zelensky has been an incredible leader, but there is this kind of a very promiscuous legacy of very promiscuous relationship between Kyiv and Beijing that goes back more than 20 years. Ukrainians have been providing China with all kinds of Russian design modern weapon items from aircraft carrier to missile technology to heavy bomber engines and to amphibious landing crafts. So Ukrainians have tried to be opportunistic even today to cultivate the relationship with China. Almost oblivious to the fact that China has decidedly been on site of Moscow and in this incident alone in Odessa bombing, for example, Russia's primary tactical objective is to destroy the poor facilities that would handle the grain export. Russia's bombing of Odessa destroy 60,000 tons of agriculture products that has been intended for shipment to China. So even at this stage, there is a substantial sort of illusions in Kyiv about China's positive role in the region. And I think China has been manipulating this relationship, this is part of the legacy, trying to sort of being opportunistic, try to promise Ukrainians in postwar reconstruction. But again, I think that's just a very foolish policy on part of the Ukraine.
Shane Leary:
Well, Miles, I think that's all the time we have for today. Thank you so much for taking the time to sit down with me and I look forward to speaking to you next week.
Miles Yu:
Okay, see you next week.
Thanks for tuning into this episode of the China Insider, a podcast from the China Center at Hudson Institute. We appreciate Hudson for making this podcast possible follow miles and all of the additional great work we do at www.hudson.org. Please remember to rate and review this podcast and we'll see you next time on the China Insider.