INTRO
Where U.S. distraction and the sense of a closing window of opportunity will clash the most is in Washington’s relations with China. 1 China is often the focus of U.S. domestic politics, particularly during times of economic trouble, and the upcoming election is no different. China’s yuan policy is the most obvious target, but while Washington is unlikely to carry out any action that will fundamentally harm economic ties with Beijing, the political perception of actions could have a more immediate impact.2 As Beijing manages U.S. economic pressures and rhetoric, it also fears that Washington is starting to break free from its conflicts in Iraq and Afghanistan enough to set its sights on the Asia-Pacific region. Like Russia, China is seeking to expand and consolidate its influence globally, especially in its near abroad. In accelerating these actions, it is raising tensions not only with its smaller Southeast Asian neighbors, but also with U.S. allies like Japan and India. Much like the Central Europeans, the Southeast Asian states will be looking to the United States to counterbalance China. 3
At the center remains the United States. Major powers like Russia and China, which have been watching closely the U.S. commitments in Iraq and Afghanistan, once again see their opportunities to expand their influence diminishing — due to not only U.S. actions but also their own domestic political deadlines. In this quarter, Washington will be both preoccupied with the Congressional elections and seeking ways to compromise enough to get out of its long-running wars. The election distraction gives China and Russia a brief opening, and neither is likely to pass up the opportunity to accelerate and consolidate its influence in its near abroad 4
1. “will clash the most is in DC’s relationship with China” implies that tensions/relations will be affected more so this Q with China than any other nation due to the point covered below in #4
Hit.....as of right now. But there is a chance that “Where U.S. distraction and the sense of a closing window of opportunity will clash the most” will actually be Russia as the China relationship has remained manageable and the Russian relationship looks like it might be breaking...and we still have a month left in the quarter.
2. China and its econ policy will be a focus of electioneering US representatives but the WH will do nothing drastic enough to rupture econ ties and the implication is made that rhetoric will be what comes from the WH more than anything else
This is very much a hit, China received the lion's share of attention in domestic/trade/employment issues in the lead up to the mid-terms. - was no rupture, on the contrary, the signs of a continued, slow thaw were there as well as a few smaller, more isolated trade issues concerning dumping and unfair industry subsidisation.
3. South East Asian states will look to the US to balance against growing Chinese assertiveness
Hit. Its important to note these South East Asian states dont have to end their relationships with China, they just have to increase their relationships with the US to balance things out, but increase in US presence does need to be compared to any increases in Chinese presence. Also important to note that this forecast is about South East Asian states reaching out to the US, not the US engaging the South East asian states. Of course it takes two to tango, and so accepting cooperation and other such things are acceptable as balancing behaviour.
We’ve seen countries like RP and Vietnam agreeing with the US on a multilateral approach in dealing with the SCS dispute. Indonesia accepted US visit (that they wanted for months) and Vietnam accepted a visit by a US carrier. We have insight on the philippines that they are worried about China but keep accepting Chinese money. Malaysia joined discussions on the TPP. We have also seen cooperation between SEAsian states and US allies such as VN and Japan on REE and Vietnam and Aussie land on security
Overall, There is balancing behaviour going on but it is mostly countries creating a balance to receive investment from China but security guarantees from the US
Obama made his visit to Indonesia
Insight from confed partners (so, their personal opinions) tell us that some in the Philippines are looking towards China but that is individuals looking for commissions and personal gain. The same insight says that most in the Philippines are pro-US and any drift towards China is in order to encourage the US to be more generous with the RP.
USD5bn private investment in RP from Japan -
China donated a batch of heavy construction kit to RP however the deal was made much earlier and delivery only took place now
President Aquino of the RP backs multilateral solutions to the south china sea dispute saying that multi-lateral discussions should take place and that the Declaration of Conduct on the SCS is a multilateral agreement meaning that China’s insistence that the document means that only conflicting claimants need be concerned is incorrect. This is RP supporting the US view in how the matter should proceed – BBC Mon Kyodo – Philippine president backs regional talks on the south China sea
Vietnam and RP agree on a stricter implementation of the Declaration of parties on the East Sea towards a future code of conduct on the South China Seas. These are the two countries that would be expected to work against China in the region however that it is happening supports the forecast – BBC - - Philippines, Vietnam agree on implementation of Spratley’s code of conduct – Manila Bulletin
Vietnam and RP make continual calls for the release of Ang San Suu Kyi. I’ve also heard Indo ForMin Marty Natalagawa call for the same at CFR forum this Q.
Mid Oct Australia and RP agreed to increase defense coop namely in maritime security and CT – Philippines Australia agree to boost defence cooperation – Philippine Star
Two Chinese companies expand drilling ops in the Central Luzon Basin – Two Chinese oil exploration firms expand presence in Philippines – Philippine Star
Vietnam is building a maritime rescue center on an SCS island – BBC – Vietnam to build maritime rescue center on South China Sea Island – VNA
As of Nov. 15 Indonesia and Vietnam were considering joint maritime patrols of their border regions in the SCS along with other countries that share a border with Indo -
Vietnam inaugurates wind and solar power project in the spratleys – VNA
Vietnam has been looking to increase relations with ROK as they already have sizable two way trade. However this is not at all something new in 2010 let alone Q4
Vietnam is opening Cam Ranh bay to navies of the world for refuel, resup and possibly maintenance and other services and may be having the Russians assist them in the modernization of the port
Japan has been financing VN energy projects and is looking to work together for REE supply -
Russia is working with VN on large nuke and hydro energy products -
India will assit Vietnam in building up, maintaining and training its military in an obvious balance against China -
Malaysia joins talks on the Trans Pacific Partnership -
Malaysian govt encourages private firms in to JVs with China –
Indonesia offers investment opportunities to China -
4. China will look to increase and consolidate influence in the region whilst the US is in its final throes in the ME/SA
Hit. China’s pace does not has to increase, e.g. it doesnt have to be a change from last quarter. It can be looking to increase its influence in both quarters with the same effort and this would be correct. It just says is trying to increase influence in general, which it was doing last quarter and it is doing this quarter. Just the overall amount of influence has to increase...and we have definitely seend that.
GLOBAL TRENDS
Friction will continue between China and the United States over economic policies, Washington’s strengthening ties with allies and partners in the Asia-Pacific region and Beijing’s increasing assertiveness in its periphery.1 However, the two countries will prevent their relationship from fundamentally breaking down this quarter. Washington will threaten to take actions on the yuan, either with its own tools (such as a U.S. Treasury Department report on currency manipulation) or through international channels (such as the International Monetary Fund or the World Trade Organization), but will refrain from doing anything against the yuan that has a direct, immediate and tangible effect on trade in the fourth quarter. Instead it will reserve concrete retaliatory action for disputes on specific goods on a case-by-case basis.2
1 Friction between the US and China will continue over the economy, US relations with nations in East Asia/Pacific and Beijing’s assertiveness but there will be no break
perfect hit, a lot of this was covered above with Webb’s letter, the unrest in Congress and the Senate in the lead up to the Mid-Terms and the smaller trade disputes that resulted in tariffs/duties. There was also the US support for Japan regarding the East China Sea saying that Senkakus falls under the mutual defense treaty being that Japan currently occupies the island. China has complained about the US mapping the sea bed in territory that China claims as its EEZ along with the GW carrier heading to the Yellow Sea for the current exercises. Whilst it may not be a symptom of the dynamic this quarter but there was also the US support for India’s permanent seat at the UNSC.
However the relations have not at all broken. The trip for Hu is still being planned for January, there are comments for increased military dialogue and the US has so far refrained from citing China as a currency manipulator and other actions that may not have immediate consequences but still signal a more aggressive stance from the US.
2 US will threaten action on the Yuan exchange rate but will refrain from actually doing real damage and will instead carry out smaller, itemized actions on trade issues
Perfect hit, can dig up all the cases that have taken place this Q along with the comments from Geithner et al (again) if required to support.
Geithner says that even though China holds its currency down there will be no currency war in mid Oct -
Geithner says that Yuan undervalued and creates an unlevel playing field for international trade -
GLOBAL ECONOMY
Although Washington appears more ready to take measures against China regarding the yuan, in this quarter it will not carry out measures that do anything much more than require additional talks, at least in the near term. Should the White House suddenly feel pressured to take more concrete action that fundamentally affects trade, the system could come unhinged quickly. While that is highly unlikely at the moment, there is growing pressure inside Washington for more substantial action against China.
Hit: There was a good amount of discussion of the yuan currency imbalance at the G20 and between Chinese and US officials, as well as meetings between Chinese and US officials during the quarter. No concrete action (that wouldn't requre additional talks) was decided upon in the quarter.
The US admitted that the yuan issue would not be solved at the G20 summit, saying that unilateral actions could undermine G20 growth.
US steel manufacturers have urged the US Senate to pass a proposed law countering the yuan undervaluation.
The US released a congressional report on China, which was not well-received.
Geithner met with Wang Qishan in Qingdao Oct. 26.
Clinton met with Dai Bingguo during her EastAsia tour.
Obama met with Hu Jintao during the G20 summit and discussed the yuan imbalance
Geithner met with Zhou Xiaochuan during the G20 summit.
Regional Trend: China’s Assertive Foreign Policy
China will continue showing a strong sense of purpose in pursuing its influence in its periphery. These issues include China’s relations with Japan, in which tensions that recently spiked will be containable but not eradicable this quarter, and Beijing’s attempts to tighten bonds and undermine U.S. overtures in Southeast Asia1. China will also continuebuilding its relationship with Pakistan and make inroads into other South Asian states, such as Nepal2. China’s expanding regional influence is generating resistance among China’s neighbors, especially Japan and India. The fourth quarter will see the beginnings of greater coordination between those neighbors, and with the United States, on this issue3.
1 China will continue its assertiveness in the region on issues of sovereignty and undermining US relations in SEA
This is a hit, China allowed the Senkaku island issue to drag on longer than it needed to with the protests, diplomatic accusations and the withholding of REEs to Japan that only recommenced last week. There were also the financing deals and donations of military equipment made to Indonesia and Philippines as mentioned above along with visits and loans given to Cambodia, to name only a few instances.
2 China will continue to expand its influence in South Asia
China has continued building of the Karakorum highway in Pakistan and only until last week continued to staple pages with visas in to China for people from the disputed region of Indian controlled Kashmir. More importantly it was announced around the time of Obama’s trip to India that China has agreed to build a 5th reactor in Pakistan, Wen’s proposed trip to Pak in Dec. the study for a gas pipeline from gwadar Port to Xinjinag, the insight we have that says that Gwadar will be taken from the Singaporeans and given to the Chinese, etc. There is no doubt that this is a hit -
China has made continual visits and comments regarding the political situation in Nepal over the Q:
Prachanda to China -
Nepal military delegation to China -
China also supported the recent “elections” in Myanmar and (quetley) continued to expand relations with Sri Lanka with purchases of bonds, pledges for the funding and construction of infrastructure - - China pledges to fund more development projects in Sri Lanka – report – BBC Monitor
3 China’s assertive behaviour in the region will create balancing responses among its neighbours and the US
Perfect hit, we have two articles on the site about Japan and India increasing ties (Japanese support for Indian nuke power, the Comprehensive partnership agreement, etc. and Japan and the US increasing ties - (Japan and the US plan meetings over Dec and the new year in order to form a new strategic concept that will largely focus on China’s assertiveness in East Asia - and of course Obama’s visit to India and the US support for a permanent Indian seat at the UNSC -
There are also the current exercises and the deployment of the GW to the Yellow Sea as the US balances against China to create action on DPRK and to also display strength in the region for the benefit of those watching on in Japan, Taiwan, ASEAN, India, Pakistan, etc. -
Regional Trend: China’s Domestic Economy
China will announce economic plans that target slightly slower growth rates in the coming years, based on its expectations of global conditions and desire to continue with structural reforms (in real estate regulation, energy efficiency, regional development and other areas)1. It will also look to its political future, especially thetransition of power in 2012.2 However, Beijing will continue its active fiscal stimulus and relatively loose monetary policies amid concerns of slowing growth too quickly, with the intention of carrying out those structural reforms in a way that will limit the associated negative effects on growth and social stability.3
1 Beijing will announce plans to slow growth in the coming years and restructure key industries
There was a leak made by a named ranking party member to the SCMP about the 5 year plan that repeated this forecast almost word for word -
Overall China has announced a number of things from environmental plans to taxes and monetary policy meant to slow growth over the next 5 years
2 China will look toward the generational change in 2012
I can’t even qualify what that means. Xi Jinping and others have always been globetrotting and increasing their profile since last year. We’ve had some very loose insight saying that Li Keqiang and Hu are attacking Wen, but that was pretty much unsubstantiated from a source who I don’t give too much credit.
Xi was elected to Dep. Chair. of the CMC and the 5 year plan was put in place, that may qualify, I guess.
3 Beijing will continue its active fiscal stimulus and relatively loose monetary policies amid concerns of slowing growth too quickly, with the intention of carrying out those structural reforms in a way that will limit the associated negative effects on growth and social stability.
Hit. it could have mentioned more about inflation concerns...aka Overall Beijing has continued its stimulus and loose monetary policy. It has tightened these up a bit b/c of inflation fears, but the overall policy still relies on stimulus and loose monetary policy b/c growth is a bigger concern than inflation.
Beijing raises reserve ratios -
China issues RMB20bn in E-bonds (interest paid direct in to accounts, individual investor friendly) for sale to individual investors only -
Sept loans @ ~RMB600bn -
Nine key industries such as steel, Cement and propertywill need to apply before they apply for financing -
China raises interest rates -
Deputy for CBRC calls for a slow down in the widening of bank loans for profit as to deposit rates -
Central Committee calls for financial reforms to market interest rate mechanisms, exchange rates and improve forex fund management -
China says that it will move from a moderately loose monetary policy to ‘prudent’ in 2011 -
China raises reserve ratio requirement for banks in early Nov -
Oct loans @ RMB587 -
Four strategic banks stop lending money to property developers -
Rumous in state news paper says that Beijing will limit lending to RMB7tn in 2011 -
China raises reserve ratio requirement as of end Nov -