Economic Implications of China’s 5th Generation Leadership

Posted on Wednesday, November 24, 2010 by Joey Liu

With Vice President Xi Jinping’s recent appointment as Vice-Chairman of China’s powerful Central Military Commission, Hu Jintao’s successor is all but set. Xi now holds all three apprenticeship positions – member of the Politburo Standing Committee, Vice President of the People’s Republic of China, and Vice-Chairman of the CMC - necessary for the transition to China’s paramount leader. As Hu’s protégé, and apparently favored successor, Li Keqiang is lined up to succeed Wen Jiabao as Premier, the fifth-generation is poised to take the reins of political leadership.

While the carefully orchestrated transition process leaves little doubt over the desire for political continuity and harmony, factional differences – between the ‘princelings’ and tuanpai - within the CCP could come to the fore in Xi and Li’s approaches to economic management.

Xi Jinping is considered a member of the ‘princeling’ faction, so-named because its members have ties to some of China’s most politically powerful families (Xi is the son of a former Politburo member). This elitist group is perceived to represent the interests of entrepreneurs and the middle class, and the needs of coastal business communities. Xi was credited with promoting pro-market reforms and attracting Taiwanese investment into the private sector during his tenure in Fujian province. Unsurprisingly, his priorities include increasing economic efficiency, maintaining GDP growth, and deepening China’s integration into the world economy.

Li Keqiang, on the other hand, is a tuanpai, named after the Chinese Communist Youth League through which its members advanced their careers. These populist leaders, usually of humble origins, are seen as more concerned with protecting the interests of the inland region and addressing the plight of vulnerable social groups. Like Hu, Li stresses the importance of building a “harmonious society” and is a staunch advocate of helping the unemployed, providing low-income housing, and accelerating healthcare reforms.

How then will this princeling-tuanpai pair steer China’s economic development? How the two factions will affect such a transformation and at what pace could be part of the fifth generation’s growing pains.

Nevertheless, the general consensus among China-scholars is that the new leaders will compromise and adopt a moderate socio-economic approach, incorporating Hu’s social-welfare economic policies with some of Jiang Zemin’s growth-centered policies. This policy orientation is illustrated in Xi’s recent speech at the 2nd World Investment Forum, where he appealed to Chinese enterprises to “go global” and encouraged more foreign investment in high-end manufacturing industries, as well as labor-intensive industries in the central and western regions of China. Furthermore, China’s new 12th Five-Year Plan aims for the twin goals of maintaining relatively fast economic growth and enhancing balanced regional development. Set for the 2011-2015 period, the plan will span the critical upcoming leadership transition and will likely serve as the guidelines for the fifth generation leadership, despite their factional differences.

Photo: Xi Jinping (L) and Li Keqiang (R)

Under the Radar News 11.24.10

Posted on by Amy Chang

A weekly compilation of underreported events in Asia

  • South Korea deploys more artillery on the border island hit by North Korean shelling attack, and the U.S. will send U.S.S. George Washington aircraft carrier to South Korea for military exercises, signaling an increased American presence in the region to ensure stability.

  • As Vietnam’s inflation soars, its prime minister admitting to government failures, including the bankruptcy of the state-run shipping company Vinashin.

  • The U.S. seeks to expand security cooperation with Central Asian states, but challenges—human rights issues, foreign access to local markets, and terrorism—remain.

  • Russia considers selling its newest fighter jet, the SU-35, to China. The sale would signify another step in China’s broad and deep effort to modernize its military.

  • India is preparing two army divisions of more than 36,000 troops for deployment along a disputed northern border with China near Tibet. The divisions are to defend against a possible Chinese attack on India's state of Arunachal Pradesh.

  • China invests in Southeast Asian infrastructure, including high-speed rail lines with Thailand and Malaysia, development of roads, bridges, dams, and railway links in Cambodia, and projects in energy and architecture in Indonesia.

  • South Korean and Japanese defense chiefs to discuss military strategies and security cooperation.

  • Due to the lower cost of living, Taiwan’s standard of living has surpassed that of Japan’s.

  • Swedish aerospace and defense company Saab AB seals a US$320 million deal to deliver six more Gripen fighter jets to Thailand.

  • In addition to sending troops to Yonaguni in response to spats with the Chinese navy, Japan also considers expanding maritime presence at the islands of Miyako and Ishigaki.

  • China and Angola further strategic partnership with pledges of economic and trade cooperation as well as cultural and educational exchanges.

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    Under the Radar News 11.19.10

    Posted on Friday, November 19, 2010 by Amy Chang

    A weekly compilation of underreported events in Asia

  • Chinese Vice President Xi Jinping visits countries in Africa to shore up Chinese resource deals and pledge continued investment in the contintent. During his visit, China and South Africa signed a series of trade agreements on resources and minerals.

  • Pakistan confirmed that it plans to arm its JF-17 fighter aircraft (jointly manufactured with China) with Chinese-made missile and radar systems. It will also evaluate several Chinese surface-to-air missile systems for acquisition

  • Analysts believe North Korea may be preparing to conduct for another nuclear test and to build a light-water nuclear reactor. These actions are speculated to grab international attention and provide pressure in negotiations.

  • China Steel, Taiwan's largest steel producer, plans to team up with China's Baosteel to invest in iron ore mines abroad.

  • Kashgar, a Chinese city close to Pakistan, Afghanistan, and Central Asia, will be turned into special economic zone, emulating the Shenzhen model for economic development.

  • China vowed to "positively explore" new ways for low-carbon development in order to effectively control greenhouse gas emission and contribute to the global sustainable development.

  • India, Russia, and China signed a trilateral statement on cooperation in the fields of energy, high-tech sectors, innovation and modernization, aerospace, cultural exchanges, and health care and medicine. It also emphasized the necessity to step up efforts aimed at tackling terrorism and prosecuting terrorists and their supporters.

  • Malaysia strengthens bilateral ties with India with multiple trade agreements. Malaysia will also facilitate entry of Indian entrepreneurs into Southeast Asia and act as India's gateway into ASEAN.

  • With an investment of US$1.2 billion, China begins damming the Yarlung Zangbo (Brahmaputra) river for a hydropower station with a total installed capacity of 51 megawatts and anticipated to be in operation by 2014.

  • India allocated over US$400 million to boost missile and avionics defense research in Hyderabad.

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    Under the Radar News 11.12.10

    Posted on Friday, November 12, 2010 by Amy Chang

    A weekly compilation of underreported events in Asia

  • A U.N. report reveals that despite UN sanctions, North Korea has annually exported around US$100 million worth of conventional weapons and nuclear weapons technology to Burma, Iran and Syria.

  • Japan, in an effort to update its fighter jet fleet, eyes the F-35 stealth jet as the next addition to the Air Self-Defense Force.

  • The $4.1 billion Indo-U.S. defense deal for 10 C-17 Globemaster-III giant strategic airlift aircraft is set to expand even further, adding another 6 to the order. The deal is aimed, in part, to amplify Indian power projection in the region.

  • Tokyo will send around 100 soldiers to a remote Japanese island, Yonaguni, in the East China Sea amid growing anxiety over China's naval activities.

  • Myanmar state media reports that the junta-backed Union Solidarity and Development Party has a substantial lead over opposition parties, winning over 80 percent of total seats.

  • President Ma vows to avoid an arms race with China and will seek a balance of military power across the Taiwan Strait through soft power and asymmetric military development.

  • South Korea may drop its demand that North Korea apologize for sinking the Cheonan warship if long-stalled six-party nuclear disarmament talks can resume.

  • Malaysia’s Ministry of Science, Technology and Innovation will boost investment in cyber security to address the rising prominence of cyber attacks and establish a comprehensive program and responsibilities for mitigation.

  • A landmark meeting in Laos on cluster munitions has set targets to destroy stockpiles of the weapons, clean up areas contaminated with unexploded ordnance, and help victims of the bombs. Laos, Vietnam and Cambodia are among the most countries most affected by unexploded bombs.

  • The role of U.S. and NATO troops in training Afghanistan’s police force is the key to a stable future in the country.

  • India and Malaysia are keen to commence collaborative defense projects and enhance cooperation in counterterrorism and maritime security through means such as information-sharing and bilateral Joint Working Groups.

  • Japan’s Trade Minister Akihiro Ohata and U.S. Secretary of Commerce Gary Locke agreed to diversify rare earth supply to avoid an overreliance on China’s exports.

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    China’s Secret Co-orbital Satellites: The Quiet Surge in Space

    Posted on Tuesday, November 9, 2010 by Ian Easton

    The emergence of space as a strategic frontier in the Asia-Pacific has raised concerns that China’s nascent space capabilities could be employed in future military operations. Beijing’s rapid progress in space has been marked by milestones such as manned space flights, anti-satellite (ASAT) missile tests, and a significant increase in its co-orbital satellite activities. The latter involves small satellites that orbit in constellations and is a crucial component of China’s dual-use satellite program and military modernization.

    The first (and perhaps most strategically significant) of the co-orbital satellite constellations to form this year was launched in March. Unlike previous electro-optical and radar imagery satellites deployed in the series, the Yaogan-9 launch positioned three satellites orbiting in a highly choreographed triangular formation, suggesting that China had deployed a dedicated Naval Ocean Surveillance Satellite system to bolster its burgeoning anti-ship ballistic missile (ASBM) program. Space-based surveillance and cueing capabilities represent an essential (and previously underdeveloped) element of the ASBM program.

    The next (and by far the most controversial) co-orbital development came in August, when China’s Shijian-12 (SJ-12) satellite conducted a series of sophisticated maneuvers to rendezvous with a suspected electronic intelligence (ELINT) satellite, the Shijian-6F. The reported bumping of the SJ-12 and the SJ-6F satellites (and the continuing Chinese silence on the mission) fueled speculations that Beijing was engaged in yet another anti-satellite weapons test.

    More recently, the September launch of the three-satellite Yaogan-11 constellation and the October launch of the two-satellite Shi Jian-6 Group-04 constellation have expanded China’s co-orbital portfolio. According to reports, the Yaogan-11 is a radar imagery satellite, with all-weather, day/night capability, that can play a role in tracking carrier strike groups. Likewise, the Shi Jian-6 Group-04 satellites were reported to be intended for an electronic intelligence role, also perhaps as part of the China’s ASBM program.

    Despite the shroud of secrecy surrounding China’s military space missions, the personnel crossover in its satellite development program is a key indicator of intentions. It is known that elements of the China Aerospace Science and Technology Corporation’s Fifth Academy (China Academy of Space Technology) and Eighth Academy (Shanghai Academy of Space Technology) took the lead in building all four satellite constellations. Furthermore, the director and chief designer of the Yaogan-9 satellites, Li Yandong [李延东], was deeply involved in the Shi Jian-06 Group-04 mission, and has experience with ocean monitoring satellite programs.

    Ultimately, it appears that these co-orbital programs, when viewed in the context of their underlying military missions, have worrisome security implications for both the space and the maritime segments of the global commons in the coming years.

    Image: Notional Chinese satellite rendezvous
    Source: Wired

    Under the Radar News 11.05.10

    Posted on Friday, November 5, 2010 by Amy Chang

    A weekly compilation of underreported events in Asia

  • Burma was hit by massive cyberattack ahead of the November 7 election, raising fears of a communications blackout. Experts hypothesize a range of motives, including government censorship, extortion, and political motivation.

  • Commerce Secretary Gary Locke confirms that the U.S. will lift high-tech nuclear sanctions against India, allowing the resumption of sales of sensitive equipment to India.

  • Taiwan arrests two Taiwanese men allegedly working for China, adding to the list of growing espionage cases in Taiwan and suggesting that China has infiltrated Taiwan’s Military Intelligence Bureau (MIB).

  • Taiwan has so far spent $97 million developing the “Wan Chien” or “Ten Thousand Sword” missile system that targets Chinese airfields, harbors, and missile and radar bases across the Strait.

  • Japan’s Defense Ministry plans on relaxing its self-imposed arms exports ban in an effort to reduce the cost of procuring state-of-the-art defense equipment and enhance Japan's contribution to international peace and humanitarian activities.

  • China and Vietnam officially launched the Dongxing Trade Zone on November 1, their largest trade zone yet. It is expected to generate over $2 billion RMB in investments.

  • Korea plans to build offshore wind farms capable of producing the same amount of electricity as two nuclear plants by 2019.

  • The joint Japan-U.S. Aegis Ballistic Missile Defense (BMD) intercept flight test on October 29 was completed successfully.

  • Chinese engineers have designed a cross-straits bridge to Taiwan, and are waiting for official approval to start construction.

  • A U.S.-backed Pacific Free Trade Agreement at APEC summit in Japan on November 13 and 14 is considered a pathway to regional free-trade.

  • China seeks foreign input on key issues for next Five-Year Plan, including thoughts on encouraging domestic consumption and increasing the pace of urbanization.

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    Urban mining: recycling Japan’s rare earth metals

    Posted on Tuesday, November 2, 2010 by Tiffany Ma

    China’s recent de facto embargo on rare earth metals has prompted Japan to accelerate and expand efforts to reduce its dependence on China as its primary supplier. In addition to developing alternative technology and diversifying rare earth sources, the government and businesses are looking at recycling as a domestic measure to improve the country’s rare earths outlook.

    In 2009, Japan’s Ministry for Economy, Trade and Investment already emphasized recycling as one of the four key pillars for securing rare metals. Last month, the Japanese Cabinet allocated 100 billion yen (US$1.25 billion) in the supplementary budget for a rare earths strategy. Almost half the package, 42 billion yen, was earmarked for recycling initiatives; presumably as part of the broader effort to establish Japan as a global center for rare earth recycling.

    Significant reserves of rare earths currently reside in Japan’s ‘urban mines,’ or discarded consumer electronics. It has been estimated that these used electronics could yield up to 300,000 tons of rare earths, holding great potential to offset a considerable fraction of Japan’s imports, approximately 35,000 tons in 2008. Recycling can take advantage of Japan’s high electronics density, especially as components often outlive the actual appliance’s relatively short lifespan (cell phones are used for an average of 2.6 years in Japan). Disused cell phones, LCD television and computers contain valuable rare earths, such as neodymium, which are in high demand, especially for hybrid vehicles. For example, each Toyota Prius requires approximately 2.2 pounds of neodymium.

    To harness the potential of urban mines, manufacturers are seeking to reintegrate used products and their components into the production cycle. Japanese electronics giants, including Mitsubishi and Hitachi, are stepping up efforts to improve the viability of rare earth recycling. A more comprehensive recycling system can be incentivized by addressing concerns over private data that have slowed cell phone recycling rates in recent years. Technological advancements can also improve the recycling process, especially for separating rare earths, and increase recovery rates, which currently stand at 150g of rare earth metals per ton of material for a leading Japanese recycler.

    While China announced further cuts to its rare earth exports in 2011, recycling initiatives currently underway will likely lag behind the anticipated short term supply crunch. However, there are strong environmental and economic rationales for recycling rare metals in addition to long term strategic benefits. Recycling efforts can facilitate both processing of e-waste, thereby addressing a mounting environmental concern, and recovery of other significant metal reserves, including gold and tantalum, that are also languishing in Japan’s urban mines.

    Image: discarded cell phones are part of Japan's 'urban mines' of rare earth metals.

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