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EU’s New Strategy on ‘Critical Raw Materials’

As the Wuhan pneumonia epidemic has highlighted the global dependence on electronic products and technologies required for remote work and teaching, the European Union (EU) has become worried that, in the production of smartphones and related products, it will increasingly have to rely on raw materials that other countries supply. The EU recently proposed a new strategy to reduce its dependence on China, Chile, South Africa and other countries through the establishment of the “European Raw Materials Alliance.”

On September 4, 2020, Vice President of the European Commission Maros Sefcovic pointed out that 75 to 100 percent of the majority of the metals that the EU uses come from countries outside of the European Union, and China provides 98 percent of its rare earth supply. The EU realized that it is necessary to reduce risks in the supply of critical raw materials during the era of green and digital transformation. Critical raw materials have increased from 27 in 2017 to 30 in 2020. The reason for the EU to regard these materials as “critical” is mainly that there is either an insufficient supply or the concentration lies in a handful of suppliers.

In addition, Turkey supplies 98 percent of the borate that the EU consumes; 68 percent of the cobalt comes from the Democratic Republic of the Congo. Chile supplies 78 percent of lithium, and South Africa supplies 71 percent of the platinum.

“We have to change our approach drastically,” said Sefcovic. He added, “We are largely dependent on unsustainable raw materials from countries with much lower environmental and social standards, less freedom and poor, unsustainable economies.”

By 2050, the EU will need around 60 times more lithium, essential for e-mobility, and 15 times more cobalt, which is used in electric car batteries. Therefore, the EU must accelerate its independence in the supply of raw materials. “We need to make better use of the resources within the European Union, where we would apply the highest environmental and social standards,” Sefcovic said.

The EU’s new strategy is to establish the “European Raw Materials Alliance,” consisting of industry stake holders, investors, the European Investment Bank, and member states to ensure the supply chain of mineral raw materials. Supply diversification also requires partnerships. Starting next year, the European Commission hopes to start partnerships with Canada, Australia, and interested African countries.

Source: Radio Free Asia, September 4, 2020
https://www.rfa.org/mandarin/yataibaodao/junshiwaijiao/cl-09042020125542.html

Briefings | | |   Geo-Strategic Trend

China Agreed to Restructure Low Income Countries’ Debts

China has recently reached agreements with a number of low-income countries that applied for debt restructuring to assist these countries in fighting the epidemic. Analyses show that China holds the large debts of many low-income countries. Therefore, this agreement is significant.

The Financial Times reported that China’s Ministry of Foreign Affairs stated that China has reached an agreement with half of the 20 low-income countries that have requested debt restructuring. The Debt Service Suspension Initiative (DSSI) of G20 countries leads the negotiation framework for this agreement.

The DSSI was launched in April this year to help some low-income countries to focus on responding to the health and economic crisis that the COVID-19 epidemic caused. Eligible countries can freeze the repayment of bilateral loans until the end of this year. This is the first time that China has participated in a multilateral debt relief initiative. The agreement between China and Angola is critical.

In the past 20 years, among the African countries, Angola has been the largest recipient of loans from China, receiving about one third of China’s total loans to the continent. According to data from the World Bank, Angola’s loan payable of approximately US$2.6 billion may be suspended in 2020, accounting for 3.1 percent of the country’s gross domestic product (GDP). The Central Bank of Angola said that the country’s total outstanding external government debt approximates US$49 billion, of which China is owed 45 percent.

As the COVID-19 disease has caused severe damage to developing countries, more countries may request debt restructuring in the future. Redd Intelligence’s senior analyst Mark Bohlund said that, under the DSSI framework, “much of the burden falls primarily on China.”

Analysts pointed out that tracking the progress of DSSI negotiations in the past has not been easy. In particular, it is because China provides a large proportion of the loans and often does not fully disclose information. At present, China’s state-owned export credit agency, the Export-Import Bank of China, has issued most of China’s loans, but some also come from the state-owned China Development Bank.

Source: Central News Agency, September 2, 2020
https://www.cna.com.tw/news/acn/202009020167.aspx

Briefings | | |   Economy/Resources Geo-Strategic Trend

Scholars’ View on China’s “Domestic Circulation” Strategy

Recently, at the semi-annual meeting of the Chinese Communist Party’s (CCP) Politburo, General Secretary Xi Jinping proposed a new economic strategy in response to the deteriorating relationship with the U.S. and the slowdown of the global economy. The “dual circulation” strategy aims to replace the prevailing one driven by exports and infrastructure investment with one led by domestic consumption, or “domestic circulation.” He Jiangbing, a Chinese financial expert told the Taiwan based Central News Agency that the truth is, “People don’t have money.” This is the basis for China to implement “domestic circulation.” It is because they cannot afford the expensive imports.

According to the calculations of the Income Distribution Research Institute of Beijing Normal University, 964 million Chinese people earn a monthly income below 2,000 yuan (US$ 292.50); 364 million earn a monthly income between 2,000 (US$ 292.50) and 5,000 yuan (US$ 731.10); and only 72 million people, or 5.13 percent of the total population, have a monthly income of more than 5,000 yuan (US$ 731.10). Data from China’s National Bureau of Statistics (NBS) also shows that 40 percent of the households, a population of 610 million, make about 1,000 yuan (US$ 146.20) a month on average.

He pointed to three issues related to “domestic circulation.” The first is the widening food shortage; the second is advanced technology that depends on advanced economies such as the United States, especially the annual import of over US$ 300 billion worth of chips; the third is the energy sources such as oil and natural gas that rely on imports.

Liu Kaiming, director of the Shenzhen based nongovernmental organization, the Institute of Contemporary Observation organization, believes that it is difficult for export oriented companies to switch to domestic sales. Generally speaking, “China’s total production capacity exceeds the domestic demand by about one-third.” Without external demand, “one third of those companies will go bankrupt.” China’s total exports last year were about 17 trillion yuan (US$2.5 trillion). Even a drop of 1 percent, or 170 billion yuan (US$25 billion), is enormous. The gap must be filled by the corresponding domestic market.

Liu added that China’s manufacturing industry consists of two parts: the domestic market and the foreign market including Hong Kong, the U.S. and Europe. The products made for the former domestic market are of lower quality, while those made for the latter have a higher quality and technology, and employees are paid better. If the government promotes “domestic circulation” as the main driver of the economy, because the income of Chinese people is generally low, firms will have to lower the quality and resort to price competition. “The domestic circulation cannot drive and improve the quality of products made in China.”

Liu believes the major problem for the Chinese people is “no money.” To reduce its dependence on exports, China has to increase domestic consumption.

Source: Central News Agency, September 1, 2020
https://www.cna.com.tw/news/acn/202009010223.aspx

Briefings | | |   Economy/Resources

China’s Banking Industry: Non-performing Debt to Surge as Preferential Policies Expire

The profitability of China’s banking industry has severely deteriorated as a result of the ongoing epidemic. Each and every of the five state banks has recorded double-digit negative first-half net profit growth. According to Reuters, increasing the provisions for bad debts and more speedily disposing of them are the banks’ main measures for dealing with the slowing economy and the impact of the virus.

Liao Lin, vice president and chief risk officer of the Industrial and Commercial Bank of China (ICBC), talked about the mounting pressure of controlling the quality of the collateral for deferred loan repayments in the second half. Jin Yanmin, the chief risk officer of China Construction Bank (CCB), expressed that the expiration of relevant preferential policies that help companies to recover may affect the appraised value of the customers’ assets. In the first half of next year, more non-performing debts may surface. Zhang Qingsong, President of the Agricultural Bank of China (ABC), mentioned two sectors with greater uncertainty in the mortgage assets: one is the businesses that the epidemic directly impacts, such as catering, accommodation, tourism, and entertainment; the other is those with a high degree of external dependence and high risks due to external uncertainty, such as export-oriented low-end manufacturing.

The interim results of the five major banks showed that their non-performing loan ratios are slightly on the rise, ending a three-year downward trend. Among them, the Bank of Communications (BC) shows the largest climb at 21BP (basis point), followed by ICBC and CCB, both at 7BP. Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission (CBIRC), the state regulator of the banking industry, recently stated that the banking industry is expected to dispose of 3.4 trillion yuan (US$ 500 billion) of overdue loans this year, compared to 2.3 trillion yuan (US$ 340 billion) last year.

Source: Central News Agency, September 1, 2020
https://www.cna.com.tw/news/acn/202009010113.aspx

Briefings | | |   Economy/Resources

China’s Central Bank’s Digital Currency Enables Cross-Border Payments without Settlement Risk

A Chinese scholar recently told Russia’s Sputnik News that China’s central bank’s digital currency (CBDC) can achieve cross-border payments without settlement risk.

Due to the Chinese government’s promotion and rapid development of related technologies, China may become the first country in the world to issue legal digital currency. The Ministry of Commerce recently announced that it will carry out digital RMB pilot programs in the Beijing-Tianjin-Hebei region, the Yangtze River Delta, the Guangdong-Hong Kong-Macao Greater Bay Area, and the central and western regions where conditions permit. The People’s Bank of China (PBOC) will formulate a set of policy support measures.

Regarding the cross-border circulation of digital currency, Liu Yihua, a researcher with the Taihe Institute, a government affiliated think tank, said that traditional currency cross-border circulation is mainly reflected in international trade settlement under the current account, in international investment and financing under the capital account, and in international reserves. This is usually done by domestic and overseas banks through the international CLS FX clearing system. Although this model meets the needs of cross-border payments, it lengthens the cross-border payment chain. At the same time, cross-border transactions under this model are highly dependent on bank accounts. Taking RMB cross-border payment as an example, overseas banks need to connect to domestic correspondent banks, clearing banks, domestic fund custodian banks and other institutions to conduct RMB business. Overseas residents and overseas institutions need to open RMB deposit accounts to complete RMB cross-border payments.

Liu said that the central bank digital currency (CBDC) issued by the PBOC belongs to the monetary base (M0), which is the central bank’s direct liability to the public (including overseas residents and institutions). The public owns and uses CBDC by opening a CBDC electronic wallet. In this process, the public directly establishes a creditor-debt relationship with the central bank. For the central bank, domestic and overseas (including offshore) CBDC wallets make no difference; for the public, any two CBDC wallets can initiate peer-to-peer transactions, and there is no difference between domestic and overseas (including offshore). For operators of CBDC electronic wallets such as commercial banks, they only perform management functions, and the CBDC in the electronic wallet does not enter their balance sheet. In CBDC transactions, the flow of funds only involves both parties to the transaction. Because CBDC uses a loosely coupled account model (transfers can be realized without a bank account, and the transaction is settlement) to complete the transaction, compared with traditional cross-border payments, CBDC can realize cross-border payment with almost no settlement risk.

Liu pointed out that, for foreign residents and institutions to participate in CBDC cross-border payments, they only need to open a CBDC wallet. As the requirements for opening a CBDC wallet are much lower than opening bank accounts (especially offshore bank accounts), it is beneficial for overseas residents and institutions to own and use CBDC.

Source: Sputnik News, August 27, 2020
http://sputniknews.cn/china/202008271032040233/

Briefings | | |   Economy/Resources

Cypress Papers: China’s Riches Quietly Emigrate Overseas

Al Jazeera’s Investigative Unit has obtained copies of documents that were leaked and which reveal that Cyprus, an EU country, approved 1,400 “golden passports” between 2017 and 2019, among which more than 500 were issued to Chinese. The project started in 2013, when Cyprus launched a “Cyprus Investment Plan.” According to this plan, through the purchase of real estate and other forms of investment in the local area amounting to at least 2.15 million euros, a foreigner could apply for a so-called “golden passport.” A Cyprus passport brings benefits including no requirement of a local residence and the freedom to live and work in the other 26 EU countries.

Al Jazeera discovered that most of the people who obtained the “golden passports” were Russians, Chinese, and Ukrainians. By selling citizenship, the Cyprus government received 7 billion euros in revenue within two years, a good boost for a sluggish economy.

Among about 500 naturalized people from China, Al Jazeera released the information on eight individuals, including Yang Huiyan, a property developer and the majority shareholder of Country Garden Holdings. In 2007, her father, Yang Guoqiang largely transferred the stake to her. She is the richest woman in Asia. It is legal for a Chinese to apply for a passport or permanent resident status of another country, but China does not recognize dual citizenship. In theory, after Yang Huiyan obtained the Cyprus passport on October 23, 2018, she could not continue to remain Chinese as her nationality.

The Chinese who have acquired Cyprus citizenship include a few representatives of the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC) in provincial and city governments. Lu Wenbin, a representative of the Chengdu Municipal People’s Congress, obtained a Cypress passport in July 2019. Chen Anlin, a member of the CPPCC in Huangpi District, Wuhan City, became a Cypress citizen in July 2018. Fu Zhengjun, a former member of the CPPCC in Jinhua city of Zhejiang Province, was naturalized in November 2017. Zhao Zhenpeng, a member of the CPPCC of Binzhou City, Shandong Province, received a Cyprus passport in February 2019. The South China Morning Post pointed out that once these people are found to have foreign citizenship, they will be disqualified as representatives of the NPC or the CPPCC.

According to the South China Morning Post, people holding important positions in state-owned enterprises are not allowed to have foreign passports. Tang Yong, executive director and president of the state giant China Resources Power, is on the list that Al Jazeera disclosed. Tang obtained a Cyprus passport in January 2019. Then in December, he was transferred to China Resources Power as its president.

Being rich is not the only condition for investing in Cyprus to obtain a passport. The Cyprus government requires strict verification of the background of the applicants. Those with criminal records cannot be naturalized. However, the “Cypress Papers” show that Zhang Keqiang, a businessman from China, was sentenced for equity trading. Another Chinese businessman, Li Jiadong, was sanctioned by the United States for laundering more than US$ 100 million. Both of them bought Cyprus “golden passports.” In 2019, Cyprus revised relevant laws so that it now requires a strict investigation of investors and allows cancellation of passports already issued.

The “Cyprus Investment Plan” is an ongoing project. According to Al Jazeera, out of more than 500 people from China, only eight “politically public figures” have been disclosed. Most of the rest have no important political background or criminal history.

The European Commission once gave out warnings about some EU countries carelessly issuing EU visas and even granting EU citizenship for money, claiming that this approach contains risks.

Source: Deutsche Welle, August 25, 2020.
https://p.dw.com/p/3hUXA
Al Jazeera, The Cyprus Papers.
https://www.aljazeera.com/investigations/cypruspapers/

Briefings | | |   Social Stability

China Held Online Seminar with the Ruling Party of Panama

China’s state media People’s Daily reported that, on August 25, the Chinese Communist Party (CCP) and the Democratic Revolutionary Party (RPD) of Panama held the opening ceremony of an online seminar for party cadres. Song Tao, head of the CCP’s International Liaison Department, said that, under the joint promotion of General Secretary Xi Jinping and Panama’s leader, over the past three years since the establishment of diplomatic relations, there have been “fruitful cooperation results.” The purpose of this online seminar was to “implement the important consensus of the two heads of state, and contribute to the development of Sino-Panama relations.” Song discussed the content of the third volume of Xi Jinping’s writings on State Governance. Fujian’s provincial CCP Committee Secretary Yu Weiguo talked about Fujian’s social economic development under the guidance of Xi Jinping Thought and expressed willingness to strengthen cooperation with Panama in areas such as the “Belt and Road Initiative.”

Panama’s RPD reportedly agreed with Xi Jinping’s idea of a “community with a shared future for mankind,” and stated that it firmly adheres to the one-China principle and is willing to participate actively in the “Belt and Road Initiative.”

Source: People’s Daily, August 26, 2020
http://paper.people.com.cn/rmrb/html/2020-08/26/nw.D110000renmrb_20200826_6-03.htm

Briefings | | |   Geo-Strategic Trend

People’s Daily Attacks Pompeo, Again

On August 25, the Chinese Communist Party’s mouthpiece newspaper People’s Daily, in three full pages out of a total of 20, published an extremely lengthy opinion that runs through a barrage of criticisms against U.S. Secretary of State Mike Pompeo, as a response to his speech on July 23, 2020, at the Richard Nixon Presidential Library in California.

The first two paragraphs read:

“A few days ago, U.S. Secretary of State Pompeo delivered a speech at the Richard Nixon Presidential Library in California. He totally negated China-U.S. relations, maliciously attacked the leadership of the Chinese Communist Party and China’s political system, drove a wedge between the Chinese Communist Party and the Chinese people, and made groundless accusations on China’s domestic and foreign policies. Pompeo spread the ‘China Threat Theory’ in an attempt to provoke and piece together an international anti-China alliance and contain China’s development.”

“Pompeo’s remarks, ignoring history and reality, are full of strong ideological prejudice and a Cold War mentality. Not only did the Chinese people condemn Pompeo’s remarks, but also rational people in the United States and the international community criticized and opposed them.”

It then dug out 26 statements from Pompeo’s speech and ran a point-by-point rebuttal. The 34,000-Chinese-character-long article, if put into Word with a font size of 12 and normal margins, would be 30 pages long.

Source: People’s Daily, August 25, 2020
http://paper.people.com.cn/rmrb/html/2020-08/25/nw.D110000renmrb_20200825_1-10.htm

Briefings | | |   US-China Relations