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China Builds its Own Value Chain: Will Overtaking on a Curve Work?

Wu Jiemin, a researcher at the Institute of Sociology, Taiwan Academia Sinica, won the “Humanities and Society Academic Award” issued by the Academia Sinica for his book Rent-Seeking Developmental State in China: Taiwan businessmen, Guangdong Model and Global Capitalism. The book discusses in great detail the connections between China and global capitalism.

In an interview with Voice of America, Wu Jiemin said that China is trying to bypass the global value chain system controlled by Western countries to build a value chain system that Chinese capital can control on its own. The U.S.-China confrontation situation cannot be changed in the short-term. If China wants to succeed in the challenge, it must make a big breakthrough in science and technology. However, scientific and technological development is closely related to academic and free speech and China is currently under a highly authoritarian rule. Without freedom of thinking and speech, Wu doubts such “overtaking on a curve” would be successful.

According to Wu, one of the key features in China is a massive systematic and collective rent seeking undertaking. The so-called rent-seeking is a term in economics. The country is not directly engaged in production activities but intervenes in the industrial chain to extract a certain amount of interest. This interest is called economic rent or political rent.

Wu said that China has a special system design for extracting benefits, including value-added fees, management fees, approval fees for leased land, and social security fees. Further, local governments play an important and unique role. Rent-seeking activities in China are rampant.

“The local government acts like an intermediary or broker, which is to integrate the resources needed in various production processes to a certain extent. … In this process, the local government also obtains a lot of tax benefits from the manufacturers, including economic rents obtained from foreign capital and local manufacturers. This revenue becomes an additional income for the local government outside of its budget. Part of it goes to the hidden coffers for the officials, some goes to the personal pocket of the official and the rest becomes tax revenue to fund construction.” On the other hand, foreign investors in China are disgusted by the rent-seeking behavior of local officials, but they have to deal with them and seek their protection.

Wu believes that in the past 10 years, the Guangdong model transformation and the Chinese model transformation have focused on bypassing global value chain hegemony and trying to build a value chain system that Chinese capital can control by itself.

In Wu’s opinion, one side of China’s development model is its biggest gain in foreign exchanges and fiscal revenues that it has spent on the military, economic modernization, and urbanization. China’s subways, high-speed rails, and highways are examples. However, Wu said that the other side of China’s development model is high exploitation of labor, low welfare, and lack of human rights.

Source: Voice of America, January 20, 2021

China Reduced Lower Mekong Water Level with No Notice until Six Days Later

Well-known Chinese news site NetEase (NASDAQ: NTES) recently reported that China issued notice to the lower Mekong River countries on January 6 that it reduced Mekong River water level via its dams on upper Mekong. Both Thailand and the Mekong River Committee (MRC, an organization jointly formed by Thailand, Cambodia and Vietnam) confirmed the notification. The reason China provided was power transmission line maintenance. Water volume reduction was expected to be 47 percent from 1904 cubic meters per second to 1000 per second. China made an agreement last October with MRC to share water information. However, the Stimson Centre (sponsored by the United States) and another consulting firm, Eyes on Earth, both said, according to their monitoring data, China has been reducing the Mekong River water level since December 31. The MRC said the water volume reduction was observed on December 31 which was six days before China’s notification. This volume reduction could result in a lower water level of 1.2 meters. The drastic change could impact water transportation and fishing. China promised to restore the water volume “back to normal” without giving the actual cubic meter numbers.

Source: NetEase, January 8, 2021

Chinese Pork Market Price Skyrocketed

Well-known Chinese news site Sohu (NASDAQ: SOHU) recently reported that, since the end of December, pork prices have seen a significant increase across China, especially in Eastern China, Southern China and Southwestern China. The daily pork price increase rate reached 0.43 Chinese Yuan. The Imported pork price reached 36.02 Chinese Yuan (per half kilogram). In Northeastern China, the daily price increase reached 0.6 Chinese Yuan and the domestic pork price was almost 20 Chinese Yuan (per half kilogram). With the new year’s price hike, it is widely expected that the upcoming Chinese New Year (early February) will have another major increase in the price of pork. Many retailers now refuse to sell pork in hand and hope to make much more money by waiting just a few days, even if this means the breach of a contract where a compensation deposit was received. China is currently suffering a decline in imported pork volume due to the pandemic. Pork holds two thirds of Chinese meat market and its price significantly impacts the CPI (Consumer Price Index), which is a major indicator of an economy.

Source: Sohu, January 4, 2021

Xinhua: Shanghai Begins Vaccinations against New Coronavirus among High-Risk Personnel in Key Positions

According to China’s state news agency Xinhua, the Shanghai Municipal Center for Disease Control and Prevention revealed that Shanghai has successively started vaccinations against the New Coronavirus (covid-19 virus), using vaccines of the inactivated whole virus.
It is reported that this emergency vaccination in Shanghai mainly involves personnel in key positions with a higher risk of contracting the new coronary pneumonia. Specifically, the front-line customs inspection and quarantine personnel at the port involved in imported cold chain items, port loading and unloading, handling, transportation and other related personnel; international and domestic transportation personnel; personnel to work and study overseas; border port staff who are facing a higher risk from overseas epidemics; medical and health personnel; workers at government agencies and departments of public security, armed police, fire fighters, those in community service; water, electricity, gas and other related personnel; personnel at transportation, logistics, elderly care facilities, sanitation, funeral, communications and other related areas.
In due course, Shanghai will launch the new coronavirus vaccination for people going abroad for private purposes.

Source: Xinhua, December 26, 2020

U.S. Report to Congress on Human Trafficking in the Seafood Supply Chain

A report to Congress, drafted by the Departments of Commerce (National Oceanic and Atmospheric Administration) and State, addresses the issue of human trafficking in the seafood supply chain. The Report lists 29 countries that are most at risk for human trafficking in the seafood sector –documenting the quantity and value of seafood imports from each listed country, and discusses seafood traceability programs in each listed country.

“The fishing sector has an inherently high risk for human trafficking. The work is considered hazardous and often relies heavily on a low-skilled, migrant, easily replaced workforce, vulnerable to trafficking. Fishing is also inherently isolating, with vessels sometimes spending months to years at sea, which impedes individuals’ escape from or reporting of abuse. Emotional and physical abuse, sometimes resulting in death; excessive overtime; poor living conditions; deceptive or coercive recruiting practices; and lack or underpayment of wages are examples of the abuses sustained by human trafficking victims in the fishing sector. Countries with weak legal protections for civil liberties and workers’ rights; high levels of corruption, crime, violence, political instability, poverty; and immigration policies that limit employment options or movement are at an increased risk for human trafficking. Illicit recruiters, unscrupulous vessel captains, and human traffickers exploit such conditions to perpetrate fraud, deception, and violence.”

The report points out that the PRC (People’s Republic of China) is a significant offender in the use of forced labor in its fishing sector, with numerous reports known on Chinese-flagged and -owned vessels throughout the world. “China has the largest fishing fleet in the world and contains a wide variety of vessels that operate on the high seas and in foreign countries’ EEZs (Exclusive Economic Zone) throughout the world. The majority of the crews on board are migrant workers from Indonesia and the Philippines but have also been noted to be from Africa and other Asian countries. According to the media, governmental and non-governmental reports, there have been numerous incidents of forced labor reported on Chinese fishing vessels. Workers report excessive working hours, poor living conditions, isolation at sea for months to years, verbal and physical abuse, nonpayment of wages, document, and debt bondage. Deaths have occurred as the result of abuse on these vessels. Workers are sometimes recruited by agencies that use deceptive tactics regarding their wages and contracts, and they are often required to pay recruitment fees and sign debt contracts. The Chinese fishing fleet is a major player in global IUU (illegal, unreported, and unregulated) fishing; crew members forced to engage in IUU activities on board these vessels are also at high risk of undue penalization. Fishing observers report insufficient oversight of the PRC’s fishing industry, which leaves fishermen at increased risk of forced labor.”

The Report also discusses current U.S. government efforts to combat human trafficking in the seafood industry, including enforcement mechanisms and provides ten recommendations for legislative and administrative action to combat human trafficking in this sector. Recommendations include outreach to listed countries, promoting global traceability efforts and international initiatives to address human trafficking, and strengthening collaboration with the industry to address human trafficking in the seafood supply chain.

Source: State Department, December 23, 2020

Chinese Province Ordered Holiday Gift from its Company – 50 Million Shares

Moutai (aka Maotai) Liquor, one of China’s most famous baijiu, a 100 proof distilled spirit made of wheat and sorghum, often appears on the gift list of wealthy individuals, and sometimes of corrupt officials.

This year, the State-owned Assets Supervision and Administration Commission of Guizhou province, a government body responsible for managing state owned enterprises and also a 100 percent owner of the parent company of Kweichow Moutai, ordered the liquor producer to present a pricey holiday gift to the government of its home province — 4 percent of Moutai’s outstanding stock, or 50.24 million shares worth 91.95 billion yuan ($14.08 billion) at Thursday’s closing price of 1,830.34 yuan. The recipient is Guizhou Province State-owned Asset Operation, which undertakes large government investments and infrastructure projects.

After the event, the stake held by the parent company of the sorghum-based baijiu hard liquor producer declined to 54 percent, while Guizhou Province State-owned Asset Operation, together with its parent company Guizhou Financial Holding Group, held up to 4.9 percent of Moutai’s shares.

When interviewed by Nikkei Asia, Andrew Collier, managing director at Orient Capital Research in Hong Kong said, “China is increasingly asking its firms that are the most successful financially to contribute to state coffers.”  “Moutai has been wildly successful and has probably drawn some attention for its success, particularly as its home province is one of the poorest in China.”

One year ago, the parent of Kweichow Moutai also granted an equal number of shares to the same investment vehicle of the Guizhou government. The body kept hold of those shares until Moutai issued its annual dividend in June but has since sold more than 80 percent of the grant. Between the share sales and the dividend, the agency pocketed around 72 billion yuan ($11 billion).

Kweichow Moutai has been one of the best performers on the Chinese stock market. Its market value stands around 2.3 trillion yuan ($400 billion), with a net profit of 44 billion yuan ($6.7 billion) at the end of 2019.

Source: Nikkei Asia, December 24, 2020

Kwongwah Daily: The U.S. Sponsored Mekong Dam Monitor Plan

Kwongwah, which is Malaysian-based, is the world’s oldest privately owned Chinese daily newspaper. It recently reported that the U.S. State Department sponsored the Mekong Dam Monitor Plan, which it just introduced. The Mekong River, also known as the Lancang River in China, is 4,350 kilometers in length and flows southward through Myanmar, Laos, Thailand, Cambodia and Vietnam. The Plan will use satellites to track the Chinese dam water level of the Lancang River in the upper Mekong, as well as the water levels of the dams in the downstream countries. The Plan will also collect data on surface humidity in the region and the natural water flow volume of the Mekong River. All data will be shared with the general public. Scientists working on the Plan explained that the Chinese dams are carefully designed to maximize the power generation to supply Eastern China. Monitoring data showed the design did not consider the impact on the downstream countries. That impact affects a total population of 60 million people, who depend heavily on the Mekong for fishing and agriculture. China disagreed with this assessment. Sun Yat-sen, the founder of the Republic of China, established Kwongwah Daily 110 years ago.

Source: Kwongwah Daily, December 14, 2020

Scholar Estimates China’s Unemployment Is as High as Twenty Percent

The new coronavirus has devastated the economies of countries around the world, leaving a large number of people unemployed, although the Chinese government has never publicly admitted the fact that the epidemic has eliminated the jobs of many Chinese people.

In a recent interview with Tencent Finance, a well-known Chinese economist Yao Yang, head of Peking University’s National School of Development, said that the epidemic has had a profound impact on the domestic economy. In the first quarter of this year, many small and medium-sized business, especially those in the service sector, were forced to close down. It is quite difficult for these low-profit businesses to reopen and some may disappear for good.

According to data that China’s National Bureau of Statistics of China released in July, in the first half of this year, more than 5 million new jobs were created in urban regions, exceeding the annual target. As of June, the nationwide urban survey showed an unemployment rate of 5.7 percent, but Yao mentioned another set of alarming numbers in the interview.

According to Yao, at the end of June, the National School of Development of Peking University conducted an online survey of more than 6,000 people. The survey showed that the unemployment rate was as high as 15 percent, and 5 percent were semi-unemployed. Considering over 700 million people in labor force, an unemployment rate of 20 percent translates into over a hundred million people unemployed at the time. Such a large unemployed population obviously differs significantly from what the government said at the time. It said, “The overall employment situation in the country is stable.”

He Qinglian, a Chinese economist currently living in the United States, believes that Yao’s remark gives a higher number than the official figure and that he wishes to emphasize the seriousness of China’s unemployment problem. “The problem of unemployment among the rural population is more pronounced. In the urban unemployed population, the people themselves generally absorb the unemployed. For example, it has almost become a common phenomenon that many unemployed young people have become their parents’ dependents.”

China unemployment rate is only based on the urban population. Critics believe that the authorities have long concealed the scale of hidden unemployment in rural areas on the grounds that farmers “have land to grow” and are not considered unemployed. In fact, due to the very limited arable land per capita in the country, there are a great number of surplus laborers in rural areas. These highly mobile populations are usually not included in government statistics.

He Qinglian said that the size of China’s rural unemployed population has always been a mystery and that this relates to their social attributes. “In the countryside, no matter how many unemployed people there are, they have no organizational and action capabilities. Mao Zedong once sent all the young intellectuals to the countryside to relieve the pressure in the cities.”

Yao also mentioned in an online forum in June that the unemployment problem of migrant workers, who travel to cities from rural areas to look for low paying jobs, is very serious. In the second quarter, migrant workers began to travel to the cities on a large scale, but due to limited job availability in the cities, there was another wave of them returning to the countryside in May. He also mentioned the 8.7 million new college graduates this year. The government plans to add 9 million urban jobs, which can at best match the demand of college graduates, but not the demand of those who have already lost their jobs.

Source: Radio Free Asia, December 18, 2020