Commentary: China’s rise is still not a given

MELBOURNE: When discussing the rise of China, a sense of inevitability often pervades. 

China’s sheer population size and economic base will inevitably see it become the dominant regional power – or so the argument goes. China’s faster reopening from COVID-19 lockdowns has added to such arguments.

But just how far will China rise? Given the price tag of Australia’s new defence posture – and the significant opportunity costs at a time when COVID-19 will stretch budgets – it is worth still asking the question.

READ: Commentary: Is national security a good reason to ban TikTok?

READ: Commentary: Domestic politics may delay India’s truce with China

China’s social contract is built in part on the ability of party elites to provide prosperity, public goods and oversee national unity. The Communist Party  of China, which values maintaining power above all else, cannot safely ignore the bounds of this social contract.

Nationalism – and by extension achieving foreign policy goals – is arguably an increasingly important part of the social contract, but remains somewhat secondary.

What matters is that China is likely to have no shortage of stresses to its social contract. While China is by no means alone in facing significant future challenges, its ability to do so will be constrained by the fact that it is still a developing country.

HINDRANCES TO CHINA’S RISE

The results of the One Child policy mean that China’s already ageing population may begin shrinking as soon as 2027. This is bad news for a government aiming to transition its economy towards domestic consumption.

The dependency ratio – effectively ratio of non-workers to workers – will increase substantially. China has few social safety nets to protect the elderly and may well “get old before it gets rich”.

An elderly man uses a magnifiying glass to see the description on a pack of medicine at a pharmacy
File Photo: An elderly man uses a magnifiying glass to see the description on a pack of medicine at a pharmacy in Dandong, Liaoning province, China. (Photo: REUTERS/Jacky Chen/File Photo)

An often overlooked challenge facing China is water security, especially with the impact of climate change. Up to 80 per cent of China’s water is concentrated in the country’s south, leaving significant population centres suffering from acute shortages.

Proposed solutions such as the US$70 billion South-North Water Diversion project are costly.

Pollution of groundwater aquifers, which up to two thirds of Chinese cities rely on for some or all of their water, has also become a serious health hazard. It will also be extremely expensive to fix.

The potential for unrest in frontier regions will divert resources away from military spending. China’s paramount leader Xi Jinping has left no stone unturned in his drive to ensure national unity by pacifying Xinjiang, Tibet and now Hong Kong.

China’s tactics are unlikely to determinatively quell unrest. Spending on domestic security outstripped the military budget in 2018 and will continue to be a significant burden.

READ: Commentary: The intractable tug of war between China and Hong Kong

READ: Commentary: Why are Chinese officials acting like Internet trolls and entertaining online fights with the US?

Combined with other pressing problems such as China’s inequality, grossly-uneven development and paltry social safety net, these issues will divert precious resources and attention away from China’s foreign policy ambitions.

China’s mountainous debt, reflecting a cheap debt-fuelled growth model focused on fixed assets, will also significantly constrain policymaker’s options.

WEAKER THAN ASSUMED

This leaves Chinese foreign policy ambitions in a weaker position than is often assumed. China must also realise that destabilising measures will be met with an array of strategic and economic costs.

This matters, as it difficult to envisage a peaceful transition to Chinese hegemony. More costs will presumably have to be incurred.

Military vehicles carrying DF-26 ballistic missiles travel past Tiananmen Gate
Military vehicles carrying DF-26 ballistic missiles travel past Tiananmen Gate during a military parade to commemorate the 70th anniversary of the end of World War II in Beijing, on Sep 3, 2015. (Andy Wong/Pool via REUTERS/File Photo)

Consider the example of Taiwan, which remains the People’s Liberation Army’s “primary contingency” and a considerable drain on resources.

More fundamentally, even without the US, the Indo-Pacific is likely to be a crowded region, as Rory Medcalf aptly describes in his recent book.

The idea that the US will simply exit the region given its extensive interests, current posture and the importance of its superpower status to its national identity, is of course very debatable.

Together, India, Japan, Indonesia and Australia (leaving aside Vietnam and South Korea) – all countries that have various grievances with China – are projected by 2050 to have a combined population of 2.1 billion and GDP of almost US$64 trillion.

China will have 1.4 billion people and a GDP of about US$58 trillion.

READ: Commentary: China and India – the region’s twin growth engines – are stuttering

READ: Commentary: Embattled China knows its national priority is the economy

Of course, there is no guarantee that these countries will form alliance-type arrangements. China will try to prevent this, attempting to prosecute territorial disputes with each country in an individualised and favourable way.

This realisation alone should be enough for the region’s middle and emerging powers to cooperate in countering China. 

Of course, it is possible that China may somehow prove capable of maintaining its social contract while also achieving regional dominance, even in the face of concerted opposition. Defence policy is focused on insuring against worst-case scenarios.

Nonetheless, with precious dollars at stake, it is important that policymakers consider in depth these hinderances to China’s rise.

Henry Storey is an editor at Foreign Brief and currently works as an analyst for a political risk consultancy in Melbourne. This commentary first appeared on the Lowy Institute’s blog, The Interpreter.

China releases professor who criticised President Xi, friends say

BEIJING: A Beijing law professor who has been an outspoken critic of China’s President Xi Jinping and the ruling Communist Party was released on Sunday (Jul 12) after six days of detention, his friends said.

Xu Zhangrun, a constitutional law professor at the prestigious Tsinghua University, returned home on Sunday morning but remained under surveillance and was not free to speak publicly about what happened, one of his friends, who declined to be identified, told Reuters.

Calls to the media departments of the Beijing police and Tsinghua University seeking comment went unanswered on Sunday.

Xu, 57, came to prominence in July 2018 for denouncing the removal of the two-term limit for China’s leader, which will allow Xi to remain in office beyond his current second term.

According to a text message circulated among Xu’s friends and seen by Reuters, he was taken from his house in suburban Beijing on Monday morning by more than 20 policemen, who searched his house and confiscated his computer.

According to Xu’s friends, police told his wife that he was being detained for allegedly soliciting prostitution during a trip to Chengdu, but at least two friends dismissed that allegation as character assassination.

Since the 2018 article, Xu has written other critiques of the party. At the peak of China’s coronavirus outbreak in February, he wrote an article calling for freedom of speech.

Most recently in May, before China’s delayed annual parliamentary meeting, he wrote an article accusing Xi of trying to bring the Cultural Revolution back to China.

Under Xi, China has clamped down on dissent and tightened censorship.

US State Department spokeswoman Morgan Ortagus said on Tuesday the United States was deeply concerned about China’s detention of Xu and urged Beijing to release him.

Indonesia reports 1,681 new COVID-19 cases: Health Ministry official

JAKARTA: Indonesia reported 1,681 new coronavirus cases on Sunday (Jul 12), bringing the total count to 75,699, Health Ministry official Achmad Yurianto told a televised news briefing.

Fatalities from the COVID-19 rose by 71 on Sunday, he said, bringing the total in the Southeast Asian nation to 3,606, the highest in East Asia outside China.

A significant new cluster has emerged at a military training centre in West Java, where nearly 1,300 people have tested positive for COVID-19. 

The outbreak was first detected when two cadets at the Indonesian Army Officer Candidate School went to a medical facility after complaining of fever and back pain.

Both tested positive for COVID-19, sparking mass swab testing at the academy, which has 2,000 staff and cadets.

It is not clear how the cadets were infected, the army’s chief of staff said.

The governor of West Java apologised for the outbreak and urged residents to restrict their movements in and out of the neighbourhood where the academy is located until it is brought under control.

READ: Indonesia military academy hit by COVID-19 outbreak

Indonesia is the hardest hit country in Southeast Asia with more than 74,000 known cases of COVID-19 and over 3,500 deaths.

The real toll is widely believed to be much higher, however, with experts saying limited testing was understating the true scale of the crisis.

The World Health Organization recently urged Indonesia to do more testing.

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Tokyo confirms 206 new cases of COVID-19 infections on Sunday: Report

TOKYO: Tokyo officials confirmed 206 new coronavirus infections on Sunday, public broadcaster NHK reported, as Japan’s capital struggles with a resurgence in cases after the government lifted a state of emergency.

The total marks the fourth straight day of more than 200 cases.

The capital city hit a record high of 243 new cases on Friday, with infections surging particularly in Tokyo’s Kabukicho red-light district. 

READ: Tokyo shopkeepers brace for another slowdown as COVID-19 flares

The country’s economy minister said Japanese host and hostess clubs must act quickly to ensure they abide by rules to stop the spread of the novel coronavirus after nightlife districts also became new hotspots. 

Infections in the capital have been creeping up since the government lifted a state of emergency about a month ago. 

Outbreaks have also been found in similar clubs in Ikebukuro’s red-light district, as well as in some cafes where women dress up as maids to entertain customers in the Akihabara electronics town.​​​​​​​

Japan has more than 21,000 cases and 980 deaths. Researchers have cited various factors for those low numbers, from the nation’s robust healthcare system to infrequent hugging and handshaking. But they say there is no clear single reason for the country’s success.

Norio Sugaya, a member of the World Health Organization’s influenza panel, said people in Japan should not feel secure just because of the relatively small scale of infections and deaths there so far.

“Talks about how Japan has ridden out the first wave successfully. Talks about ‘Japan miracle’. Those make me very worried,” Sugaya said. “It’s terrifying if there are people out there who believe Japan is invincible.”

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Indonesia military academy hit by COVID-19 outbreak

BANDUNG, Indonesia: Nearly 1,300 people at a military academy in Indonesia have tested positive for the coronavirus, an official said, as the country struggles to contain the epidemic.

The Indonesian Army Officer Candidate School in the country’s most populated province of West Java has been quarantined and 30 people were initially hospitalised with mild symptoms, the army’s chief of staff, General Andika Perkasa, said late Saturday (Jul 11).

Of the 1,280 confirmed infections, 991 were cadets and the rest were staff and their family members, he said. Most had no symptoms.

Seventeen were still in hospital on Saturday.

The outbreak was first detected when two cadets went to a medical facility after complaining of fever and back pain.

Both tested positive for COVID-19, sparking mass swab testing at the academy, which has 2,000 staff and cadets.

It is not clear how the cadets were infected, Perkasa said, but some staff live outside the military complex.

The governor of West Java apologised for the outbreak and urged residents to restrict their movements in and out of the neighbourhood where the academy is located until it is brought under control.

Indonesia is the hardest hit country in Southeast Asia with more than 74,000 known cases of COVID-19 and over 3,500 deaths.

The real toll is widely believed to be much higher, however, with experts saying limited testing was understating the true scale of the crisis.

The World Health Organization recently urged Indonesia to do more testing.

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Tesla cuts price of Model Y SUV by US$3,000: Report

PALO ALTO: US electric carmaker Tesla reduced the price of its sports utility vehicle Model Y by US$3,000, Electrek reported on Saturday (Jul 12).

Tesla’s mid-sized SUV, which is sold as a Long Range or Performance version – is now priced at US$49,990, according to the carmaker’s website.

The Performance version will be updated with a new configuration, the report added.

Tesla did not immediately respond to Reuters’ request for comment.

The Model Y was unveiled on Mar 14 last year, promising a much-awaited crossover that will face competition from European carmakers rolling out their own electric rivals.

In April, Tesla had said the Model Y was already profitable, marking the first time in the company’s history that one of its new vehicles turned a profit in its first quarter.

Tesla delivered 90,650 vehicles during the second quarter, above estimates for 74,130 vehicles, according to Refinitiv data. It delivered 80,050 units of its new Model Y SUV and Model 3 for the quarter.

Start-up city: Vietnam’s young invest ideas in Ho Chi Minh City

HO CHI MINH CITY: A tech-savvy population, a fast-growing economy, and the perks of being first in an emerging market – Vietnamese entrepreneur Le Thanh saw the potential in booming Ho Chi Minh City for his start-up transforming coffee grounds into masks.

The 35-year-old chemistry graduate worked for two multinationals before stepping out on his own three years ago to launch ShoeX – a sustainable footwear company which nimbly pivoted to masks as the coronavirus pandemic struck.

When he entered the workforce, Thanh was drawn to the higher salaries and no-nonsense working culture at foreign companies he assumed were a cut above local firms, tangled up in rules imposed by his country’s staid Communist rulers.

“But now I see there are more openings in a place where things are a bit murky,” Thanh told AFP from his buzzing Ho Chi Minh City co-working space.

He is not alone in believing Vietnam – and especially its southern commercial centre – is poised to become an innovation hub thanks to its young, educated and digitally active population.

READ: New co-working space in Jurong, more funds for deep-tech start-ups to spur innovation

Vietnamese e-commerce and e-payment companies have been “flooded” with private equity in the past couple of years, said Eddie Thai, a Ho Chi Minh City-based partner at venture capital firm 500 Startups.

Their rise has been stellar.

Vietnam-based start-ups made up 18 per cent – or US$741 million – of the capital invested in Southeast Asia in 2019, up from 4 per cent in 2018, according to a report by Cento Ventures.

Although Indonesia remains the leader, the amount pumped into Vietnam start-ups pushed ahead of Singapore for the first time in 2019, the venture capital firm said.

The gold rush comes in spite of cumbersome regulations for foreigners, Thai told AFP, making it difficult to invest and repatriate capital.

Vietnam-based start-ups made up nearly 20 percent of the capital invested in Southeast Asia last
Vietnam-based start-ups made up nearly 20 per cent of the capital invested in Southeast Asia last year. (Photo: AFP/Manan VATSYAYANA)

Last year, popular e-wallet platform VNPay reportedly snagged the largest deal in Southeast Asia, attracting US$300 million from Softbank’s Vision Fund and Singapore’s sovereign wealth fund GIC.

And although Thai said investment had paused due to the coronavirus pandemic, Vietnam is well-placed to bounce back.

Its economy unexpectedly grew in the second quarter and the International Monetary Fund (IMF) predicts a 2.7 per cent expansion for the year despite the global downturn.

The country also has a huge pool of software engineers who cost substantially less than their Indian or Chinese peers.

And unlike the tech talent in wealthy start-up hubs such as San Francisco or London, they understand what consumers in the emerging world want, Thai says.

EXCITING, YOUNG ENVIRONMENT

Air pollution – and then the outbreak of COVID-19 – prompted Thanh to take a gamble on sourcing Vietnamese coffee waste material to turn it into masks.

His cutting edge design uses woven fibre made from coffee grounds to make a washable outer layer, with a biodegradable filter inside.

Le Thanh worked for two multinationals before stepping out on his own three years ago to launch
Le Thanh worked for two multinationals before stepping out on his own three years ago to launch ShoeX. (Photo: AFP/Manan VATSYAYANA)

“I took a risk and hoped it would succeed,” he said, adding that there had been a surge in orders of his masks from Europe, the US and Japan since they launched in April.

A similar strain of environmental innovation courses through many other smaller start-ups in a country among the most vulnerable to climate change.

They exploit the high tech literacy of the population – 70 per cent of which is under 35, according to the World Bank – to sell new products to a receptive market.

Bui Thi Minh Ngoc wanted to find a sustainable alternative to standard menstrual products, searching for months to find the right organic cloth for her sanitary pad business GreenLady Vietnam, which she operates largely on Facebook.

“In Vietnam, there are not many specialising in period products and reproductive health,” the 26-year-old said as she checked material samples at a tailor in Hanoi.

“But I like to do things which are difficult.”

Bui Thi Minh Ngoc wanted to find a sustainable alternative to standard menstrual products
Bui Thi Minh Ngoc wanted to find a sustainable alternative to standard menstrual products. (Photo: AFP/Manan VATSYAYANA)

While Vietnam is yet to produce any truly “disruptive technology”, said Trung Hoang of local investment platform VinaCapital Ventures, China has shown what is possible.

The Asian giant – also an autocratic one-party state – has managed to incubate dynamic tech behemoths like Alibaba and Tencent that have risen to the forefront of the industry.

Back in his Ho Chi Minh City office space, packed with young professionals, Thanh fizzes with enthusiasm for Vietnam’s start-up culture.

“I am in this exciting and young environment. It’s inspired us all.”

China economy rebounds in Q2 after COVID-19 hit: Poll

BEIJING: China returned to growth in the second quarter after the coronavirus pandemic handed the world’s second largest economy its first contraction in decades, according to an AFP poll of analysts.

The survey of analysts from 11 institutions pegged China’s growth at 1.3 per cent – a far cry from the 6.1 per cent expansion posted last year but in better shape than other countries still grappling with the contagion.

The coronavirus, which first emerged in China’s industrial central province of Hubei late last year, has shut businesses worldwide and destroyed hundreds of millions of jobs.

But analysts forecast China will be the only major economy to experience positive growth this year – partly because it was first to be hit by COVID-19 and therefore first to recover.

China is expected to post 1.7 per cent growth for the full year, according to the economists surveyed by AFP, compared with International Monetary Fund (IMF) forecasts of a global contraction.

Growth data for the April to June period will be published on Thursday (Jul 16).

The government essentially shut down the country for months to bring the virus under control, halting factory work, keeping workers at home and limiting travel.

But activity has resumed as China largely brought the epidemic under control and ended the lockdown of Hubei and its capital Wuhan in April.

Authorities were able to rein in an outbreak in Beijing last month with very limited restrictions.

Xu Xiaochun of Moody’s Analytics said mass testing and targeted lockdowns in the capital limited economic disruption, giving investors “quiet confidence that China stands ready to prevent a full-blown second wave of infections as the country continues to reopen”.

HIGH UNCERTAINTY

After the economy sank by 6.8 per cent in the first three months of the year – the first contraction since China began logging quarterly data in the early 1990s – the government has turned its focus to stabilising employment and ensuring living standards.

It raised its budget deficit target and set aside 1 trillion yuan (US$140 billion) of government bonds for COVID-19 control, working to prop up businesses hit by the virus fallout.

Oxford Economics’ lead economist Tommy Wu expects China to continue recovering from the second quarter onwards “as it is no longer being held back by supply-side disruptions”, with factories back to life.

Gene Ma, head of China research at the Institute of International Finance, said another factor behind recovery is China’s more industrial-based economy.

“Industrial sectors can recover faster than service sectors in the wake of the COVID-19 shock,” Ma said.

But Xu said there is high uncertainty ahead: “It remains to be seen how the slowdown in external demand will dampen the recovery.”

External demand has been cooling with the manufacturing powerhouse’s key trading partners hit by COVID-19, renewing officials’ calls for businesses to turn towards the domestic market instead.

Other risks include US-China tensions over issues such as cybersecurity, trade and Hong Kong’s national security law, which threaten to reignite the bruising trade war, said Xu.

HSBC chief China economist Qu Hongbin expects recovery to be “uneven”, with a pick-up in infrastructure and other public investment but the revival of private sector investment to “remain slow”.

Qu added that consumer spending – a vital engine of China’s economic growth – is expected to lag behind the recovery, impacted “in the absence of a sizeable fiscal rescue package for the affected workers and families”.

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Gilead prices COVID-19 drug candidate remdesivir at US$390 per vial in US hospitals

CALIFORNIA: Gilead Sciences has priced its COVID-19 drug candidate remdesivir at US$390 per vial for the United States and governments of other developed countries, it said on Monday (Jun 28), setting the price of a five-day course at US$2,340 per patient.

The price for US private insurance companies will be US$520 per vial, the drugmaker said, which equates to a total of US$3,120 per patient.

Gilead has entered into an agreement with the US Department of Health and Human Services (HHS) whereby the department and states will manage allocation to hospitals until the end of September.

After this period, once supplies are less constrained, HHS will stop managing the allocation, the company said.

READ: Gilead targets two million remdesivir courses by year-end

READ: Gilead’s remdesivir shows modest improvement in moderate COVID-19 patients

Remdesivir’s price has been a topic of intense debate since the US Food and Drug Administration approved its emergency use COVID-19 patients in May.

Experts have suggested that Gilead would need to avoid the appearance of taking advantage of a health crisis for profits.

Wall Street analysts have said the antiviral drug could generate billions of dollars in revenue over the next couple of years if the pandemic continues.

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Indonesia reports another suspected Sumatran tiger poisoning

BANDA ACEH, Indonesia: Another Sumatran tiger has been found dead in the second suspected poisoning of the critically endangered cats in less than a week, Indonesian conservation officials said on Monday (Jun 29).

Authorities said in both cases locals likely targeted the tigers for attacking their livestock, underscoring the increasing human-animal conflict in the Southeast Asian archipelago.

On Monday, the conservation agency in South Aceh on Sumatra island said it found the carcass of a tigress near a farm.

“There weren’t any hunter traps or physical wounds and we suspect (it) was poisoned,” said agency chief Hadi Sofyan, adding that an autopsy was being conducted.

Last week the buried carcass of a male tiger was uncovered in North Sumatra’s Batang Gadis national park with poisoning also the suspected cause of death.

Locals, including a village head, said the killing was orchestrated by farmers who were angry the tiger had killed their livestock, a park spokesman said at the time.

Officials also tranquilsed and relocated another tiger after it was caught in West Sumatra
Officials also tranquilsed and relocated another tiger after it was caught in West Sumatra AFP/ADI PRIMA

READ: Four suspected poachers arrested in Indonesia for killing critically endangered tiger

Also on Monday, a female tiger was relocated from a plantation in West Sumatra.

Conflicts between humans and animals in Indonesia often happen in areas where rainforests are being cleared to make way for palm oil plantations.

In the past year Sumatra has also seen a spate of fatal tiger attacks on humans.

Indonesia is battling rampant poaching which accounts for almost all Sumatran tiger deaths, according to TRAFFIC, a global wildlife trade monitoring network.

Sumatran tigers are considered critically endangered by the International Union for Conservation of Nature, with fewer than 400 believed to remain in the wild.

Tiger parts are widely used in traditional medicine – particularly in China – despite overwhelming scientific evidence they have no beneficial value.