China marks 40th anniversary of reform and opening-up with greater resolve to cope with ‘unimaginable’ perils

Chinese President Xi Jinping ahead of his speech at the Great Hall of the People in Beijing to mark the 40th anniversary of China's reform and opening up. Photo: Reuters

https://youtu.be/Zj-7Qx5Cges

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• Chinese president avoids specifics for the road ahead 

• Audiences at home and abroad need convincing that reforms started 40 years ago will continue 

China faces “unimaginable” perils and dangers ahead and must rely on Communist Party rule and economic reform to sail through them, Chinese President Xi Jinping said in one of the most watched speeches of his leadership in Beijing on Tuesday.

Speaking at the Great Hall of the People to mark the 40th anniversary of the country’s reform and opening up, Xi did not directly address the specific challenges facing the world’s second biggest economy or touch on sensitive issues such as the ongoing trade war with the US.

Instead, Xi spent much of the hour-and-a-half speech drawing general conclusions about China’s economic and social development in the past four decades since Deng Xiaoping, China’s former paramount leader, started to embrace market-oriented changes in China.

The No 1 lesson China can draw from the 40 years of success is that the country must stick to the leadership of the Communist Party, Xi said.

China tightens control of local economic data ahead of expected weak growth next year

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“The practices of reform and opening up in the past 40 years have shown us that the Chinese Communist Party leadership is the fundamental character of socialism with Chinese characteristics … east, west, south, north, and the middle, the party leads everything,” he said.

“Every step in reform and opening up will not be easy, and we will face all kinds of risks and challenges in the future and we may even encounter unimaginable terrifying tidal waves and horrifying storms,” Xi said.

“Only by improving the party's leadership and governance … can we ensure the ship of reform and opening up will sail forward.”

Xi’s speech was delivered as prospects for China’s growth are clouded abroad, by rising rivalries between China and the US, and by a deepening economic slowdown at home.

Xi, who is now legally entitled to retain his presidency beyond 2023 after a constitutional amendment in March this year, needs to convince domestic and foreign audiences that Beijing remains committed to the economic liberalisation process that was started by Deng 40 years ago.

The stock indexes of Shanghai and Shenzhen, which had both risen in early trading in anticipation of possible policy announcements, retraced their declines soon after proceedings began.

Shanghai’s composite index fell as much as 1.2 per cent, while Shenzhen’s index fell as much as 1.5 per cent to an eight-week low.

On the Hong Kong exchange, the Hang Seng Index fell 0.9 per cent while the H-share index declined 1.3 per cent.

Stocks slide as Xi refrains from kick-starting China’s sagging growth

Xi stressed that China would stick to its own chosen path, namely socialism with Chinese characteristics.

“To push forward reform and opening up in a country with 5,000 years of civilisation and a population of 1.3 billion, there are no textbooks containing golden rules or teachers who can be arrogant to the Chinese people,” he said.

Xi quoted the renowned Chinese author Lu Xun, who asked, “what's a road? A trodden path in a place where there was previously no road, and a passage opened from a place where there were only thorns.”

How a generation climbed China’s social ladder through 40 years of luck, talent and economic growth

Xi opened his speech by saying the Cultural Revolution, from 1966 to 1976, had brought China's economy to the brink of collapse and went on to quote Deng, saying “China's modernisation and socialism will be buried if we do not embrace reform and opening up now.”

The audience at the Great Hall of the People listen to Chinese President Xi Jinping’s speech commemorating 40 years of opening up and reform. Photo: Xinhua

He made it clear that Beijing would not abandon its road as China's developmental achievements in the past four decades had proven the “vivid vitality” of China's “scientific socialism”.

“For those that ought to be changed or can be changed, we will change; but for those that shouldn't be changed or cannot be changed, we will firmly not change,” Xi said.

In international relations, Xi reiterated Beijing’s existing line that China would not seek hegemony, but he did not mention the US specifically.

Xi said China was walking closer to the world’s centre stage and was now “an internationally recognised” builder of world peace, a contributor to global development, and a keeper of international order.

China, he said, had contributed “China wisdom, China solutions and China power” to world peace and development.

The Chinese president said China would play its role as “a big responsible country” to support developing countries and to take part in global governance.

“China will never grow at the cost of other countries' interests but will never give up its legitimate rights and interests … China's development does not pose a threat to any other country. No matter how far China develops, it will never seek hegemony,” Xi said.

How China’s ‘reform and opening up’ transformed poor families into middle-class shoppers

In a long list of China's economic and social achievements of the past four decades, Xi said China had achieved an annual average growth in GDP of 9.5 per cent since 1978, and contributed more than 30 per cent towards total global economic growth for many years.

China, he said, was now the world's second largest economy, the world's biggest manufacturing country and the world's No 1 commodity trading country.

From left: Chinese President Xi Jinping and Premier Li Keqiang at the 40th anniversary commemorations of reform on Thursday. Photo: AP

Bureaucracy still hampers academic research in China 40 years after opening up

In terms of ideology, Xi said China would stick to its official ideology, namely Marxism, Leninism, Mao Thought, Deng Xiaoping Theory, Three Represents theory, scientific development concept and his own “Theory of Socialism with Chinese Characteristics in the New Era”.

In terms of economic policies, Xi reiterated the policy that China would support public ownership while offering “unswerving” support to non-state sectors.

By  Zhou Xin  Nectar Gan Catherine Wong,  South China Morning Post

Malaysia files criminal charges against Goldman Sachs, ex-bankers in 1MDB probe

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Malaysia takes Goldman Sachs to court with AG Tommy Thomas saying that the bank’s dealings with 1MDB broke laws at the heart of the capital markets; MRT Corp will be looking for a new CEO; and Unisem’s offer is “not fair or reasonable”.

This is the first time Malaysian prosecutors have directly targeted Goldman Sachs for its alleged role in the 1MDB scandal © AP

PETALING JAYA: The Attorney-General Chambers has filed criminal charges against subsidiaries of investment bank Goldman Sachs and its key employees over the handling of bonds issued by 1Malaysia Development Bhd (1MDB) totalling USD6.5bil (RM27.2bil).

Attorney general Tommy Thomas said that charges were filed against Goldman Sachs' former Southeast Asia chairman Tim Leissner and former 1MDB employees Jasmine Loo Ai Swan and fugitive businessman Low Taek Jho, also known as Jho Low.

He added that banker Roger Ng Chong Hwa would be charged shortly.

Thomas said Leissner and Ng had conspired with Low, Loo and others to bribe Malaysian public officials in order to procure the selection, involvement and participation of Goldman Sachs in three Bond issuances.

He also said that the Goldman employees had not only received part of the misappropriated bond proceeds, but also received large bonuses and enhanced career prospects at the bank and in the overall investment banking industry.

"The charges arise from the commission and abetment of false or misleading statements by all the accused in order to dishonestly misappropriate USD2.7bil (RM11.3bil) from the proceeds of three bonds issued by subsidiaries of 1MDB, which were arranged and underwritten by Goldman Sachs," he said in a statement on Monday (Dec 17).

Thomas said the three bonds were the 10-year USD1.75bil (RM7.32bil) issued by 1MDB Energy Limited, the 10-year USD1.75bil (RM7.32bil) issued by 1MDB Energy (Langat) Limited and the 10-year USD3bil (RM12.6bil) issued by 1MDB Global Investments Limited.

Thomas added that the investment bank had benefited by receiving underwriting and arranging fees of approximately USD600mil (RM2.5bil), which was higher than market rates and industry norms.

Thomas also said the Offering Circulars and Private Placement Memorandum for the Bonds filed with the Labuan Financial Services Authority had also contained statements which were false, misleading, coupled with omissions of material.

"Offering Circulars and Private Placement Memorandum are serious documents, intended to be relied on, and, in fact, were relied on, by purchasers of the bonds.

"The scheme designed and crafted by the accused to fraudulently structure the bonds for ostensibly legitimate purposes when they knew that the proceeds thereof would be misappropriated and fraudulently diverted by the accused themselves was planned and executed in order to defraud the Government of Malaysia and the purchasers of the bonds," he said.

Thomas said their scheme had contravened Malaysia’s securities laws, particularly, Section 179 of the Capital Markets and Services Act, 2007 (Act 671).

"Malaysia considers the allegations in the charges against all the accused to be grave violations of our securities laws, and to reflect their severity, prosecutors will seek criminal fines against the accused well in excess of the USD2.7bil (RM11.3bil) misappropriated from the Bonds proceeds and USD600mil (RM2.5bil) in fees received by Goldman Sachs, and custodial sentences against each of the individual accused: the maximum term of imprisonment being 10 years," he said.

He said that if no criminal proceedings are instituted against the accused, their undermining of the financial system and market integrity will go unpunished.

“Having held themselves out as the pre-eminent global adviser / arranger for bonds, the highest standards are expected of Goldman Sachs. They have fallen far short of any standard. In consequence, they have to be held accountable,” he said. - The Star.

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When Will the U.S. Dollar Collapse?

https://youtu.be/N8IyDSrMY3w

By Kimberly Amadeo

Updated October 28, 2018

A dollar collapse is when the value of the U.S. dollar plummets. Anyone who holds dollar-denominated assets will sell them at any cost. That includes foreign governments who own U.S. Treasurys. It also affects foreign exchange futures traders. Last but not least are individual investors.

When the crash occurs, these parties will demand assets denominated in anything other than dollars. The collapse of the dollar means that everyone is trying to sell their dollar-denominated assets, and no one wants to buy them. This will drive the value of the dollar down to near zero. It makes hyperinflation look like a day in the park.

Two Conditions That Could Lead to the Dollar Collapse

Two conditions must be in place before the dollar could collapse. First, there must be an underlying weakness. As of 2017, the U.S. currency was fundamentally weak despite its 25 percent increase since 2014. The dollar declined 54.7 percent against the euro between 2002 and 2012. Why? The U.S. debt almost tripled during that period, from $6 trillion to $15 trillion. The debt is even worse now, at $21 trillion, making the debt-to-GDP ratio more than 100 percent. That increases the chance the United States will let the dollar's value slide as it would be easier to repay its debt with cheaper money.

Second, there must be a viable currency alternative for everyone to buy. The dollar's strength is based on its use as the world's reserve currency. The dollar became the reserve currency in 1973 when President Nixon abandoned the gold standard. As a global currency, the dollar is used for 43 percent of all cross-border transactions. That means central banks must hold the dollar in their reserves to pay for these transactions. As a result, 61 percent of these foreign currency reserves are in dollars.

Note:  The next most popular currency after the dollar is the euro. But it comprises less than 30 percent of central bank reserves. The eurozone debt crisis weakened the euro as a viable global currency.

China and others argue that a new currency should be created and used as the global currency. China's central banker Zhou Xiaochuan goes one step further. He claims that the yuan should replace the dollar to maintain China's economic growth. China is right to be alarmed at the dollar's drop in value. That's because it is the largest foreign holder of U.S. Treasury, so it just saw its investment deteriorate. The dollar's weakness makes it more difficult for China to control the yuan's value compared to the dollar.

Could bitcoin replace the dollar as the new world currency? It has many benefits. It's not controlled by any one country's central bank. It is created, managed, and spent online. It can also be used at brick-and-mortar stores that accept it. Its supply is finite. That appeals to those who would rather have a currency that's backed by something concrete, such as gold.

But there are big obstacles. First, its value is highly volatile. That's because there is no central bank to manage it. Second, it has become the coin of choice for illegal activities that lurk in the deep web. That makes it vulnerable to tampering by unknown forces.

Economic Event to Trigger the Collapse

These two situations make a collapse possible. But, it won’t occur without a third condition. That's a huge economic triggering event that destroys confidence in the dollar.

Altogether, foreign countries own more than $5 trillion in U.S. debt. If China, Japan or other major holders started dumping these holdings of Treasury notes on the secondary market, this could cause a panic leading to collapse. China owns $1 trillion in U.S. Treasury. That's because China pegs the yuan to the dollar. This keeps the prices of its exports to the United States relatively cheap. Japan also owns more than $1 trillion in Treasurys. It also wants to keep the yen low to stimulate exports to the United States.

Japan is trying to move out of a 15-year deflationary cycle. The 2011 earthquake and nuclear disaster didn't help.

Would China and Japan ever dump their dollars? Only if they saw their holdings declining in value too fast and they had another export market to replace the United States. The economies of Japan and China are dependent on U.S. consumers. They know that if they sell their dollars, that would further depress the value of the dollar. That means their products, still priced in yuan and yen, will cost relatively more in the United States. Their economies would suffer. Right now, it's still in their best interest to hold onto their dollar reserves.

Note: China and Japan are aware of their vulnerability. They are selling more to other Asian countries that are gradually becoming wealthier. But the United States is still the best market (not now) in the world.

When Will the Dollar Collapse?

It's unlikely that it will collapse at all. That's because any of the countries who have the power to make that happen (China, Japan, and other foreign dollar holders) don't want it to occur. It's not in their best interest. Why bankrupt your best customer? Instead, the dollar will resume its gradual decline as these countries find other markets.

Effects of the Dollar Collapse

A sudden dollar collapse would create global economic turmoil. Investors would rush to other currencies, such as the euro, or other assets, such as gold and commodities. Demand for Treasurys would plummet, and interest rates would rise. U.S. import prices would skyrocket, causing inflation.

U.S. exports would be dirt cheap, given the economy a brief boost. In the long run, inflation, high interest rates, and volatility would strangle possible business growth. Unemployment would worsen, sending the United States back into recession or even a depression.

How to Protect Yourself

Protect yourself from a dollar collapse by first defending yourself from a gradual dollar decline.

Important:  Keep your assets well-diversified by holding foreign mutual funds, gold, and other commodities.

A dollar collapse would create global economic turmoil. To respond to this kind of uncertainty, you must be mobile. Keep your assets liquid, so you can shift them as needed. Make sure your job skills are transferable. Update your passport, in case things get so bad for so long that you need to move quickly to another country. These are just a few ways to protect yourself and survive a dollar collapse.

US Trade Deficit With China and Why It's So High

The Real Reason American Jobs Are Going to China 

By Kimberly Amadeo 

Updated November 21, 2018

The U.S. trade deficit with China was $375 billion in 2017. The trade deficit exists because U.S. exports to China were only $130 billion while imports from China were $506 billion.

The United States imported from China $77 billion in computers and accessories, $70 billion in cell phones, and $54 billion in apparel and footwear. A lot of these imports are from U.S. manufacturers that send raw materials to China for low-cost assembly. Once shipped back to the United States, they are considered imports.

In 2017, China imported from America $16 billion in commercial aircraft, $12 billion in soybeans, and $10 billion in autos. In 2018, China canceled its soybean imports after President Trump started a trade war. He imposed tariffs on Chinese steel exports and other goods. 
 

Current Trade Deficit

As of July 2018, the United States exported a total of $74.3 billion in goods to China. It imported $296.8 billion, according to the U.S. Census Bureau. As a result, the total trade deficit with China is $222.6 billion. A monthly breakdown is in the chart.

Monthly U.S. Trade Deficit With China From January to July 2018

NOTE: All figures are in millions of US$

Exports Imports Balance

US$211.1

Jul 18

US$202

Jan 18

US$205

Feb 18

US$210

Mar 18

US$210

Apr 18

US$214

May 18

US$213

Jun 18

US$211

Jul 18

Chart: The Balance Source: United States Census Bureau

Causes

China can produce many consumer goods at lower costs than other countries can. Americans, of course, want these goods for the lowest prices. How does China keep prices so low? Most economists agree that China's competitive pricing is a result of two factors:

1. A lower standard of living, which allows companies in China to pay lower wages to workers.
2. An exchange rate that is partially fixed to the dollar.

If the United States implemented trade protectionism, U.S. consumers would have to pay high prices for their "Made in America" goods. It’s unlikely that the trade deficit will change. Most people would rather pay as little as possible for computers, electronics, and clothing, even if it means other Americans lose their jobs.

China is the world's largest economy. It also has the world's biggest population. It must divide its production between almost 1.4 billion residents. A common way to measure standard of living is gross domestic product per capita. In 2017, China’s GDP per capita was $16,600. China's leaders are desperately trying to get the economy to grow faster to raise the country’s living standards. They remember Mao's Cultural Revolution all too well. They know that the Chinese people won't accept a lower standard of living forever.

China sets the value of its currency, the yuan, to equal the value of a basket of currencies that includes the dollar. In other words, China pegs its currency to the dollar using a modified fixed exchange rate. When the dollar loses value, China buys dollars through U.S. Treasurys to support it. In 2016, China began relaxing its peg. It wants market forces to have a greater impact on the yuan's value. As a result, the dollar to yuan conversion has been more volatile since then. China's influence on the dollar remains substantial.

Effect

China must buy so many U.S. Treasury notes that it is the largest lender to the U.S. government. Japan is the second largest. As of September 2018, the U.S. debt to China was $1.15 trillion. That's 18 percent of the total public debt owned by foreign countries.

Many are concerned that this gives China political leverage over U.S. fiscal policy. They worry about what would happen if China started selling its Treasury holdings. It would also be disastrous if China merely cut back on its Treasury purchases.

Why are they so worried? By buying Treasurys, China helped keep U.S. interest rates low. If China were to stop buying Treasurys, interest rates would rise. That could throw the United States into a recession. But this wouldn’t be in China's best interests, as U.S. shoppers would buy fewer Chinese exports. In fact, China is buying almost as many Treasurys as ever.

U.S. companies that can't compete with cheap Chinese goods must either lower their costs or go out of business. Many businesses reduce their costs by outsourcing jobs to China or India. Outsourcing adds to U.S. unemployment. Other industries have just dried up. U.S. manufacturing, as measured by the number of jobs, declined 34 percent between 1998 and 2010. As these industries declined, so has U.S. competitiveness in the global marketplace
.

What's Being Done

President Trump promised to lower the trade deficit with China. On March 1, 2018, he announced he would impose a 25 percent tariff on steel imports and a 10 percent tariff on aluminum. On July 6, Trump's tariffs went into effect for $34 billion of Chinese imports. China canceled all import contracts for soybeans.

Trump's tariffs have raised the costs of imported steel, most of which is from China. Trump's move comes a month after he imposed tariffs and quotas on imported solar panels and washing machines. China has become a global leader in solar panel production. The tariffs depressed the stock market when they were announced.

The Trump administration is developing further anti-China protectionist measures, including more tariffs. It wants China to remove requirements that U.S. companies transfer technology to Chinese firms. China requires companies to do this to gain access to its market.

Trump also asked China to do more to raise its currency. He claims that China artificially undervalues the yuan by 15 percent to 40 percent. That was true in 2000. But former Treasury Secretary Hank Paulson initiated the U.S.-China Strategic Economic Dialogue in 2006. He convinced the People's Bank of China to strengthen the yuan's value against the dollar. It increased 2 to 3 percent annually between 2000 and 2013. U.S. Treasury Secretary Jack Lew continued the dialogue during the Obama administration.

The Trump administration continued the talks until they stalled in July 2017.

The dollar strengthened 25 percent between 2013 and 2015. It took the Chinese yuan up with it. China had to lower costs even more to compete with Southeast Asian companies. The PBOC tried unpegging the yuan from the dollar in 2015. The yuan immediately plummeted. That indicated that the yuan was overvalued. If the yuan were undervalued, as Trump claims, it would have risen instead.

Source: The Balance

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The arrest of a top Huawei executive may spark a conflict that could cripple America's rival and unleash chaos in the world order.

WE shouldn’t be misled into thinking that the “trade war” between the United States and China is being resolved following their presidents’ recent meeting.

Instead, President Donald Trump is taking the conflict way beyond tariffs into many other areas in a comprehensive attempt to stop or slow down China’s economic development. This has implications not only for China and countries like Malaysia, which are integrated into the Chinese production chains.

The evolving conflict spells the end of the Western countries’ belief in the win-win benefits of trade and investment liberalisation. It accompanies the emergence of an alternative view that China and some other countries are not partners after all but rivals that must be checked.

Just as Trump and China Presi­dent Xi Jinping were sitting down for dinner on the sidelines of the G20 summit to thrash out a “truce” to their tariff war, the Canadian authorities were arresting the daughter of the owner of Huawei, China’s giant technology company whose smartphone sales are now bigger than that of Apple’s iPhone and second globally only to Samsung phones.

Huawei chief financial officer Meng Wanzhou was in transit at Vancouver airport when she was detained at the request of the US on the grounds that her company violated US sanctions against Iran years ago. Only after many days was she released on bail, and she has to wear an electronic tracker.

The Chinese government called the action “very nasty” and Chinese citizens are outraged. It would be equivalent to China arresting Melinda Gates, co-head of the Bill and Melinda Gates Foundation, for alleged violation of China’s regulations on healthcare. In the whole Western world, there would have been a tremendous outcry and threats of very dire consequences.

Yet the Chinese are supposed to accept Meng’s arrest as a routine matter that is unrelated to the trade war. It cannot be sheer coincidence that years after the alleged crime, the arrest took place at the exact hour that Xi was having dinner with Trump to work out a truce.

The incident reminds us of the US accusation against another Chinese tech leader, ZTE Corp, in 2017 of breaking the same sanctions. A ban was imposed on ZTE from buying telecom chips from US company Qulcomm, which paralysed the company for weeks. Only much later was a political deal struck, with ZTE paying a fine before resuming production.

With China, Trump is concerned not so much with his country’s big trade deficit, but more with the threat to America’s global supremacy.

Suspicions over China’s global ambitions became certainty in the fevered minds of Trump and his hawkish advisers when Xi moved from the rhetoric of the Chinese dream to the concrete industrial plan of Made in China 2025.

This was to get Chinese firms to be world leaders in 10 high-tech sectors, including artificial intelligence, robotics, semiconductors, electric cars and aerospace.

Alarmed by the prospect of Chin­ese domination of the commanding industries of the future, Trump has been countering the ways by which China is developing its world-class companies. This is through trade, investments, subsidies and support, and acquisition of technologies and intellectual property.

The extra tariffs are meant to inhi­bit Chinese exports. The new Export Control Reform Act increa­ses powers to regulate US exports of emerging and foundational technologies of importance to national security, and can be used to ban sales of components and technologies to China.

To prevent Chinese companies from buying into US companies (and acquiring their technologies), the review powers of the US Com­mittee on Foreign Investment have been strengthened.

Last month, new national security rules were passed to allow review of small minority investments into sensitive US technologies, including biotechnology, nanotechnology and wireless communications equipment. The aim is to hinder Chinese firms from buying even small stakes in US tech start-ups.

The US has also been blocking attempts by Chinese firms to take over or buy controlling stakes in US companies, also on national security grounds. For example, the same com­mittee recently refused to app­rove a US$1.2bil (RM5bil) deal bet­ween Money Gram, a US money transfer company, and Ant Financial, a Chin­ese electronic payment company.

European countries and Australia are also increasingly restricting Chinese companies from investing in or taking over domestic firms.

Moreover, the US has banned the use of Huawei’s 5G-related equipment, with Australia and New Zealand following suit.

US officials have also been touring Europe to warn against choosing Huawei equipment, leading to growing concerns over the risk of Chinese spying and the security of 5G networks that use Huawei technology.

When slapping extra tariffs on Chinese products, Trump accused China of intellectual property theft and forced technology transfer.

The US actions cited national security grounds or used the unilateral Section 301 of its domestic trade law. Most World Trade Organ­isation (WTO) law experts view these actions to be a violation of various WTO laws.

Many countries have taken cases against the US in the WTO.

Perhaps feeling that the WTO rules constrain several of its planned actions, the US has moved to cripple the organisation’s dispute settlement system by blocking its appellate body from adding new members.

By the end of 2019, that body will not have enough members left and the WTO will become ineffective as it loses its strongest function.

There would be no more formal way within the multilateral trade system to legally challenge the US actions against China or other countries. Or for any country to challenge the actions of another. The system would break down.

Then the global trade order would slip from rules-based to each country for itself. America first, France first, Britain first, are already in vogue, and many others will follow suit.

The trade war that started with some aluminium and steel may thus snowball into a world of anarchy, where only might prevails.

It is an awful scenario, but not an unrealistic one to ponder upon as 2018 draws to a close.

It is not too late to halt this trend, but something has to give or change drastically in the US, if we are to have even a small chance to avoid disaster.



Global Trends  by martin khor

Martin Khor is adviser of the Third World Network. The views expressed here are entirely his own.

About TWN - Third World Network

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