In this essay, Shi explains to Chinese foreign policy elites how the U.S. national security system works. Shi has experience living and working in the United States — he was a visiting scholar at Harvard from 2008-2009, for example — so his experience is more informed than other mainland experts, but it is still written from the perspective of someone looking at America’s national security apparatus from the outside. 

I don’t agree with all of his assessments. For example, I think Shi’s view that most U.S. policymakers think that “history will be on [their] side,” which can lead to a tendency to support unilateralism and interventionism, overlooks the strong differences of opinion on this issue within American foreign policy circles. He also parrots some Chinese government talking points, including the view that the U.S. is fixated on maintaining global hegemony. But overall, my sense is that he does a good job at capturing general themes, especially in terms of how systems and processes work. (That said, I’m not an expert in this area, so if you are, and if you notice content that is factually wrong, please let me know and I’ll update the web version of this email newsletter.)

I hope to see more papers like this. Indeed, one of the stumbling blocks in diplomacy is that diplomats and policymakers can forget that other countries’ systems function differently than one’s own country, which can lead to misjudgments about whom to engage and which opinions matter the most. So, I applaud Shi’s efforts to promote understanding about the U.S. policy environment among Chinese policymakers.

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Shi writes that U.S. national security policy has the following five characteristics:

1. Focuses on maintaining global hegemony
   While other countries think of national security strictly in terms of policies and behaviors designed to protect one's own borders and to maintain domestic security, the United States takes a much more expansive view, Shi writes. He argues that the United States’ national security agenda is also based on maintaining its global hegemonic status.
   

2. National security also means economic security, political security, and promoting American values
   Shi explains that the US definition of national security goes well beyond considering physical security, intelligence, and counterintelligence issues alone, as most countries do. The U.S. definition also includes commercial interests and the promotion of American values. The definition is ever-widening, too, Shi adds, noting that the 2010 National Security Strategy (NSS) included cybersecurity, along with national security, public security, and economic security objectives.
   

3. It assumes moral superiority
   American policymakers also think it is important to promote American “morality and ideology”, Shi writes, adding that U.S. policymakers think that American-style liberal democracy is the “highest achievement” in the history of human development. This leads “most” American policymakers to believe that “history will be on [their] side,” contributing to a tendency to favor interventionism and unilateralism to solve problems.
   

4. Emphasizes military and technology superiority
   U.S. policymakers want to see decisive victories, which can be secured as long as the US can maintain technological and/or military domination over its rivals. As a result, U.S. policymakers promote policies that support U.S. technology firms and contain foreign technology rivals like China.
   

5. Promotes the international system in its current form
   In the past, other hegemonic powers conquered territories or enslaved populations to maintain global dominance. The U.S. has taken a different approach, Shi writes. He explains that the U.S. forms alliances with other countries and promotes international organizations as a way to benefit and “borrow” from others’ power.

National security policymaking structure and process

After spending some time explaining the legal framework that establishes America’s national security apparatus — he discusses the National Security Act of 1947, which created organizations like the National Security Council (NSC) and CIA — Shi details specific concepts that he concludes are important to understanding how U.S. policymakers develop and execute national security policy. These include:

1. Promulgation of the annual National Security Strategy
   Shi explains that the Goldwater-Nichols Act requires that every White House publish and transmit to Congress an NSS, which is typically written by the NSC with input from other national security agencies.
   
   While there are formal processes for national security agencies to provide input to and to review the NSS, there is also considerable informal back-and-forth between the agencies, too. The NSC’s job is to help resolve conflicts, Shi writes. For example, he says that the Department of State and Department of Defense (DOD) frequently have competing goals and the NSC must intervene to make final decisions in those cases.

   Shi observes that outside political forces also try to influence the NSS. For example, the White House and other national security agencies meet with outside groups to seek their consultation in the development of the NSS. Congress will also opine. Although Congress does not have the formal authority to approve or restrict elements of the NSS, Congress does carry influence because many elements tied to the NSS, such as DOD acquisition, are subject to Congressional approval, Shi writes.
   
   Following publication of the NSS, Shi explains that other agencies develop their own derivative strategies, such as the Nuclear Posture Review, National Intelligence Strategy, National Cyber Strategy, and others. 

2. The US president sets the tone on American foreign policy
   Shi writes that US foreign policy can change significantly depending on who is the American president. The NSC sits inside the White House and acts as the “imperial center” of the American national security system, Shi explains, adding that its proximity to the president gives it more influence than other national security agencies. As a result, Shi writes that it is often through the NSC that the president will direct the administration’s most important policies or highly controversial policies or programs. For example, the Reagan Administration ran the Iran-Contra program through the NSC, Shi notes.
   
   The strength of the NSC depends on who is president and the relationships that president has with other cabinet heads, he explains. For example, Nixon directed much of his foreign policy through the NSC whereas Kennedy leaned more heavily on his Secretary of State, Shi writes.  
   
   American presidents tend to enjoy more widespread public support for their foreign policies than for their domestic policies, so the U.S. Congress tends to support presidents’ foreign policy agendas, Shi explains. He adds that, during times of conflict, presidents also tend to enjoy a “rally around the flag” effect in support of their policies, especially at the beginning of armed conflict, however this public support can wane over time.

3. Other agencies have increasing influence in US foreign policy
   Shi writes that as the American definition of national security has evolved over time, a corresponding and increasing number of U.S. government agencies have also started to play a role in setting America’s foreign policy agenda. In addition to agencies like the Department of State, DOD, and the CIA, which have been the traditional actors in American foreign policy, agencies like the Drug Enforcement Agency and the Department of Treasury are increasingly influential, he writes.
   

4. National security policymaking is not always transparent
   While the U.S. government has formal processes for developing national security policies, policies can also take shape in informal ways, too, Shi writes. The president may have conversations with friends and advisers that inform his thinking, for example, Shi explains. However, given that the rule of a law is a foundational principle in the United States, presidents are unlikely to operate outside of what is legally permissible, he notes.
   

5. The CIA is a strong intelligence agency, but it is not Washington’s only spy shop
   Shi writes that in addition to the CIA, other government agencies have their own intelligence offices and/or agencies, including DOD, and the Department of State, among others. Shi explains that the intelligence community (IC) operates under the direction of the Director for National Intelligence (DNI).
   
   As a global power, the United States is “keen on overseas intervention, and its external covert actions are unparalleled in frequency, cases, and influence,” Shi argues. One of the reasons why the CIA is so strong is that it is able to work through networks and partnerships with other countries’ intelligence agencies, he adds.
   
   He also comments on U.S. laws governing the IC. This includes rules and regulations that protect the identities of intelligence officers, promote information sharing and coordination among IC agencies (an outgrowth of the 9/11 attacks), and laws that prohibit the CIA from domestic spying. Shi writes that Congress has oversight over the IC, but has relatively little control over the IC’s activities, especially regarding covert actions.
   

6. The U.S. is willing to do what it takes to win the battle over technology
   Shi writes that the U.S. national security community sees technology superiority as its next major challenge and that it is willing to circumvent “market forces” to ensure that America maintains a technological edge over other countries, including by investing in areas such as quantum computing and artificial intelligence. He adds that this also includes adopting policies to contain Chinese companies, especially those active in sensitive sectors like 5G. 
   

7. The U.S. military is in a “crisis” but generally enjoys public support
   Shi writes that the U.S. military is in the midst of a “crisis” relative to the broad public support that it has historically received because of a string of military sexual harassment cases and past news about U.S. military involvement in torture cases, among other issues. However, he explains that the U.S. military generally receives strong public support because the U.S. economy (and jobs) is so tied to defense spending. The U.S. government also has many education and scholarship programs that are supported by the U.S. military, so this further increases the public’s contact with and support for a strong national defense, Shi comments.
   

8. The national security agenda will likely expand over time, but there are limits
   Shi concludes that the U.S. national security agenda will likely continue to expand over time and will include new areas. However, even the United States has limits. He says that the U.S. will still be constrained by budget realities, so spending and expansion of the national security agenda will wax and wane over time. 

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Attendees included representatives from Jilin University (the journal’s publisher) and the China Institute of Modern International Relations, which is affiliated with China’s Ministry of National Security. The journal published one essay and three of the ten speeches delivered during the symposium, including from:

• Li Xiao, Dean of the School of Economics, Jilin University; 

• Yu Xiao, Dean of the Northeast Asian Research Institute, Jilin University; 

• Wang Da, Deputy Director of the American Institute of Jilin University, and; 

• Jiang Yang, Associate Professor, Northeast Asia Research Center, Jilin University

(Note: The journal does not make it clear who gave the speeches and who wrote the essay.)

My quick take: Not too many surprises. These foreign policy thinkers understand (accurately, I think) where the US-China relationship is likely to stay on rocky ground -- like sensitive high-tech issues -- and where there are opportunities for cooperation, like climate change, public health, and arms control. They are also acutely aware that President Joe Biden wants to re-engage with US allies, partners, and multilateral institutions. On many issues, the best US policy on China has less to do with how Washington handles its bilateral relationship with Beijing, and more to do with how it manages its relationships with everyone else. These experts are concerned that if Beijing doesn’t improve its relationships with its neighbors in the region, including by showing more “strategic patience” on territorial disputes with historic rivals like South Korea and Japan, that the US might successfully woo countries in the Asia-Pacific into constraining China’s regional ambitions.

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I’ve summarized some of the experts’ main arguments below, but you can also navigate to the source document here.

• The experts anticipate that President Joe Biden’s approach to China will be less confrontational than President Trump’s approach but more confrontational than President Obama’s. Wang Da expects the US will continue to take a hard line in certain fields, such as 5G, artificial intelligence, and quantum computing, but will relax its aggressive “decoupling” strategy in other less sensitive sectors. He believes President Biden will also marry a strategy of constraining China’s innovation capabilities in key areas with policies that increase US domestic spending in science and technology.

• The experts agree that the United States will try to “contain” China in political, security, and economic fields by rebuilding alliances weakened under the Trump Administration, especially among European Union countries, Japan, and South Korea, and by giving greater attention to regional and multilateral groupings like ASEAN. Li Xiao observes that many members of the new Biden Administration were also part of the Obama Administration, which negotiated deals like the Trans-Pacific Partnership as part of a strategy to contain China.

• Jiang Yang writes that China must focus on strengthening its relationships with its neighbors. This includes exercising “strategic patience” on territorial disputes, including those with South Korea, Japan, India, and South China Sea claimants, and to provide “unswerving support” for ASEAN. Jiang acknowledges that some of China’s neighbors have indicated a preference for a stronger US presence in the region, but even those countries that have had serious territorial and maritime disputes with China, like Vietnam and the Philippines, do not want their disputes with China to intensify. These countries also do not want to have to “choose sides” between Washington and Beijing, Jiang says.

• The experts agree that the Biden Administration is likely to continue to “launch wars of public opinion against China” on sensitive issues, including Taiwan, Hong Kong, Xinjiang, Tibet, human rights, and freedom of navigation in the South China Sea. Yu Xiao thinks the “North Korea nuclear issue will become the greatest hidden danger to peace and security in Northeast Asia.” He expects that President Biden will use sanctions and a “maximum pressure policy” on North Korea.

• However, Jiang argues that China should “not be overly worried” about shifts in US strategy in Asia. The “relative strength of the US has been reduced” in the region, he says, arguing that the Trump Administration’s strategy to apply pressure on Japan and South Korea to increase their military expenditures was a “manifestation” of the United States’ declining strength in Asia.

• Still, Li thinks that the US will remain the world’s lone superpower for some time. People have been discussing the “decline of the United States” and writing “obituaries for the US dollar” since the 1960s, he writes, but the US is still the most powerful country in the world and there is no safer asset than the US dollar.

• Despite the experts’ general pessimism for smooth sailing in the US-China relationship, they agree that the US and China have more opportunities to work together now that President Trump has left office, especially in the areas of: climate change, terrorism, arms control, public health, food safety, and trade. Yu anticipates that President Biden will want to “ease” relations with China and return to “dialogue and negotiations to resolve differences.”
  
  

Below I’ve summarized eight of their main arguments. I’ve also reprinted an essay I published last week in The China Story, where I offer additional commentary. I argue that, while some of China’s top foreign policy thinkers want to see more restraint in China’s foreign policy, Xi Jinping is unlikely to moderate without strong incentives to do so. However, with multilateralist Joe Biden set to take office, Xi may eventually determine he that has no better choice.

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Eight main arguments presented by the essayists:

1. Because of Donald Trump, US-China relations have deteriorated significantly over the past four years. But relations are unlikely to significantly improve under a Biden Administration. Washington’s conservative superhawks are no longer alone in their “anti-China” perspective – both major political parties now embrace it.

2. Opportunities for renewed US-China engagement on most technology and economic issues look bleak, but the two sides can work together on climate, clean energy, and some security issues like arms control.

3. Calls in Washington to “decouple” from China will increase, which will accelerate the development of two competing tech models, one led by the United States and the other by China. For third countries, choosing between the two will be like picking between Apple and Android, with each having its own derivative technologies and applications.

4. With Washington’s global influence on the decline, the United States will one day lose its hegemonic status. But China cannot easily fill this vacuum in the short term. Its soft power is still too limited and the United States will long remain a dominant force. China needs more international friends before it can become a great power equal to the United States.

5. To increase its global influence, China should become more active in international organizations like the World Trade Organization. It should lead efforts to reform existing global governance structures. Many countries have lost faith in the international system.

6. At the same time, Beijing should double down on efforts to create new international coordination mechanisms that put China at the center, including via initiatives like Belt and Road and by negotiating more agreements like the Regional Comprehensive Economic Partnership. 

7. China should also put more energy to strengthening relationships with its neighbors and major powers, including with historic rivals like Japan. A number of the United States’ long-standing friends and allies, including those in Asia and especially those in Europe, feel increasingly lukewarm about their American partners.

8. Some (not all) authors argued for more restraint in China’s foreign policy. Renmin University’s Shi Yinhong went so far as to argue that Beijing should pursue a strategic and military “retrenchment” in the South China Sea, Taiwan Straits, and on arms control issues, which can be used as a “bargaining chip” to improve relations with the United States.

My essay in The China Story, published by the Australian Centre on China in the World at the Australian National University. Reprinting here with their permission:

In a compendium of essays published recently about the future of US-China relations, eleven of China’s top foreign policy thinkers made familiar arguments, including that US global influence is waning and that China can reshape international systems. Some experts also took the unusual step of arguing that China should adopt a more self-effacing foreign policy. Xi Jinping is unlikely to heed that advice, however, especially as he tries to fashion himself as a stronger version of Deng Xiaoping. But if Joe Biden takes a more multilateral foreign policy approach than his predecessor did, Xi may determine that he has no better choice.

Among the more moderate essayists published in the Chinese-language Journal of International Affairs last month, Renmin University professor Shi Yinhong wrote that China should show “patience and restraint” in the face of other countries’ anti-China behavior. Just because China can deploy a countermeasure does not mean that it always should. Most Western European countries have tried to stay neutral on the US-China rivalry, he said, sometimes siding with the US, and other times with China. Beijing should find ways to shrink the number of “anti-China” countries and to increase “neutrals and sympathizers.”

Professor Xu Wansheng from the military-run University of Information Engineering described the “vital importance” of stabilizing Japan-China relations, which he said can serve as a “buffer” to tense US-China relations. Xu argued that Beijing should invest more in its relationship with Japan, including a greater effort to find points of agreement on historically contentious issues like the East China Sea dispute.

But those who advise restraint are losing the argument, at least for the moment. In 2020 alone, China’s foreign relations have been defined by: border skirmishes with India; increased militarization of the South China Sea; expulsions of foreign journalists; diplomatic spats with Australia, Canada, the US, and multiple European countries; and the rapid ascension of conspiracy theory-peddling, scorched earth-style “wolf warrior” diplomats like Zhao Lijian.

All the while, Beijing has committed massive human rights abuses in Xinjiang and heavily cracked down on dissent in Hong Kong. And yet, in spite of this behavior, it has still been able to secure some foreign policy wins. In November, for example, China joined ASEAN and other countries in the Asia-Pacific to create the Regional Comprehensive Economic Partnership, the world’s largest trading bloc. A month later, the EU and China concluded an investment agreement.

Underpinning much of China’s behavior are power and ego. Xi Jinping wants the Chinese people to see him as a stronger version of Deng Xiaoping. And by channelling the virulent nationalism of Mao Zedong, he hopes to cast himself as the modern version of Mao, too. Beijing’s current brand of diplomacy is a far cry from Deng’s maxim “keep a low profile and bide your time.” Those working at China’s Ministry of Foreign Affairs have quickly learned that the diplomats who issue provocative, bellicose statements that defend China’s honor are more likely to get ahead than the ones who adopt a more subdued style.

From the perspectives of these foreign policy essayists, China is ascendent and the US is on the decline. Both the Chinese hardliners and their moderate counterparts say that the days of American hegemony are numbered. Fu Mengzi from the China Institute of Modern International Relations anticipates the emergence of two global tech and economic models, one led by the United States, and the other by China.

Assuming that Xi holds a similar worldview, why would he change tack now? It is unlikely that he would do so just to ingratiate himself with the new American president. Many on the China side doubt that the Americans even want to deal, so olive branches are moot. Tsinghua University’s An Gang writes that large parts of both of the major US political parties have become “anti-China,” which stymies the chances for major diplomatic breakthroughs in all but a few areas such as climate and clean energy. Shi Yinhong recommends Beijing to pursue strategic and military retrenchment, especially with respect to the South China Sea, Taiwan, and arms control issues. In his view, this can be a “bargaining chip” to improve relations with the United States. But he is virtually alone in making this kind of unconventional recommendation.

Yet Joe Biden may still be the reason Xi ultimately decides to moderate. Not because Xi thinks that doing so would entice Biden to put the US relationship with China on a new footing, but because of Biden’s approach to working with the rest of the world. After all, China still has no true allies. It has been able to run roughshod over smaller countries because it takes them on one by one. The world may look more bipolar than it did four years ago, but China is still no match for America and its partners when they work together. And Joe Biden is a multilateralist at heart.

If Joe Biden brings a return to working with friends and allies, as he has said he will, expect the US and its partners to work together to promote and enforce a shared understanding of expected norms of international behavior. This could mean, for example, that one country should be able to criticize another without consequence of crippling sanctions from China. And, in the event of such an incident, that like-minded countries would be more likely to collectively support the victim, and deter and punish China.

In the short term, these kinds of policies could have a “rally round the flag” effect in Beijing, especially if they are interpreted as “anti-China.” But over the long term, as Xi learns that he can no longer saber rattle without penalty, he may decide to moderate, although he would never publicly admit to doing so. The challenge for his spin-masters then, would be to still find ways to cast him at home as the world’s new enlightened strongman.

Second, since I started this newsletter last year, many of you have asked how I source essays to translate and to summarize. Below is a (very) rough guide. Thank you to ChinaTalk’s Jordan Schneider for suggesting that I write this up.

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Navigating Chinese Academia

Whether at school or in your career, I suspect that you have used a service like JSTOR, which is a digital library that of books, newspapers, academic publications, and more. China’s version of JSTOR is called CNKI, the China National Knowledge Infrastructure, hosted by Tsinghua University with support from the Chinese government. To access CNKI directly visit cnki.net.

There is a lot inside of CNKI. Like JSTOR, it serves as a repository for newspaper articles, patents, government documents, and other reference materials. For the purpose of this walkthrough, I’m only going to explain how to search through top academic journals, but many aspects of this walkthrough should be applicable to other parts of the CNKI portal.

Before you get started, a note about language. Most of CNKI is in Chinese. If you don’t read Chinese that well, I’d encourage you to install this Google Translate Chrome extension. There is an English version of CNKI, which you can access by clicking this link, but I have found that it times out a lot, so I usually use the Chinese version of CNKI and will also frequently use the Chrome extension on top of it, which does a pretty good job translating most of the time.

Step 1. Get registered (not required to search and view paper abstracts)

Many universities have subscriptions to CNKI and provide access to the service to current students and alumni. Columbia University affiliates can access CNKI via this link, for example.

If you don’t have access to CNKI via a higher education institution or your place of work, fret not. You do not need an account (or need to have money in your account) to search for articles or to view abstracts. 

You will need to have a funded account, however, if you would like to download full-length articles.

To create an account click here or click on the link at the top-right part of the CNKI webpage. Once you do that, you’ll need to fund your account. At the time of this writing, the only ways to pay are via AliPay, WeChat, and UnionPay. PayPal, which used to be an option, is no longer available. 

Step 2. Navigate to the search page

Once you’re ready to search through academic journals, you can access the academic journals part of the CNKI portal from the home page or by clicking here. 

Then, click on the “Advanced Search” button, which you can also access directly by clicking here.

Once you’re in the Advanced Search part of the site, you can build queries according to different parameters, including by subject area, keyword, and journal name. I usually go a step further and navigate to the “Professional Search” tab where you can build even more customized queries, including to search many journals at once.

Step 3. Start searching top journals

CNKI provides access to thousands of academic journals of varying degrees of quality and influence. To source content for the Chinese Journal Review newsletter, I typically only search through the top journals in politics, international affairs, law, and economics. 

To determine which journals count as “top” sources, I combed through this part of CNKI’s website, which contains information about the total number of times that articles from different journals have been cited and downloaded. CNKI has also assigned many top journals a “composite impact score.” The higher the impact score, the more influential the journal.

Taking into account these criteria (citations, downloads, and composite impact scores), I created this list of top journals in the politics, legal affairs, international affairs, and economics fields:

POL/LEGAL 中国法学 China Legal Science

POL/LEGAL 中外法学 Peking University Law Journal

POL/LEGAL 法商研究 Studies in Law and Business

POL/LEGAL 法学家 The Jurist

POL/LEGAL 政法论坛 Tribune of Political Science and Law

POL/LEGAL 法律科学 Science of Law (Journal of Northwest University of Political Science and Law)

POL/LEGAL 世界经济与政治 World Economics and Politics

POL/LEGAL 法学论坛 Legal Forum

POL/LEGAL 法学研究 Chinese Journal of Law

POL/LEGAL 法学 Law Science

POL/LEGAL 政治学研究 CASS Journal of Political Science

POL/LEGAL 当代法学 Contemporary Law Review

POL/LEGAL 清华法学 Tsinghua University Law Journal

POL/LEGAL 外交评论 Foreign Affairs Review

ECON 经济研究 Economic Research Journal

ECON 中国工业经济 China Industrial Economics

ECON 数量经济技术经济研究 The Journal of Quantitative & Technical Economics

ECON 世界经济 The Journal of World Economy

ECON 金融研究 Journal of Financial Research

ECON 国际金融研究 Studies of International Finance

ECON 中国农村经济 Chinese Rural Economy

ECON 管理世界 Management World

And these journals in the information technology field:

IT 计算机学报 Chinese Journal of Computers

IT 电力系统自动化 Automation of Electric Power Systems

IT 自动化学报 Acta Automatica Sinica

IT 软件学报 Journal of Software

As well as these additional regional and international affairs journals:

REGIONAL 东北亚论坛 Northeast Asia Forum

REGIONAL 当代亚太 Journal of Contemporary Asia-Pacific Studies

REGIONAL 国际安全研究 Journal of International Security Studies

REGIONAL 南亚研究 South Asian Studies

REGIONAL 西亚非洲 West Asia and Africa

REGIONAL 太平洋学报 Pacific Journal

REGIONAL 欧洲研究 Chinese Journal of European Studies

REGIONAL 东南亚研究 Southeast Asian Studies

REGIONAL 美国研究 The Chinese Journal of American Studies

REGIONAL 亚太安全与海洋研究 Asia-Pacific Security and Maritime Affairs

If you want to search across all of these journals at once, as I often do, you can copy and paste the following code and enter this text into the professional search field. I use the query code JN=(“ “) to indicate that I want to search multiple journals, but you can use other codes such as SU=(“ “) for subject or AU=(“ “) for author.

JN=("中国法学"+"中外法学"+"法商研究"+"法学家"+"政法论坛"+"法律科学"+"世界经济与政治"+"当代亚太"+"法学论坛"+"法学研究"+"法学"+"政治学研究"+"当代法学"+"清华法学"+"外交评论"+"经济研究"+"中国工业经济"+"数量经济技术经济研究"+"世界经济"+"金融研究"+"国际金融研究"+"中国农村经济"+"管理世界"+"计算机学报"+"电力系统自动化"+"自动化学报"+"软件学报"+"东北亚论坛"+"当代亚太"+"国际安全研究"+"南亚研究"+"西亚非洲"+"太平洋学报"+"欧洲研究"+"欧洲研究"+"东南亚研究"+"美国研究"+"亚太安全与海洋研究")

In addition to entering custom search content, you may also want to filter based on date of publication.

Sometimes, especially if you don’t apply any filters, this query will time out. If that happens, you should either a) further restrict the time period that you are searching or b) limit the number of journals you are searching to just 10-15 or so at a time.

Step 4. Look at your results

Assuming that you don’t time out, once you click search, your results should surface (it can take up to 20-30 seconds for that to happen, so be patient).

Once I have my results, I typically sort and choose articles to summarize first according to the number of article citations, followed by downloads. If an article is published by a journal affiliated with the state-affiliated Chinese Academy of Social Sciences (e.g. Management World), I’ll also look at that article before I navigate to others. (Note: At some point in the future, I’ll update the online version of this email newsletter to include information about which entity publishes each journal listed above. Check back in a few weeks.) 

Once you’ve surfaced your results, click on any article to learn more information about it, including to see the article abstract, details about the authors, and other information. Again, if you don’t read Chinese, you may want to download the Google Translate Chrome extension. 

If you want to download the article, you’ll need to have a funded account (or you’ll need to be logged in via an educational institution that has access to CNKI). See Step 1, above, for more information about this point. 

And that’s it! There is a lot more to CNKI, so I encourage you to click around and see what you can discover. This guide is designed just to get first-time searchers up and running.

If you encounter any hiccups, feel free to email and I’ll try to help out. In the meantime, I’ll try to keep this page updated, especially if the site goes through any major changes. Until then, happy searching!

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As policy analysts consider the prospects for China’s longer-term recovery, however, many are paying attention to the health of the country’s small- and medium-sized enterprises (SMEs), which make up 60 percent of China’s GDP, generate 70 percent of its innovation, and employ 80 percent of the urban labor force. According to a Center for Global Development working paper published last month, between February and April, approximately 18 percent of China’s SMEs closed their doors for good, eliminating 14 percent of China’s total jobs. 

In early February, amid the peak of China’s Covid-19 outbreak, Chinese policymakers announced a swath of policies to stand up SMEs, including tax cuts, tax holidays, stimulus packages, loan extensions, subsidies, suspensions of administrative fees, and other supports.

Many of these policy supports likely did not provide help for SMEs quickly enough, however. According to a paper published in April by scholars affiliated with Tsinghua University and the Chinese Academy of Social Sciences (CASS) in the CASS-sponsored Management World journal, many of China’s SMEs did not know about these new government programs, benefits, or subsidies when they were announced, or did not know how to apply for them. 

As of this writing, the Tsinghua/CASS essay has been cited in 49 articles and downloaded 12,686 times, making it the most cited research published in Chinese academia in the social sciences/economics field this year, and the second most downloaded one. It was written by Zhu Wuxiang (朱武祥), Zhang Ping (张平), Li Pengfei (李鹏飞), and Wang Ziyang (王子阳).

According to the authors, who summarized survey results collected in mid-February from more than 500 SMEs, 59.2 percent of firms surveyed said that they did not receive any part of packages of benefits announced in early February designed to reduce the costs of operating their businesses, such as refunds of unemployment insurance payments. And 73.8 percent of firms said that they did not receive promised tax benefits, either, such as exemptions or reductions in real estate tax, land use tax, income tax, or value added taxes.

Delays in rolling out these government support programs likely had big impacts on SMEs’ abilities to withstand the Covid-19 economic crisis. In an earlier survey conducted by the same researchers in early February of more than 1,500 SMEs, 37 percent of firms surveyed reported that they had less than one month of cash on hand to pay for operating expenses while 85.8 percent of SMEs had enough cash on hand to pay for three months of operating expenses. Just eight percent of firms had enough cash on hand to pay for 6 months of operating expenses.

The researchers attributed delays in getting financial supports to SMEs to a number of factors, including: poorly designed government websites (which made it difficult for SMEs to apply for benefits); weak government-to-SME networks (the government does not have a good way to easily communicate with microenterprises, for example); low literacy levels among SMEs, especially very small SMEs, about government services, and; overwhelmed government officials who could not process claims quickly enough. Many government officials were quarantined during this period and unable to work from home.

The authors also reported the following:

• As a result of the global pandemic, 59.1 percent of surveyed SMEs anticipated a drop in income in 2020 of more than 20 percent; 31.9 percent anticipated a drop in revenue of more than 31.9 percent.

• The pandemic would take its greatest economic toll on small firms.  Among those companies that anticipated a drop in revenue of more than 50 percent, 70 percent of those firms had less than 10 million RMB operating income (~$1.49 million USD).

• SMEs would react to the crisis differently depending on their size. Whereas 48.54 percent of firms that employed more than 1,000 people said that they would likely try to obtain loans to pay for cash shortfalls, just 32.1 percent of smaller firms said that they would do the same, and that they would instead suspend operations or lay off employees.

• By mid-February, 57.6 percent of SMEs had not returned to work. Among SMEs with 50 or fewer employees, 70.9 percent had not returned to work. The most common reason cited was supply chain disruptions, either because raw materials orders could not be fulfilled or because customers cancelled their orders. 42 percent of SMEs were worried about potential legal liability if an employee contracted Covid-19 as a result of reopening.

The writers concluded their paper with recommendations for policymakers to reduce delays and to provide greater supports for SMEs:

1. Given that many traditional lenders are unwilling to provide credit during economic shocks, the government should create new vehicles to provide cash for equity (not debt) to help stand up SMEs.

2. The government should also partner with third party firms that specialize in microfinance like Ant Financial, Xinwang Bank, and WeBank to more efficiently direct financing to small firms and micro-enterprises.

3. The government should also improve online services available to SMEs, including the creation of a one-stop “green channel” website that quickly gives SMEs the ability to apply for the range of benefits available to them via one location.

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Today, however, while doing research for this newsletter, I stumbled upon this English-language paper from Stanford University and Communication University of China academics, who looked into the effects of exposure of racism on Chinese students’ views towards their own leaders and political system.

The researchers found that when Chinese students read racist, anti-China commentary on online U.S. platforms, this increased the likelihood that those students would support autocracy back home. The results were especially pronounced among students who were initially predisposed not to support autocracy: this group had the biggest swing in favor of autocracy of all groups surveyed.

When I was a U.S. diplomat, I worked a lot with EducationUSA, a State Department-funded network that encourages foreign students to pursue a higher education in the United States. This is big business: in the 2018/2019 academic year, foreign students in the United States created more than $44 billion in exports for the U.S. economy, which supported more than 450,000 jobs. China has long been the number one producer of foreign students at U.S. colleges and universities.

In addition to being good for the U.S. economy, the assumption has also been that increasing the numbers of foreign students in the United States had other positive externalities, too: many foreign students will return home to become their countries’ next political, business, media, and cultural leaders. Their building networks with other Americans and holding favorable views of the United States helps promote trade, human rights and democracy, and peace.

This research pokes holes in that assumption. During the global Covid-19 pandemic, President Trump, the White House, parts of the media, and various Republican officials have made repeated references to the “China virus.” Xenophobia overall is on the rise. Chinese students studying in the United States are more likely to be exposed to anti-China, xenophobic views than those studying in China. 

Based on this research, you have to wonder how many of these students will return to China with a more negative view of the United States than before, as well as how much this benefits Xi as he attempts to consolidate power.

The research also found that legitimate criticisms against China’s government, especially its handling of the Covid-19 outbreak, did not increase or decrease students’ support for the regime. Legitimate criticisms are fair game, but xenophobia helps Xi, it seems.

I’ve included the summary of the paper below. 

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Title: How Discrimination Increases Chinese Overseas Students’ Support for Authoritarian Rule
Authors: Yingjie Fan; Jennifer Pan; Zijie Shao; Yiqing Xu (all at Stanford University)
Date: Submitted to SSRN in June 2020, updated August 2020
Link: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3637710

In a paper written in June and updated this month, Stanford University researchers found that exposure to racist comments on U.S. media platforms resulted in a higher likelihood that Chinese students would increase their support for autocracy, trust Chinese leaders more, and oppose political reforms.

The researchers surveyed 377 first-year Chinese students studying at one of 66 U.S. institutions and 615 first-year students studying at three top-tier Chinese universities. They broke the U.S. and Chinese samples into three sub-groups: 

• a Control group, which was exposed to Chinese media reports of Dr. Li Wenliang’s death and Chinese-language commentary from a Chinese online platform that was critical of the Chinese government’s handling of Covid-19;

• a Treatment A group, which was exposed to a Chinese media report of Dr. Li Wenliang’s death and commentary critical of the Chinese government’s handling of Covid-19 on a U.S. online platform (translated into Chinese), and;

• A Treatment B group, which was exposed to a Chinese media report of Dr. Li Wenliang’s death, commentary critical of the Chinese government’s handling of Covid-19 on a U.S. online platform, and additional commentary that included racist remarks about Chinese people on a U.S. online platform (translated into Chinese). 

Dr. Li Wenliang was the first Chinese doctor to sound the alarm about Covid-19. His death from the virus sparked national outrage at Chinese officials for their handling of the Covid-19 outbreak, including for police questioning Dr. Li for “spreading rumors” about the virus.

Respondents took surveys pre- and post-exposure to the media articles and online commentary to measure the effects of racism on their support for the Chinese government, trust in Chinese leaders, and support for one-party rule and political reforms.

The researchers measured support for autocracy by asking respondents to indicate how much they agreed with a series of statements such as, “Although the political system of our country has flaws, it is the most suitable to China’s current situation” or “It now seems that our country’s political system is not inferior to those of Western developed countries.” 

The researchers found the following:

• When Chinese students read non-racist U.S. commentary that criticized the Chinese government, this did not change respondents’ support levels for the Chinese government positively or negatively;

• However, when Chinese students were exposure to racist commentary on U.S. platforms, this increased respondents’ support for China’s current political system, made them less likely to endorse political reforms, and more likely to express trust for Chinese leaders, especially central level leadership;

• Students who initially reported that they were less nationalistic were the students most likely to be influenced by exposure to racist comments. The paper’s authors speculate that Chinese nationalists were more likely to already view the United States as an adversarial power, so exposure to racism in the United States only validated their views. For students who were less nationalistic, exposure to racist commentary exposed them to “new” information about the United States, which had a bigger effect.

• Chinese studying in the United States were more likely to oppose China’s political system than their peers studying in China. Among respondents in the U.S. sample, there was a sizable contingent that was “strongly against nationalistic policies and who do not support China’s current political system when compared with other students [studying in China]”;

• 89 percent of respondents said the United States handled the Covid-19 pandemic “badly” or “very badly” while the same percentage thought China handled the pandemic “well” or “very well.” More than 50 percent of respondents thought Japan handled the pandemic “well” or “very well” and more than 60 percent of respondents thought Korea handled the pandemic “well” or “very well.” 

I share Ryan’s observations as good context for this newsletter, in which I summarize three essays in the July edition of Northeast Asia Forum, published by Jilin University, that look at the impact of the Covid-19 pandemic on global governance systems like the World Health Organization, G20, IMF, and other bodies.

The first two essays, written by Zhao Kejin of Tsinghua University and Zhang Qingmin of Peking University, make arguments that are in line with observations three and four, above: that China is a steward for world stability and that the US is a source of problems. They see the Covid-19 pandemic as an opportunity for China to push for changes to existing global governance systems in ways that benefit China. The third essay, by Shi Benye and Ma Xiaoli from Jilin University, takes an even more assertive position, arguing that China should use the Covid-19 pandemic as an opportunity to reshape global governance systems, including to use Belt and Road as a platform that helps the world shift away from the “Washington Consensus.”

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Since the first two essays by Zhao Kejin and Zhang Qingmin share so much in common, I’ve included them as a joint summary. Zhao’s essay is entitled “Global Governance Dilemma and Its Roots under the Impact of the COVID-19 Pandemic” and Zhang’s essay is entitled “Covid-19 Tests Global Health Governance.”

Both authors write that the global pandemic should have created more opportunities for global cooperation. Instead, the opposite has happened.

Zhao argues that the global pandemic has turned many states against each other. He summarizes prominent Chinese international relations theorists who offer explanations why: Tsinghua University’s Yan Xuetong says the international system is still fundamentally “anarchic”; Renmin University’s Jin Canrong argues that governments in the West have shown “racial, institutional, and cultural arrogance” by believing in their own national “myths,” which have led them to shy away from international cooperation.

With limited exceptions, such as coordination between Japan, China, and Korea and ASEAN, global and regional bodies have not risen to the challenges posed by Covid-19, both authors argue. The Covid-19 pandemic has revealed the “shortcomings” of existing global governance structures, including at the UN, WHO, IMF, WTO, as well as regional groupings like the African Union, European Union, and Arab League, they write. As a backdrop to all of this, the US-China relationship has also become especially tense.

While praising China’s contributions, Zhang argues that the US has failed to help countries effectively coordinate, including by weakening international organizations like the WHO.

Both authors see a role for international organizations and global governance systems — and Zhao notes that existing mechanisms can handle smaller-scale problems in spite of their “deficits” — but global governance systems need reforms to address larger, more global challenges, they argue. Organizations like the WHO are not equipped to fight global pandemics alone because states are ultimately the ones that implement policies and allocate resources, Zhao writes, adding that beating Covid-19 and future large-scale disease outbreaks will require stronger international coordination, stronger domestic institutions, and political will:

“When a country's governance capacity is strong, and its willingness to cooperate with international organizations is positive, the effect of controlling an epidemic is better, such as China's epidemic control achievements. On the contrary, when a country has weak governance capacity or a low willingness to cooperate with international organizations, the effect of epidemic control is relatively poor.”

Both authors see the Covid-19 pandemic as an opportunity for China to push for long-wanted changes within international systems that increase China’s influence.

Zhang also argues that, as bilateral relations between the US and China deteriorate further, China should be prepared to ramp up its public diplomacy investments to bolster its international image, especially given the likelihood that the US will try to attack China on the global stage. 

In a third essay entitled “Reconstruction of the global governance system in the post-epidemic era with Chinese characteristics,” Shi Benye and Ma Xiaoli of Jilin University write that China should use the Covid-19 pandemic as an opportunity to shift the world away from the “Washington Consensus” to a “Community of Human Destiny,” which is a reference to Xi Jinping’s vision for a new global governance system that puts China more at the center.

Shi and Ma predict that the Covid-19 pandemic will move global power structures away from mechanisms that are state-led to more multi-party, fragmented mechanisms. They predict that this new model of globalism will “lead to the growth of non-US global governance leadership.”

The world was already moving in this direction even before the Covid-19 pandemic because of the United States’ “gradual decoupling from global governance systems,” they write. America’s “retreat” has brought about an “international power transfer” with increased influence for emerging countries and non-state actors.

Shi and Ma conclude with a series of recommendations for Chinese policymakers, including to:

1. Show increased leadership in existing multilateral mechanisms like the G20 to lead global coordination in the fight against Covid-19 and other epidemics. China should use these fora to promote trade liberalization, oppose protectionism, and create special funding vehicles for especially fragile countries.

2. Increase China’s influence within the WHO and other global health organizations. China should also propose to the United States that the two countries increase cooperation on vaccine and drug development.

3. Promote China’s Belt and Road Initiative (BRI) as a new global governance platform. Within BRI, China should establish a “Healthy Silk Road” program that provides more assistance to BRI countries to respond to public-health challenges. China should establish regional BRI emergency response systems, build province-to-state relationships to increase direct point-to-point assistance, and strengthen supply chains within and among BRI countries.

4. Improve East Asia integration, including by increasing coordination among regional public-health systems, cooperating on drug and vaccine development, accelerating negotiations to establish a China-South Korea-Japan Free Trade Area, and working together to enhance East Asian countries’ voices within international governance systems.

In the meantime, this week I highlight some of the key takeaways from an essay published by scholar Zhao Kejin in this month’s edition of the Chinese Journal of American Studies, who says that US-China relations are deteriorating, but disputes that the two countries are entering a new Cold War. Scroll below the jump for more.

Other essays of interest from the Chinese Journal of American Studies include:

• An analysis of the Trump Administration’s policy toward North Korea. Scholars Lin Limin and Peng Li write that Trump’s policy appears to have changed from “maximum pressure” during his first year in office to “summit diplomacy” in his second. It is now in a period of “strategic patience” reminiscent of Obama Administration-era policies, they write; and

• A study of 596 Taiwan-related bills and resolutions introduced in Congress between 1973-2020. Authors Lin Gang and Zhou Wenxing argue that as the U.S.-China bilateral relationship has deteriorated since 2016, the U.S. Congress has wanted to expand protections for Taiwan.

Readers may be interested to know that the Journal of International Security Studies also published a new edition this month, with essays about biotechnology, national security policy development, and international security in the context of foreign aid.

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Title: “Soft War” and Its Roots: China-U.S. Interactions during the Covid-19 Pandemic (“软战”及其根源——全球新冠肺炎疫情危机下中美关系相处之道)
Author: Zhao Kejin
Journal: Chinese Journal of American Studies
Link: https://bit.ly/2YDRxbq
Date: June 2020

In this essay, Zhao Kejin, the deputy director for the Center for Sino-US Relations at Tsinghua University, writes that the United States and China are not headed for a new Cold War, but a “soft war.”

Some key takeaways:

• Unlike the Cold War, the two countries are not competing for world hegemony, Zhao writes, and other countries are not forced to choose between two sides. The United States and China are still very interlinked economically, so it would be extremely difficult, if not impossible, to decouple global supply chains, which was not the case during the Cold War.

• Instead, relations between the two countries are presently deteriorating because both countries’ leaders want to shore up legitimacy with their own domestic audiences. Trump is concerned about looking tough on China to appeal to voters in the Rust Belt, he writes; Xi wants to project party unity. 

• US-China relations have been on the decline for some time, but many analysts thought things could change for the better in early 2020 as a result of the signing of a phase one trade deal and what appeared to be early US solidarity with China regarding the coronavirus outbreak in Wuhan. In the earliest days of the outbreak, Trump and Pence spoke approvingly of the Chinese response, Zhao notes.

• However, once the coronavirus pandemic accelerated in the United States, Trump’s tone changed. He blamed China, began calling it the “China virus,” and said he would hold China accountable for letting the virus spread. China’s Foreign Ministry also began to antagonize the U.S. government via Twitter (Commentary: This is undoubtedly a reference to Foreign Ministry official Zhao Lijian and others’ provocations, but Zhao Kejin does not explicitly use Zhao Lijian’s name). Public opinion in the United States regarding China has soured in recent months as compared to prior years, he notes. Both the Chinese and US sides have expelled media (he does not distinguish between Chinese state-run media versus other independent media outlets).

• China and the United States have fundamental disagreements regarding who is “right and wrong” on issues related to trade, social issues, and security (Commentary: Zhao goes on at length to argue why he thinks the U.S. is more in the wrong on these issues without giving similar discussion to China’s failings, though this may not be surprising given that Zhao is writing for a Chinese audience.) These issues pre-date the coronavirus pandemic, and have historically manifested themselves in the form of “trade wars, financial wars, and high-tech wars.” But in most cases, other countries have hedged their bets, choosing not to align themselves completely with China or the United States, which Zhao writes is a key difference from Cold War dynamics. Nonetheless, the global coronavirus pandemic has enhanced strategic competition between the United States and China. Zhao is pessimistic that the bilateral relationship will soon improve.  

• Zhao argues that the way towards a warming US-China relationship will be through joint participation in global-governance mechanisms, including via the United Nations and other international organizations. Given the challenging domestic circumstances in both countries, he questions whether a US-China relationship can improve through normal bilateral relations or even through the mediation of a third country.

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Note: The Chinese Academy of Social Sciences publishes the Chinese Journal of American Studies.

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The last essay was interesting but it leaves something to be desired: the authors write that AI adoption has had a statistically significant impact on helping Chinese firms increase their integration with global value chains, but they do not quantify how much of an impact these investments have had. For example, they write that, since 2008, China’s automotives industry has been the biggest adopter of AI among all sectors evaluated. The implication is that this has helped the Chinese automotives sector capture a larger share of the global automotives market, but the authors do not attempt to quantify how much more of a share Chinese firms have captured as a result of these AI investments. 

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Title: How industrial intelligence affects the rural-urban income gap (工业智能化如何影响城乡收入差距)
Journal: Chinese Rural Economy
Date: May 2020
Link: https://bit.ly/3hqX3Ft
Author: Liu Huan (刘欢), Chinese Academy of Social Sciences Graduate School

• In this essay, Liu Huan writes that industrial adoption of smart-manufacturing technologies, including artificial intelligence and robotics, has widened China’s rural-urban income divide, but with significant differences across regions. 

• Industrial adoption of smart-manufacturing technologies appears to have narrowed the wage gap for urban and rural workers in China’s eastern provinces, according to Liu, whereas these innovations have widened the urban-rural wage gap in China’s west. Liu did not observe a statistically significant change in urban-rural wage levels as a result of technological innovation in China’s central provinces.

• According to Liu’s research, workers from the west are the most vulnerable to technology-related job displacement and/or wage reductions for two major reasons: first, they tend to have lower education levels compared to their peers; second, given the opportunity to cut jobs because of new innovations, China’s complex household registration (hukou) system creates incentives for employers to eliminate jobs or to cut pay for migrant workers before they cut jobs for local laborers.

• This disproportionately affects migrant workers from the west, who make up a significant part of China’s total migrant worker population working in the east. As of 2015, 78.2 percent of China’s migrant workforce took jobs in China’s eastern provinces, with the highest agglomerations of migrant workers taking jobs in Guangdong, Zhejiang, and Jiangsu provinces. Use of industrial robots increased by an annual average rate of 36 percent from 2013-2017, with the highest rate of robotics adoption taking place among companies in eastern provinces, Liu writes. Women and older workers were the most vulnerable to loss of employment and wage reductions, she adds.

• Liu predicts that the government’s Made in China 2025 agenda, which emphasizes automation and a shift from low-value to high-value manufacturing, will further exacerbate urban-rural wage gaps.

Note: The Chinese Academy of Social Sciences publishes Chinese Rural Economy. Liu categorizes the three regions according to the following groups: east (Beijing, Tianjin, Hebei, Liaoning, Shanghai, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong, and Hainan); central (Shanxi, Jilin, Heilongjiang, Anhui, Jiangxi, Henen, Hubei, and Hunan), and; west (Sichuan, Chongqing, Guizhou, Yunnan, Shaanxi, Gansu, Qinghai, Ningxia, Xinjiang, Guangxi, and Inner Mongolia). Tibet was not included in Liu’s analysis due to limited data availability.

Title: Have rural income gaps inhibited farmers’ entrepreneurship? (农村收入差距抑制了农户创业吗)
Journal: Chinese Rural Economy
Date: May 2020
Link: https://bit.ly/2zAbwy2
Authors: Yin Zhichao (尹志超), Capital University of Economics and Business; Liu Taixing (刘泰星), Capital University of Economics and Business; Wang Xiaoquan (王晓全), Southwestern University of Finance and Economics

• Dean of the Capital University of Economics and Business School of Finance Yin Zhichao and his colleagues write that income inequality significantly reduces the probability of entrepreneurship in rural areas. For every 0.1 unit increase in the Gini coefficient, a measure of income inequality, Chinese rural household entrepreneurship levels decrease by 1.45 percent, they write.

• According to their research, the proportion of rural households who were entrepreneurs in 2012 was 7.55 percent. By 2018, this had dropped to 7.49 percent. During this same time, inequality levels in rural areas increased. Large wage gaps are a problem for entrepreneurship: when farmers have less liquidity, the likelihood is reduced that they will invest their limited resources in new businesses. Less liquidity also makes new business more liable to fail. Finally, less liquidity also means farmers are less likely to invest in education or vocational training that would increase their human capital.

• For their analysis, the authors compared data from China Family Tracking Surveys with county-level Gini coefficient data. 

• The authors recommend that the government increase cash-transfer programs for farmers, develop more inclusive financing mechanisms so that farmers can have more access to credit, and provide targeted training for farmers to improve entrepreneurship, management, and technology training.

Note: Yin Zhichao is the dean of the School of Finance at Capital University of Economics and Business and former deputy director of the China Family Finance Survey and Research Center at Southwestern University of Finance and Economics. The government-affiliated Chinese Academy of Social Sciences publishes Chinese Rural Economy journal.

Title: Artificial intelligence and Chinese companies’ participation in global value chains (人工智与中国企业参与全球价值链分工)
Journal: Chinese Industrial Economics 
Date: May 2020
Link: https://bit.ly/2B0RPzG
Authors: Lu Yue (吕越), University of International Business and Economics ; Gu Wei (谷玮), Chinese University of Hong Kong; Bao Qun (包群), Nankai University

• University of International Business and Economics professor Lu Yue and her colleagues write that industrial adoption of artificial intelligence (AI) has had a statistically significant impact on increasing many sectors’ integrations into global value chains. 

• Since 2008, the companies that process components for the automotive, rubber and plastic, metal product, and food and beverage industries have been the largest adopters of AI, according to Lu. Most AI investments in these sectors began immediately following the 2008 financial crisis. Using AI has helped accelerate these industries’ integrations within global value chains because they have used technology to increase their total factor productivity (TFP). 

• Lu uses data from 2000-2013 for her analysis, including Chinese customs data, enterprise-level data (with information about exports, total capital, and workforce size), as well as data produced by the International Federation of Robotics, which evaluates AI and robotics densities across industries.

• During the 2000-2013 time period that she surveyed, employment levels dropped for low-end laborers in the sectors that introduced AI into their manufacturing process, Lu observed. This is because most of the AI innovations introduced during this time period replaced low-end, easily automated jobs.

• According to Lu’s data, not all sectors have adopted AI at scale: textiles and wood and furniture industries have notably lagged.

Note: The government-affiliated Chinese Academy of Social Sciences publishes China Industrial Economics journal.

In today’s Chinese Journal Review, we look at a few articles published in the last month in two leading foreign policy academic journals: Asia-Pacific Security and Maritime Affairs and the Journal of International Security Studies.  

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I’ve provided a longer summary below of an essay by Yang Zejun, a professor at Nanjing University, who comments on the Trump Administration’s Taiwan policy. There is not a lot of new thinking in this piece. It reflects typical CCP talking points about Chinese sovereignty and places blame on the United States for increasing Cross-Strait tensions. I have included it, though, because Yang questions whether the US would come to Taiwan’s defense if tensions escalate further. China’s growing assertiveness elsewhere in the world, including recently in Hong Kong and India, makes this question more relevant.

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Second, in this piece in the Journal of International Security Studies, Jin Jiyong of Shanghai International Studies University writes that Trump’s “America First” policy makes it more difficult for countries to collaborate on global health security issues. Jin is highly critical of Trump’s decision to defund the World Health Organization. 

I expected Jin to say that China now has an open door to step in and shape the organization, but he did not. Many US-based China analysts write that the US leaving the WHO is a gift to Beijing, which seeks to increase its influence in international organizations.

Finally, Cao Dejun, a researcher at Peking University, writes in the Journal of International Security Studies about southeast Asia’s anxieties about a rising China. Cao explains that countries in southeast Asia are principally concerned about China’s rise because China increasingly uses the term “core interest” to define political red lines in its diplomatic speech about the region, such as the South China Sea issue.

China has also increased its use of economic sanctions to penalize countries. Historically, China mainly used sanctions against countries that took positions related to Tibet, Xinjiang, and Taiwan. Today, China uses sanctions to achieve other political objectives, too. For example, it sanctioned Norway in 2010 for the Nobel Committee’s awarding of the Nobel Peace Prize to Liu Xiaobo and it sanctioned Japan and the Philippines in 2012 regarding island disputes.

Cao writes that many in the southeast Asia region see China’s Belt and Road Initiative, the BRICS Development Bank, Silk Road Fund, Shanghai Cooperation Organization Development Bank, and the Asian Infrastructure Development Bank as expressions of a country with “hegemonic” ambitions. He concludes that China needs to do more work to build trust in the region.

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Title: The Trump Administration’s “Taiwan Card” (特朗普政府的极限“台湾牌”:表现、意图与影响)
Journal: Asia-Pacific Security and Maritime Affairs (亚太安全与海洋研究)
Author: Yang Zejun (杨泽军)
Link: https://bit.ly/3ckxWAv
Publication Date: May 2020

Yang Zejun of Nanjing University writes that the Trump Administration has destabilized Cross-Strait relations through Trump’s repeated provocations to promote Taiwan independence. 

Yang writes that Trump’s provocations date back to his first call with Taiwan President Tsai Ing-wen shortly after Trump was elected in 2016, as well as other examples, such as: passage of the FY2020 National Defense Authorization Act, which includes provisions to increase US commitments to provide for Taiwan’s defense; passage of the TAIPEI Act, which stipulates that the US should advocate for Taiwan’s inclusion in international organizations; increased arms sales to Taiwan, including 66 F-16V fighter jets, and; numerous other more informal actions, such as a proposed visit to Taiwan by then-National Security Advisor John Bolton.

Trump is politically weak as a result of scandals related to Russia, feuds with members of his own party, his impeachment, and a poorly managed federal response to the new coronavirus, argues Yang. He adds that, on the issue of the Covid-19, Trump will prioritize “containing China” to cooperating with China to fight the pandemic. He will continue to play the “Taiwan card,” including by taking increasingly more aggressive positions on the Taiwan issue to try to extract concessions from China during trade negotiations. 

But Trump is overplaying his hand on Taiwan, Yang writes. He adds that Taiwan authorities are also “overestimating” the United States’ commitment to the island. Like the US, Taiwan authorities have imposed limits on companies like ZTE and Huawei. Yang writes that because mainland China is a much bigger trading partner for Taiwan than is the US, Taiwan authorities have much more to lose by destabilizing the status quo.

Nonetheless, the situation in the Taiwan Strait may be soon reaching a point where it is “out of control” which may lead to an “extreme confrontation” and an “irreversible situation in Cross-Strait peace” between the two sides [Taiwan and mainland China], according to Yang. This will put the US in the position of choosing whether to intervene or not. No matter its decision, the US would see a weakening of its global hegemonic standing. 

If the US did decide to intervene, it would face a potential conflict with China, which the American public would unlikely support, Yang says. It could also trigger additional regional turmoil, resulting in future conflicts involving Japan, India, and Russia.

If it does not intervene, US credibility around the world will be undermined, and this may accelerate a new Cold War between the United States and China. 

Yang argues that the potential costs to the United States of intervening in a Cross-Strait conflict may be too high, and he questions whether the US would intervene as a result. He writes that the “US cannot afford the risk of direct conflict.” Today’s China has “high tech weapons” that can sink advanced US naval ships, including aircraft carriers. If this happens, there would be a strong “emotional” response in the United States which will create a domestic political environment reminiscent of the Vietnam War era. 

Yang concludes with an ominous tone: If Trump thinks he can use the “Taiwan card” to contain China and maximize US interests, this is “wishful thinking.” He writes that he hopes that the Trump Administration will revert to the status quo on Cross-Strait relations, but China should “maintain a high degree of vigilance and plan ahead” for the possibility that Cross-Strait relations further deteriorate. 

----
Note: The Development Research Center of the State Council publishes the Asia-Pacific Security and Maritime Affairs journal. Yang Zejun is a professor at Nanjing University affiliated with the Taiwan Institute of Nanjing University and the Collaborative Innovation Center of South China Sea Studies.

But now that life in the COVID-19 era is becoming the new normal, old routines are setting in, and it is time for me to return to CJR.

For those new to CJR, I put this newsletter on a break as my full-time day job as the global director for emergency response at the technology firm Zenysis really picked up in the past few weeks. We are helping low- and middle-income countries across three continents respond to COVID-19 by integrating and interpreting data to inform their COVID-19 response policies. So, my attention was elsewhere, especially in the early days when many governments were just developing their COVID-19 strategies.

If you’re keen to follow my work with COVID-19, please follow me on Twitter @WalterAKerr, or write to me, and I’m happy to discuss more.

In my quick scan of academic journals published this past month, it is clear that increasing numbers of Chinese scholars are trying to understand the economic, social, and foreign policy impacts of COVID-19 on China’s core interests. 

I have summarized research by one research team below, published in the State Council-affiliated Management World journal. Led by Liu Shijin, who is the former vice minister of the Development Research Center of the State Council, this group of scholars paint Hubei province’s economic recovery as an important indicator to understand how well the rest of China’s economy will recover from the impact of COVID-19. Liu and his colleagues point out that other provinces’ economies are highly dependent on Hubei’s economy, so if Hubei’s economy drags, so too will many other provinces, including the economic workhorse Guangdong province. 

Their research is interesting but lacking in one regard: it only looks at the interaction effects of China’s domestic economy with itself. It does not take into account what will happen to China’s economy if, say, global demand for Chinese goods declines or if global supply chains remain disrupted as a result of COVID-19. 

Other research of note from this past month includes this piece published in the Journal of Quantitative and Technical Economics, which estimates that China’s 2020 GDP growth will range between 5.6 - 5.8 percent, which I think is too optimistic. This research, published in Management World, is also worth taking a look at. It evaluates which industries are most exposed to risk during public health emergencies, taking SARS and COVID-19 as the research’s primary data points. Consumer confidence dives during public health emergencies, affecting industries like real estate and consumer goods, their research shows, which has spillover effects to other sectors.

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Title:  An Impact Path Analysis of the COVID-19 Outbreak in China and Policy Response (基于投入产出架构的新冠肺炎疫情冲击路径分析与应对政策)
Journal: Management World Journal (管理世界)
Author: Liu Shijin (刘世锦); Han Yang (韩阳); Wang Dawei (王大伟)
Link: https://bit.ly/2TAzNdU
Publication Date: May 2020

• In early 2020, China shut down large parts of its economy to control its COVID-19 epidemic. It imposed its most restrictive policies in Hubei province, the outbreak epicenter.
  

• Hubei experienced the greatest economic shock among all Chinese provinces as a result of COVID-19. In the weeks since China began to get a handle on its COVID-19 outbreak, many parts of China’s economy have begun to pick back up. Chinese across the country have started to go back to work as officials have relaxed the quarantine policies and work restrictions they put in place to stop the virus. However, Hubei is struggling more than other provinces to return to normal.
  

• In this paper, Liu Shijin and colleagues write that if Hubei’s economy does not recover, this will have significant follow-on effects for other Chinese provinces. Shanxi, Inner Mongolia, Shaanxi, Shandong, Jiangsu, Hebei, and Guangdong provinces all have high degrees of economic dependence on Hubei. Like Hubei, these provinces face high risks of future economic shocks if Beijing does not provide them sufficient policy support. Hubei is either a major upstream or downstream producer of goods for these provinces.
  

• (Note: While many provinces’ economies are dependent on Hubei, Hubei is actually one of the most self-dependent provinces in China as it is both the producer of both inputs and finished goods in many sectors.)

  

• Certain sectors in Hubei and its dependent provinces are at a high risk of economic shock. Hubei receives inputs from other provinces to produce finished goods in the following industries: agriculture (including forestry, animal husbandry, and fishery services), metals (including smelting and processed metals products), and chemicals. It is a major producer of inputs for other provinces in the following industries: building and construction, food and tobacco, and transportation equipment.
  

• This composition of industries is concerning for policymakers because so many of these sectors are interconnected with other major parts of the economy. If the government cannot restart these industries in Hubei, this will have “considerable internal impact” on the rest of China’s economy, writes Liu and his colleagues.
  

• The paper’s authors conclude with a series of policy recommendations. These include: 1) prioritize finding ways to allow production capacity in Hubei to restart as quickly as possible; 2) boost consumption nationwide, including by providing direct subsidies to low-income people; and 3) develop region-specific and industry-specific economic-recovery plans. Avoid the temptation to design a one-size-fits-all economic recovery approach.
  

• For example, as a first step, the authors recommend that policymakers should design fiscal and monetary policies specifically for Hubei province. These can include targeted interventions that reduce corporate taxes and fees, programs to help small- and medium-sized businesses, and the introduction of new rent and wage subsidies for Hubei residents.
  

• Second, policymakers should also develop a second set of economic-recovery policies for Jiangsu, Guangdong, Zhejiang, Shandong, Shanxi, Shaanxi, and Inner Mongolia, they write. These provinces were either hard hit by COVID-19 or have a high dependence on Hubei.
  

• Finally, they recommend that policymakers develop sector-specific programs to support industries that have been most affected, or are likely to be affected in the medium term, by COVID-19, including agriculture, transportation, and buildings and construction, among others.

  

As many of you know, writing and maintaining the Chinese Journal Review has been a side project for me. For the next few weeks to months, I need to put it on hiatus.  

That is because when I am not writing CJR, I am the Global Director for Emergency Response at a Silicon Valley technology company, Zenysis, which is helping countries fight COVID-19.

In the last two weeks, we have received requests for support from governments in more than 20 countries. We help governments by rapidly standing up virtual Control Rooms that can integrate any number of siloed data sources into a unified platform for decision-making, often in as little as 24 hours. This technology integrates hospital and patient data, supply chain data, workforce information, airline manifests, laboratory data, contact tracing data, and finance data, among others. 

By giving leaders a global view of the epidemic and response, they can better coordinate government action, keep the public informed, and fight the epidemic in a smart, data-driven way. 

For example, one government is currently using these capabilities to make data-driven decisions about where to distribute ventilators. They do this by triangulating real-time patient data with the number of ventilators presently available at every health facility so that they can balance demand and supply. You can see other ways we support governments by clicking here. 

If you are a more visual learner, you are welcome to take a look at this webinar I delivered last week with my colleagues on how governments can use big data to fight COVID-19 as effectively as possible:

Before I sign off, a request:

• Zenysis recently secured $1 million in matching funds to provide in-kind support for governments in the fight against COVID-19.

• We obligated almost all of this money within five days, but we continue to receive requests from governments every day. If you or your firm want to play an active role in the response by contributing to this matching fund, please write to covid19response@zenysis.com with the subject line: “Ready to Help.” Please provide your name and phone number and someone from our team will contact you.

Finally, if you are affiliated with a government and would like to understand how we can support you, please contact me directly by responding to this email or writing to me at walter@zenysis.com. 

My time for CJR will be limited for now. When life gets back to normal, I hope to pick up where I left off.

Stay safe. All for now,

Walter

In the first, published in the Chinese Journal of Schistosomiasis Control, the authors write that COVID-19 has complicated China’s malaria elimination activities. While China has reported zero new indigenous cases of malaria since 2017, it sees nearly 3,000 imported cases each year. A large proportion of these cases happen during the Chinese New Year, when many migrant workers return home to China, including from malaria-endemic countries. This year, Chinese New Year coincided with the outbreak of COVID-19. Failure to treat malaria promptly increases the risk to patients and of secondary malaria transmission. Given COVID-19’s presently high incidence, health professionals are prone to misdiagnose malaria patients who have similar symptoms as COVID-19, such as high fever. (Longer summary below)

In the second, published in the Chinese Journal of Parasitology and Parasitic Diseases, the authors provide guidance for health professionals regarding the diagnosis and treatment of suspected malaria patients in light of the COVID-19 outbreak. Among their recommendations, the authors suggest that health professionals use the Internet for remote consultations. They also provide guidelines regarding when and how to hospitalize (non-severe malaria patients should be sent home with oral medication; patients with severe malaria should be hospitalized and isolated and kept away from COVID-19 patients), as well as which tests to perform.

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Title: Challenges and countermeasures on Chinese malaria elimination programme during the coronavirus disease (COVID-19) outbreak (新型冠状病毒肺炎疫情对我国消除疟疾工作的挑战及应对策略)
Journal: Chinese Journal of Schistosomiasis Control (中国血吸虫病防治杂志)
Author: Zhu Guoding (朱国鼎) and Cao Jun (曹俊) from the Jiangsu Institute of Parasitic Disease Control, a WHO Collaborating Centre for Research and Training on Malaria Elimination
Link: https://bit.ly/334fVUf
Publication Date: February 2020

• While China has reported zero new cases of malaria for three consecutive years since 2017, it sees approximately 3,000 imported cases each year. If health professionals do not identify and treat these cases promptly, this brings risks to the patient and to the community through secondary malaria transmission.

• The COVID-19 outbreak coincided with the Chinese New Year, which is when many migrant workers return home from working overseas. China generally experiences a high incidence of imported malaria cases during this time.

• The most common form of imported malaria in China is falciparum malaria, which is also the most dangerous. It progresses rapidly and can be fatal if not treated promptly. As a result of the government’s quarantine strategy and patients’ fear that going to the hospital may lead to COVID-19 infection, patients with imported malaria and other diseases have likely opted to stay home and self-treat. In February, a malaria patient in Jiangsu province chose to take cold medicine at home instead of going to a local hospital. Within three days, he developed severe symptoms, lost consciousness, and was sent to the ICU for emergency treatment.

• For those malaria patients who do seek medical assistance, COVID-19 is complicating their quality of care. Malaria and COVID-19 share many of the same symptoms, such as high fever, so it is easy for medical professionals to misdiagnose malaria patients. Authorities have also converted facilities previously designated as special malaria treatment centers into COVID-19 treatment centers, which reduces the services available to malaria patients. Malaria patients who seek services at these centers are also at increased risk of nosocomial COVID-19 infection. Many of the country’s malaria treatment experts have been dispatched to Wuhan. 

• Epidemiologists, health care professionals, and lab personnel should be aware that malaria patients may also be co-infected with COVID-19. Health care professionals who collect blood samples or who are in direct contact with malaria patients and their family members should use proper protection.

• Health institutions and disease prevention and control agencies should make full use of platforms such as Weibo and WeChat to increase public awareness about malaria. Migrant workers who have travel history to malaria-endemic regions and experience symptoms such as a high fever should seek medical treatment. They should avoid staying at home and should make their travel history known to medical personnel. 

• To minimize the risk of potential exposure for patients and health professionals to COVID-19, health facilities can also make better use of technology to diagnose, treat, and investigate malaria transmission. For example, health professionals can use the Internet for medical consultations with malaria patients, remote visualization equipment to perform epidemiological investigations, and microscope imaging systems to review blood samples. 

Note: Cao Jun, one of this paper’s co-authors, is the Executive Director of the WHO Collaborating Centre for Research and Training on Malaria Elimination

CASS researchers pen the journal’s first essay. They articulate a five-year strategy to promote industrial development in China. I’ve included a translated summary below.

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Title: China’s Industrial Development Strategy During the 14th Five-Year Plan (“十四五”时期中国工业发展战略研究)
Journal: China Industrial Economics (中国工业经济)
Author: Research Group of the Institute of Industrial Economics at CASS
Link: https://bit.ly/3cKNor2
Publication Date: March 2020

In 2020, China enters the final year of its 13th Five-Year Plan. In this essay, CASS scholars propose an industrial development strategy for the next five years. They write that China should pursue policies and investments that help the country modernize its economy, avoid the “middle-income trap,” maintain global dominance in manufacturing, utilize advanced technologies to propel growth, and accelerate economic development in less-developed parts of the country. 

New Challenges

After many decades of remarkable growth, China’s economy faces new challenges:

• First, the world is experiencing an “anti-globalization” wave. Between 2008-2017, G20 member states introduced 6,616 trade restrictions versus only 2,254 measures that liberalized trade.

• Second, developing and developed countries are “squeezing” Chinese industry at both ends of global supply chains. Multinationals in labor-intensive industries are increasingly moving their operations to other developing countries where wages and other production costs are lower than in China. The proportion of China’s clothing exports to the world dropped from 39.2 percent to 33.6 percent between 2013-2017, whereas the share of clothing exports from South Asian and ASEAN countries increased from 9.3 percent to 12.2 percent over the same period.

• Following the 2008 global financial crisis, many developed countries have also introduced measures to incentivize their companies to produce goods at home, especially in the high-tech and advanced manufacturing sectors. Some developed countries like the United States have also “blocked” Chinese companies from working in their domestic high-tech sectors. Dynamics like these make it more difficult for Chinese companies to compete in high-value industries.

New Opportunities
However, these challenges are buoyed by the following positive trends:

• First, as China’s economy has grown, China’s purchasing power parity (PPP) has also increased. China can promote domestic consumption by meeting increasing consumer demands for high-quality goods.

• Second, fast growth in other developing countries creates new market opportunities for Chinese companies. The Belt and Road Initiative, which so far includes 136 countries, will help Chinese companies more easily access these new markets.

• Third, China will still maintain its dominant position in global supply chains over the next five years. This is because China has fast and robust supply chains that can produce goods in every sector. Few low-income countries are well-positioned to produce goods where advanced manufacturing equipment or highly specialized knowledge is needed. Chinese labor quality is also generally higher than in low-income countries and the cost of Chinese labor is still less than in developed economies.

• Finally, in recent years, China has made significant investments to build advanced research and development (R&D) centers around the country. It has also upgraded its national infrastructure, including in telecommunications and the Internet via its Internet Plus initiative. Investments like these will make the country more competitive and innovative in the next five years, especially in emerging technologies such as quantum computing, cloud computing, and artificial intelligence.

Strategic Areas for the Next Five Years
During the next five-year period, the authors recommend that China should:

• Target manufacturing as a share of GDP at 30 percent. In 2018, manufacturing as a share of GDP was 29.4 percent, down from 32.5 percent in 2006. Manufacturing, especially advanced manufacturing, is a source of economic prosperity and national security. Policymakers should not allow manufacturing as a share of GDP to dip below 27 percent.

• Focus on smart manufacturing. With the gradual weakening of China’s global competitiveness in manufacturing sectors because of rising production costs, investments in automation and “smart manufacturing” can bring costs of production back down.

• Promote high employment by supporting labor-intensive industries. Global economic challenges put downward pressure on China’s economy, which jeopardizes stable employment in labor-intensive industries. China can reduce pressures for these industries by reducing taxes and other fees, as well as investing in human capital development programs to help workers upgrade their skills to move to new sectors.

• Invest in industries that can stimulate domestic consumption. Firms should direct more investments to technologies that improve quality-of-life and increase consumer-driven consumption, such as wearables, intelligent robots, smart homes, next-generation mobile devices, and virtual reality.

• Prioritize investments in green tech. Green manufacturing will bring down carbon emissions and promote energy savings. Investments here will also lead to the development of new industries.

• Invest in technologies that have the potential to be “irreplaceable”. In addition to establishing China as a technology leader, developing “irreplaceable” technologies that are considered essential for emerging industries will cause the West to remove many of its restrictions on trade with China in the technology sector.

Policies and Programs China Can Adopt to Achieve these Goals
The authors write that policymakers can help realize these goals by doing the following:

• Adopt policies to improve China’s industrial ecosystem.

  • Break down barriers to doing business in China, including by lowering corporate tax rates and other transaction costs. 

  • Increase investments in infrastructure to make it easier for companies to trade with each other within and outside of China. Invest in cross-border rails, cross-border pipelines, and cross-border optical cables. 

  • Provide targeted support for small and medium-sized enterprises, as well as private firms, working in high-priority industrial sectors.

  • Work with the financial services sector to bring down the costs of financing for industrial projects in priority sectors.

• Build capacity and increase investments in education.

  • Help companies invest in staff and R&D, especially for those that work in high-priority sectors such as energy efficiency and smart manufacturing. 

  • Direct resources to help technical schools, research universities, and enterprises train more people in science and technology fields.

• Target interventions to support advanced manufacturing.

  • Encourage universities, research institutes, and private enterprises to invest in cutting-edge technologies through tax deductions, exempting duties on imports of advanced scientific equipment, and by establishing special research funds.

  • Reform intellectual property rights laws to encourage more scientists to pursue advanced research. 

  • Direct investments to create new R&D centers, business incubators and accelerators, venture capital, legal services, and management consulting.

• Improve Chinese product branding. 

  • The government should make efforts to improve the negative stereotypes associated with the safety and quality of Chinese goods. Instead, audiences should see Chinese products as “green, safe, and high-quality.” 

  • Increase quality supervision and safety inspections, crack down on intellectual property rights infringement, and create platforms to help Chinese firms improve their brands’ images at home and abroad.

• Increase global engagement.

  • China can expand its access to new international markets by investing in R&D centers overseas, increasing foreign investments as part of the Belt and Road Initiative, and negotiating bilateral investment agreements, including with the United States and European Union. 

  • The government should also direct more investments to China’s central and west regions to better position those geographies to play a larger role in global trade.

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I'm going to attempt to do that by summarizing the abstracts. I will try my best to keep up as journals publish. 

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Today, we start with the February 2020 edition of Chinese Rural Economy, which is published by the Rural Development Institute of the Chinese Academy of Social Sciences. February's edition includes:

• Can the Purchase of Social Insurance Improve the Subjective Well-being of Migrant Workers?
  Using survey data from 2,942 migrant workers, researchers from Tongji University report that migrant workers who purchased different forms of social insurance reported 21.7 percent higher life satisfaction than those that did not. Buying medical insurance had the highest marginal effect on improving satisfaction levels, followed by pension insurance. Disability insurance had the least impact.
  

• The Impact of Medical Insurance on Household Consumption of Farmers and Herdsmen from the Perspective of Targeted Poverty Alleviation
  In this study involving 730 farmers and herdsmen in Inner Mongolia, researchers from China Agricultural University and Inner Mongolia Agricultural University write that having medical insurance significantly increases farmer and herdsmen consumer confidence levels, household consumption levels, and quality of life. Having medical insurance leads to a significant increase in the consumption of medical services and food purchases among poor households. Among non-poor households, having medical insurance also increases in expenditures in other categories.
  

• The Necessity and Realization Path of the Integration of Urban and Rural Social Governance
  Dang Guoying, from CASS, writes that differences in urban and rural governance systems will lead to a lack of economic efficiency, a lack of social equality, and social instability. He says that China can address these challenges by better integrating rural areas with urban areas.
  

• The Research on the Rural Revitalization Path Based on Collaboration, Participation and Common Interests
  Sichuan University professors write that social governance models that involve multi-party participation, including government, villagers, and markets, should be implemented in rural areas to promote farmers' well-being and economic development.
  

• Cooperative Types, Governance Mechanisms, and Operating Performance
  South China Agricultural University researchers interviewed 221 cooperatives in prefecture-level cities. Cooperatives that used "contractual governance" systems had higher operating performance than those that used "relational governance" systems.
  

• Does Internet Use Improve Rural Households' Entrepreneurial Performance?
  In this study, researchers from Northwest Agriculture and Forestry University collected survey data from 831 entrepreneurial households in rural areas in Shaanxi, Ningxia, and Shandong provinces. They report that the ability to purchase items via the Internet has a more significant impact on entrepreneurial performance among rural entrepreneurs than the ability to sell items via the Internet.
  

• Agricultural Chemical Reduction: The Logic of Scaling Farming Operations
  Researchers from South China Agriculture University and Huazhong Agricultural University write that when farmers' plots increase in size, they tend to use fewer chemicals as they scale. To reduce overall chemical use, the authors recommend more joint agricultural planning among farmers.
  

• Insisting on the General Direction of Collective Ownership of Socialist Rural Land: Comments on Four Wrong Ideas on Land Privatization
  Cheng Enfu from the University of the Chinese Academy of Social Sciences and Zhang Yang from Hebei Finance University make a legal and economic argument against the privatization of rural land, including against initiatives that some scholars advertise as "land reform," but are instead attempts at privatization in "disguise."
  

• Can Protective Investment Promote Tourism Development of Forest Parks?
  Researchers from Beijing Forestry University analyze forest park data from 2010-2016 to determine the effect that investments to protect forests have on tourism. They find that investments to protect forests tend to not bring a significant increase in tourism income or number of tourists, and can instead often contribute to a decrease in tourism income.

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In this week’s summary, we look at two papers. The first, in the journal Chinese Industrial Economics, the authors discuss high saving rates among migrant workers. Migrant workers can increase their income levels by leaving rural areas to work in more urban environments, but they tend to save the extra money they earn, not spend it. This creates a challenge for Chinese policymakers, who are counting on increased consumption to drive future economic growth, the authors write.

In the second, a professor writes in the Journal of International Studies that China should increase investments in space weaponization, including by developing the ability to deploy nuclear weapons from space.

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In this edition:

• The Influence of Rural Labor Migration on Household Saving Rate

• Weaponization of Space and Construction of China’s Space Security

Title: The Influence of Rural Labor Migration on Household Saving Rate (农村劳动力流动对家庭储蓄率的影响)
Journal: China Industrial Economics (中国工业经济)
Author: Yin Zhichao (尹志超) ; Liu Taixing (刘泰星); Zhang Cheng (张诚); 
Link: https://bit.ly/2SQi1DM
Publication Date: January 2020

• China’s high saving rate is a serious challenge to China’s ability to transform its economy, writes Yin Zhichao, dean of the School of Finance at Capital University of Economics and Business, and his colleagues.

• Finding ways to increase consumption, especially among China’s rural residents, has become an important priority for Chinese policymakers. From 2008 to 2012, saving rates for rural residents increased from 26.77 percent to 29.58 percent. This rate has been on a downward trend since then, writes Yin, but still remains high, around 20 percent.

• The National Bureau of Statistics reported that China had more than 288 million migrant workers at the end of 2018, a 0.6 percent increase over 2017. Yin notes that, in rural areas, at least one person out of every two households is a migrant worker. Chinese migrant workers typically leave their rural hometowns to work in more urban, higher-paying areas.

• Using data from the 2010 Chinese Family Tracking Survey, Yin finds that, while increased labor mobility has increased migrant workers’ household incomes, consumption rates among these groups have not increased, while the saving rate has. Migrant workers faced significant uncertainty, especially relative to other types of workers in China, including greater fluctuations in income, more frequent periods of unemployment, and uncertain access to medical care (or an inability to afford it). Migrant workers therefore tend to put aside the extra money they earn from working in more urban environments as a form of preventative savings, Yin writes.

• Yin also found that participation in insurance schemes and educational programs that increased migrant workers’ human capital had a positive effect on reducing the saving rate and increasing consumption.

• Yin concludes by making the following recommendations:

  • The state should pay greater attention to finding ways to reduce uncertainty among migrant worker populations so as to reduce incentives to save preventatively. This includes: building a more comprehensive social security system, increasing reimbursement rates for medical procedures, reducing medical costs for rural residents, and increasing educational investments to help rural workers learn new vocational skills that can increase their employability.

  • The state can also make local employment in rural areas more attractive, including by increasing investments in the countryside in roads, communications infrastructure, and industry.

Note: The government-affiliated Chinese Academy of Social Sciences publishes China Industrial Economics journal.

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Title: Weaponization of Space and Construction of China’s Space Security (太空武器化及中国太空安全构建)
Journal: Journal of International Security Studies (国际安全研究)
Author: He Qisong (何奇松)
Link: https://bit.ly/2uWculZ
Publication Date: January 2020

• East China University of Political Science and Law Professor He Qisong writes that, since the Cold War, there has been an increase in the weaponization of space. The United States has formed a new space command, with plans to establish an independent Space Force and to deploy sophisticated spacecraft and space-based weapons interceptors.

• Recognizing the futility of limiting space weaponization, other countries, including China, Russia, India, and Japan have also accelerated efforts to weaponize space, He notes. According to public reporting, China has developed at least two hypersonic aircraft that can fly at Mach 5-10 speeds, as well as anti-satellite weapons systems.

• Nonetheless, there is a significant gap between US and Chinese space military capabilities. Inferiority in the space weapons race threatens China in four ways: 1) China’s space assets, including its military and non-military satellites, are at risk; 2) a superior space power can restrict China’s ability to move freely in space; 3) China’s land-based installations can be targeted by another power’s space-based weapons, and; 4) spy satellites give opponents additional capabilities to surveil China.

• He argues that China needs to upgrade its space strategy by dedicating greater investments to four areas:

  • Maintain satellite parity with the United States. The United States maintains 901 satellites, 176 of which are military satellites. China has 299 satellites, 99 of which are military satellites. The United States is highly dependent on its network of satellites, which makes it vulnerable to attacks. To credibly target these satellites in a “mutually assured destruction”-type scenario, China should attempt to have at least 70-80 percent as many satellites as the United States.

  • Strengthen space weapons capabilities. This includes increasing the number of reconnaissance satellites and satellites with “early warning” capabilities to warn of incoming missiles. In a recent report, the US Department of Defense understated China’s anti-satellite weapons capabilities, but China should still nonetheless invest in new and diverse ways to counter or destroy enemy satellites, He argues. Similarly, China should also invest in satellite protection, including by improving communications encryption protocols, and also increase its ability to quickly launch multiple satellites into space during times of emergency.

  • Increase space situational awareness. The United States has a Joint Space Operations Center, which coordinates an “unparalleled” global reconnaissance network to monitor missile launches from anywhere in the world. China has some Earth-based reconnaissance systems, including in Xi’an, Beijing, and on the Yuanweng Sea Vessel, but it will not be able to build a similar ground-based system as the United States. China should instead direct more investments towards building space-based missile-monitoring systems.     

  • Finally, China should construct a space-based “Nuclear Trinity.” China already has the ability to deploy nuclear weapons via land and sea. To increase China’s nuclear deterrent, it should also expand its ability to deploy nuclear weapons via space. 

Note: He Qisong is a professor at the East China University of Political Science and Law. The University of International Relations publishes the Journal of International Security Studies. Some prominent China analysts argue this university has institutional links to the Ministry of State Security.

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Also, a couple of updates: Going forward, these newsletters will be shorter (maybe just 1-2 summaries per newsletter), but the frequency will increase from monthly to biweekly. If readers like that model, I’ll explore whether it then makes sense to increase to 1x/week or not.

Second, I’ve started tweeting more. Follow me: @WalterAKerr.

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In this edition:

• Crisis management in the Internet era

Title: Crisis Management in the Internet Era (互联网时代的危机管理：演变趋势、模型构建与基本规则)
Journal: Management World (管理世界)
Author: Xu Xianping (徐宪平), Ju Xuenan (鞠雪楠) 
Link: https://bit.ly/2SfLntG
Publication Date: December 2019

In December, Counsellor to the State Council Xu Xianping and Central University of Finance and Economics Researcher Ju Xuenan published an essay in the State Council-affiliated Management World journal to help decision-makers in government and business better respond to crises. (Note: This piece was published one month before the coronavirus outbreak.)

They write that the Internet has changed crisis communications. The Internet makes it faster for news (and rumors) to spread, easier for anyone to share information, and more possible for people to interact with their news and newsmakers. Major natural disasters, safety accidents, and social movements are often first reported through mobile phones, making ordinary people not just passive news consumers, but also collectors, producers, and disseminators of information. In the Internet era, news of one crisis can create a domino effect, triggering more crises. Internet portals, Weibo, WeChat, and other media give users the ability to reproduce news with commentary, as well as distort facts that can negatively affect public opinion.

In 2015, for example, in the immediate aftermath of major fires and explosions in Tianjin, officials responsible for crisis response did not address the public. The local media was also silent in its coverage of the fires. This fueled online speculation about who was responsible, triggering strong public condemnation and creating a new, second crisis: a lack of government credibility.

Crises are usually predictable, the authors write. Behind every major aviation accident, for example, there are usually many warning signs missed along the way. The best way to prepare for a crisis is to identify potential threats in advance, make personnel aware of them, establish internal crisis-warning systems, and have crisis-response plans ready. These plans should include information about who assumes overall command and control and who responds to which elements of a crisis. Crisis-response training should be the norm. Organizations should also consider the wide range of potential threats, including accidents, terrorism, social movements, environmental pollution, hacking, regulatory failures, and technology failures.

When responding to a crisis, leaders should make decisions quickly and decisively. This helps them control the narrative. They should also be sensitive to public opinion and the media, as well as be willing to make changes in their approach as the situation evolves. Temporary measures adopted during a crisis response can be socially and economically disruptive, so care should also be taken post-crisis to heal this trauma. For example, to learn from mistakes and regain the public’s trust, leaders should consider having authoritative third parties conduct postmortems, investigate a crisis’s root causes, and then recommend next steps. In this sense, leaders should seek to turn crises into opportunities.

The authors then list 12 rules for effective crisis management in the Internet era:

1. Maintain calm and be resolute. During a crisis, the public is often in a state of shock as the amount of information on the Internet and in the media can be overwhelming. In spite of this, leaders should remain calm.

2. Put people first. The first goal is to minimize loss of life, injury, and mental anguish. The second goal is to mobilize people. People working together can unlock initiative and creativity to solve problems. To mobilize the masses, leaders should assert full command and authority.

3. Leaders must be visible. They should get to the front lines of the crisis to gather as much first-hand information as possible. Subordinates need to see leaders calmly in command. Crises are most worrying when there appears to be a lack of leadership or a decision-making vacuum.

4. Remember the golden hours. In most crises, the first four hours are the most important for shaping public opinion (the authors write that before the Internet, this was 24 hours). The first 72 hours are the most important for saving lives during natural disasters such as earthquakes.

5. Lead the media, don’t follow it. Information should be released to the media in a timely manner. This gives leaders more credibility. In the beginning of a crisis, especially during the first press conference, be honest and do not mislead the public. The goal should be to win the trust of the people. Every word, action, and gaze will be subject to public scrutiny.

6. Listen to other key stakeholders. During a crisis, it will be essential to enlist the help of important stakeholders also affected by the crisis. Identify who they are, determine their core interests, and try to satisfy them. When there are conflicts of interest between two different stakeholder groups, collective interests should come ahead of individual ones. Good communication with stakeholders is paramount.

7. Be prepared to use unconventional ways to address crises. For example, it may be necessary to abandon traditional, vertical leadership hierarchies to create more flat organizational structures.

8. When one crisis creates new crises, proactively fight against those crises, too. In some cases, this may require a leader to fight fire with fire and, in other cases, to adopt a more accommodating approach.

9. Remember that the goal during crisis response is not to pursue the best results, but to avoid the worst outcomes. Leaders should therefore prioritize imposing temporary measures to control the situation first, before they can solve the root problem.  

10. Act within the law, even during times of emergency. Restrict behavior as needed, but do so fairly and within the bounds of what is legally appropriate. Adopt measures that fix the crisis, prevent future crises, reduce damage caused by the crisis, and safeguard social order. Absolutely do not invent lies or create false explanations to explain the causes of the crisis.

11. Be flexible. Understand that, in times of crisis, leaders make decisions with what information they have available at the time. Crises are unique times when decision-makers have limited information and scarce human resources, so be open to change as information changes and the situation evolves.

12. Always be alert. “Do not turn a blind eye to plumes of smoke.” When crises start at lower levels, many people may not realize that a crisis is brewing, and will be inclined to underestimate the problem. Leaders should take initiative to pay attention to small details, analyze clues, and prevent crises at the outset.

Note: The State Council publishes Management World journal. Xu was the former deputy director of the National Development and Reform Commission and a vice governor of Hunan Province. He is a professor at Peking University’s Guanghua School of Management.

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In this edition:

• China’s Labor Force is “Unsuited” for Transition to New Economy, According to CASS Report

• Chinese Laws Should Have More Extraterritorial Reach, Argues Law School Dean

• Chinese Banks are Most Vulnerable to the Distress in the Real Estate, Transportation, and Mining Sectors, Study Finds

• Former Chinese Navy Spokesperson Argues China Should Take a More Assertive Position in South China Sea

China’s Labor Force is “Unsuited” for Transition to New Economy, According to CASS Report

Title: The Evolution, Friction and Transformation of China’s Employment System (中国就业系统的演进!摩擦与转型)
Journal: Economic Research Journal (经济研究)
Author: Zhang Peng (张鹏), Zhang Ping (张平), Yuan Fuhua (袁富华)
Link: https://bit.ly/2QJoYVU
Publication Date: December 2019

• Researchers from the government-affiliated Chinese Academy of Social Sciences (CASS) published a study that evaluated Chinese labor trends. China’s economic model has long relied on a large population size and a pool of low- and medium-skilled workers, they write. China now wants to transition to an economic model that prioritizes urbanization, high-quality development, and a more skilled workforce. 

• The authors conclude that China’s labor force is presently “unsuited” for this transition. Using microdata from China’s Household Income Project (CHIP) and other sources, they write that low-skilled workers appear to be “locked-in” to low-end sectors and have difficulty transitioning to higher-skilled jobs. Further, when employment opportunities for low- and medium-skilled workers close, the data show these workers tend to take opportunities that pay less in other low-skilled sectors. This lack of upward mobility suggests that, as China’s economy evolves, more low- and middle-income workers will see reductions in income over time, they argue.

• The authors analyzed 2013 CHIP indicators that measured workers’ education levels, typical contract type and length (fixed/permanent, medium-term, or short-term), sector, job type, age, gender, and number of times an individual has changed jobs. Using these data, the authors built an index and labor mobility matrix to estimate the ability of workers to move into new sectors.

• According to their findings, when looking for new jobs, agricultural workers tend to stay within the agricultural sector (represented by the high 4.418 agriculture-to-agriculture score, above), although some will move to manufacturing, low-end service, and construction sectors. Agricultural workers do not move to high-end service sectors or to STEM, culture, or public- sector jobs, however. Construction workers do not move to agricultural sector jobs, meanwhile. Most tend to stay within the construction sector, and occasionally move to jobs in the manufacturing sector, high-end service sector, and low-end service sectors. Some workers in the STEM, culture, and public sector will transition to lower-skilled (and lower paying) construction, manufacturing, and low-end services sectors, but workers from these sectors do not transition to the STEM, culture, and public sector as easily.  

• The authors write that these structural challenges create an accumulation of human capital in low-end sectors and human capital shortages in high-end sectors. Looking at job types, the authors also observe little mobility in terms of complexity of job function, including when workers switch sectors (e.g., farmers and assembly line workers rarely transition to office jobs). See the study for a much more exhaustive breakdown of labor-force dynamics, including analyses regarding education level, job type, and other factors.

Note: The government-affiliated Chinese Academy of Social Sciences publishes Economic Research journal.

Chinese Laws Should Have More Extraterritorial Reach, Argues Law School Dean

Title: Jurisprudence Analysis and Countermeasure Research on "Long Arm Jurisdiction" (“长臂管辖权”的法理分析与对策研究)
Journal: China Legal Science (中国法学)
Author: Xiao Yongping (肖永平) 
Link: https://bit.ly/3a4CTxC
Publication Date: December 2019

• In this essay published in the influential China Legal Science journal, the dean of Wuhan University School of Law, Xiao Yongping, argues that China should update its legal code to give Chinese laws more extraterritorial reach.  

• Xiao argues that the United States uses laws with extraterritorial reach to China’s detriment. The US asserts legal jurisdiction if the effect of activities outside the US damage US interests or if individuals use the US dollar or use US web servers to commit crimes, Xiao writes. Well-known cases of the US asserting extraterritorial powers to sanction, prosecute or investigate Chinese entities include: the state-owned energy company Zhuhai Zhenrong, which the US Treasury sanctioned for purchasing oil from Iran; ZTE, a large Chinese telecom provider, sanctioned by the US Treasury and Commerce Departments for violating export control laws by selling American technology to the Telecommunications Company of Iran; Bank of China, which the Federal District Court for the Southern District of New York found in contempt for failing to turn over bank records related to a case against Gucci, and; the case of Huawei CFO Meng Wanzhou, who is currently under arrest in Canada pending her extradition hearing to the United States for facilitating illegal financial activity in violation of US sanctions on Iran. 

• Xiao calculates that, since 2000, the US has filed 373 cases against Chinese entities under extraterritorial authorities, and that the frequency of cases against Chinese entities has increased in recent years. Between 2000-2019, most US cases filed against Chinese entities related to intellectual-property rights violations (147 cases), followed by contractual disputes (70), and product-liability disputes (47). There were 21 criminal cases filed against Chinese entities during this same time period, according to Xiao.

• These laws limit Chinese companies’ ability to freely do business around the world, Xiao argues. They also infringe on China’s sovereignty, hurt US-China relations, and threaten many objectives related to China’s Belt and Road Initiative. 

• Xiao argues that China should reciprocate by updating its laws to also assert more extraterritorial rights. Specifically, he notes China’s Anti-Monopoly, Antitrust, and Securities Laws are well-suited for jurisdiction expansion. He adds that these laws should be updated according to the “effect standard,” which stipulates that if a foreign entity’s behavior outside of China impacts China’s public interests, law enforcement and the courts should be able to assert jurisdiction. In addition to these specific laws, China should also explore updating other laws to expand legal jurisdiction, including those that govern internet security, corruption, intellectual-property rights, and financial supervision.

• Finally, Xiao writes that China should adopt “blocking” laws - so-called to “block” the effect of US extraterritorial laws - to provide legal protections for Chinese companies that do business with entities that have been “arbitrarily” sanctioned by the United States. Among other benefits, these laws could allow Chinese companies to sue counterparties in the US or to sue US entities with operations in China for losses realized as a result of sanctions, he writes.

Note: China Law Society publishes China Legal Science, which is China’s leading law journal. In the December 2019 edition, in addition to this essay by Xiao Yongping, Beijing Normal University Law Professor Liao Shiping also calls for an update to Chinese laws to give them more extraterritorial powers. Interested readers should also read his essay.

Chinese Banks are Most Vulnerable to Distress in the Real Estate, Transportation, and Mining Sectors, Study Finds

Title:  Research on Risk Spillover Effects between Industries and the Banking Industry from the Perspective of Systemic Risk Management (系统性风险管理视角下实体行业与银行业间风险溢出效应研究)
Journal: Studies of International Finance (国际金融研究)
Author: Zhai Yonghui (翟永会) 
Link: https://bit.ly/2TgpOex
Publication Date: December 2019

• Using a model developed by economists at Princeton and the Federal Reserve, economist Zhai Yonghui measures levels of interdependence between different sectors of China’s economy and the Chinese banking system. Zhai notes that financial crises often begin with failures in the “real economy” and then spill over to banks.

• Based on her analysis, which used daily financial index data from 24 industries between 2005 to 2018, Zhai notes that China’s banking system is most vulnerable to distress in the real estate, transportation, mining, steel, and chemical sectors. A serious downtown in the real-estate sector would put as much as 5.33 percent of the banking sector’s value at risk (VaR), according to Zhai’s analysis.  (See her paper for a sector-by-sector analysis and associated charts.)

• Zhai comments that it is not surprising that the real-estate sector poses the biggest risk for Chinese banks. At the end of December 2018, China’s real-estate loan balance was 38.7 trillion yuan, a 20 percent year-on-year increase over December 2017, and accounted for 28.3 percent of all bank lending. As housing prices have increased in recent years, so too have real-estate loan values. If housing prices suddenly fell, the ratio of non-performing loans would increase, and this would have serious impacts on China’s banking sector, Zhai writes.

• In the transportation sector, Zhai notes that banks have lent significant numbers of short- and medium-term loans to pay for long-term transportation investments. The mismatches between debt and asset maturity dates create significant banking risks.

• In the mining, steel, and chemical sectors, these capital-intensive industries have low liquidity and long turnover time and are very susceptible to external shocks, Zhai writes.

• Similarly, Zhai notes that a crisis in the banking sector would spill over to industries that are highly dependent on financing. According to Zhai’s analysis, the real estate, steel, and non-ferrous metals sectors are most vulnerable to a banking crisis.

• As policymakers consider reforms to deleverage China’s banks, Zhai argues these policies should be implemented carefully, given high interdependence between banks and major industries.

Note: The Bank of China and the China International Capital Corporation co-publish the journal Studies on International Finance. Zhai is a professor at the Henan Normal University School of Business.

Former Chinese Navy Spokesperson Argues China Should Take a More Assertive Position in South China Sea

Title: Research on the "Freedom of Navigation" in the South China Sea and the Harmless Passage of Warships (美国南海“航行自由行动”与军舰无害通过问题研究)
Journal: Asia-Pacific Security and Maritime Affairs (亚太安全与海洋研究)
Author: Xing Guangmei (邢广梅), Wang Jinnan (汪晋楠)
Link: https://bit.ly/37XI6W4
Publication Date: January 2020

• National Defense University Law School professor Xing Guangmei is the former spokesperson for China’s navy and a deputy secretary-general of the International Military Branch of the Chinese Academy of Military Sciences. She and her co-author write that, since 2015, US naval warships have increased the frequency of their passage in the South China Sea for freedom of navigation exercises. 

• China claims many disputed islands in the South China Sea. According to Xing and Wang’s analysis, US naval warships have passed within 12 nautical miles of Chinese-claimed islands 21 times since 2015 (once in 2015, three times in 2016, five times in 2017, five times in 2018, and seven times in 2019). These exercises directly challenge China’s maritime interests in the South China Sea and increase the potential for armed conflict between the US and China, Xing and Wang write.

• After using much of the paper to chronicle China’s (oft-repeated) legal claims to the islands, Xing and Wang recommend China pursue the following policies:

1. Use diplomatic, political, economic, military, and cultural means to pressure the United States to gradually begin to accept China’s rise. The authors write that the root of the South China Sea challenge for China is that the US cannot accept a rising China. The sooner the US accepts this as inevitable, the sooner tensions will reduce.

2. Accelerate China’s transition from a “near shore” to a “dark blue” navy, including by providing security for other territorial straits around the world. Increase defense and military construction to narrow the military gap with the United States.

3. Amend the UN Convention on the Law of the Seas so that it better reflects China’s interests by providing more international legal clarity regarding territorial claims.

4. Sign a bilateral agreement with the United States that creates a mutual understanding regarding rules of treatment of warships in the South China Sea.

5. Change China’s domestic legislation so that it provides more clarity for Chinese warships regarding when, if, and how they should treat foreign warships passing through Chinese-claimed territorial waters.

Note: The Development Research Center of the State Council publishes the Asia-Pacific Security and Maritime Affairs journal.

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In this edition:

• Household Debt-to-GDP May be Lower than Official Statistics Indicate, but Low Income Groups Have Extremely High Total Debt Levels 

• Build More Nuclear Weapons to Strengthen the Chinese Position vis-à-vis the US, Argues Scholar in International Security Journal

• Prosecuting “Protective Umbrellas” – How to Make it Easier to Prosecute Public Officials Linked to Organized Crime

Household Debt-to-GDP May be Lower than Official Statistics Indicate, but Low Income Groups Have Extremely High Total Debt Levels 

Title: Report on China Household Leverage Ratio and Consumer Credit Usage (中国居民杆杆率和消费信贷问题研究报告)
Publisher: China Household Finance Survey and Research Center and Ant Financial Research Group
Authors: China Household Finance Survey and Research Center: Director Gan Li (甘犁), Qin Fang (秦芳), Lu Xiaomeng (路晓蒙), Yi Daichun (弋代春), Wang Xiang (王香), Zhou Ruixuan (周瑞轩); Ant Financial Research Group: Li Zhenhua (李振华), Lin Chen (林晨), Feng Chengcheng (冯程程), Wang Fang (王芳), Cheng Zhiyun (程志云), Wu Yaling (吴雅玲)
Link: https://bit.ly/2rlxPn5
Publication Date: October 2019

• In October, the China Household Finance Survey and Research Center, a non-profit academic institution established by Southwestern University of Finance and Law, and Ant Financial Research Group released a report regarding consumer and household debt. Much of the data for this report comes from the Center’s 2019 China Household and Financial Survey (CHFS), which sampled 34,691 households across all mainland provinces except Xinjiang.

• Some of the report’s most interesting findings include:

  • China’s household debt-to-disposable income ratios may be lower than is widely understood.

    • Previous studies that have evaluated China’s household debt-to-disposable income ratios have likely understated Chinese disposable incomes because they relied only on National Bureau of Statistics (NBS) data, the authors write.
      

    • Relying on a mix of CHFS and NBS data, the researchers estimate that China’s household debt-to-disposable income ratio was approximately 90.2 percent in 2018, up from 82.2 percent in 2017, and 73.1 percent in 2016. This diverges from many other analyses that have used NBS data that show that China had a 121.6 percent household debt-to-disposable income ratio in 2018, 112.3 percent in 2017, and 101.3 percent in 2016. These higher ratios are concerning because they exceed household debt-to-disposable income debt levels in the US just before the financial crisis.
      

    • These discrepancies in disposable income are rooted in how the NBS and this report’s authors calculate disposable income. This report’s authors factor in transfer income sources that the NBS does not (such as workers’ compensation and subsidies to farmers, for example). The National System of Accounts that the NBS relies on for its data also uses an accrual-based accounting method, whereas this report uses a cash-based method, which can also contribute to reporting discrepancies.
      

    • The authors note their methodology is more similar to the way OECD countries calculate household debt-to-income ratios.

• China’s debt is controllable but vulnerabilities are increasing.

  • The authors comment that, while China’s debt is generally manageable, authorities should pay attention to two key vulnerabilities:

    • First, low-income groups have very high debt burdens. According to CHFS data, in 2019, the bottom 20 percent of income earners had a 1140.5 percent total debt-to-income ratio. This is in contrast to the top 20 percent of income earners, who had a much lower 129.5 percent total debt-to-income ratio. (My note: Other income earning groups had total debt-to-income ratios in excess of 100 percent, which seems to conflict with the report’s 90.2 percent household debt-to-disposable income ratio above. Unfortunately the authors did not release the disaggregated data, so I could not dig deeper.)
      

    • Low-income groups also have a more heavy reliance on non-bank sources of credit than do high-income groups. Nearly 75 percent of low-income earner debt came from non-bank sources of credit, whereas non-bank sources of credit accounted for 26 percent of high-income earners’ debt, according to the report.
      

    • Second, housing loans for second and third homes are increasing rapidly. In 2018, 65.9 percent of housing loans financed the purchase of a second or third home. Just seven years prior, in 2011, fewer than 30 percent of home loans were used to pay for a second or third home. (My note: This is a strong indicator of property speculation.)

• China’s consumer credit industry is underdeveloped with significant room for growth.

  • Expanded access to consumer credit can significantly increase GDP consumption components, the authors write. They report that households with consumer loans had 25.4 percent higher consumption rates than households that did not. Consumer credit also provides an additional benefit because it promotes countercyclical spending during times of downward economic pressure (when the economy needs more spending, not less).
    

  • In 2019, just 13.7 percent of Chinese households had consumer loans (as opposed to 66.9 percent in the US in 2016).
    

  • The authors recommend that authorities pursue policies that make it easier for Chinese households to obtain consumer credit. Internet-based loans are one promising vehicle that can expand access to credit, they note, as borrowers of Chinese Internet loans typically have high repayment rates and low rates of default.

Note: The China Household Finance Survey is one of the most respected annual surveys conducted in China. Among other indicators, many China analysts use the CHFS to track China’s high rates of unoccupied apartments.

Build More Nuclear Weapons to Strengthen the Chinese Position vis-à-vis the US, Argues Scholar in International Security Journal

Title: Sino-US Composite Strategic Stable Relationship: Construction Basis, Basic Framework and Development Trend (中美复合战略稳定关系：建构依据、基本框架与发展趋势)
Journal: Journal of International Security Studies (国际安全研究)
Authors: Wang Zhengda, Shandong University of Political Science and Law (王政达)
Link: https://bit.ly/2LFELSK
Publication Date: September 2019

• The United States increasingly defines China as its main security threat, writes Shandong University School of Political Science and Law lecturer Wang Zhengda in the Journal of International Security Studies. Consequently, the United States dedicates more resources to countering China on military and trade issues, and in geopolitical challenges in the South China Sea, Taiwan Strait, North Korea, and India.

• Strong economic interdependence between the United States and China has historically underpinned stability in the US-China bilateral relationship. However, given that the US is willing to put its trading interests with China aside by “provoking” a trade war, this may foreshadow future deterioration in other areas, he writes.

• Wang argues that strengthening China’s nuclear capabilities can help improve China’s negotiating position and help counter the United States should the relationship worsen. The Soviet Union’s buildup of its nuclear weapons during the Cold War forced the United States to the negotiating table, he notes. While China should maintain a nuclear strategy focused on self-defense (and maintain its no first-strike policy), Wang argues that China should also:

  • build a nuclear arsenal that can penetrate the US air missile defense system. In addition to improving its missile technology, China should also dynamically link the number of nuclear missiles it maintains to the number of ground-to-air missile defense systems the United States deploys;
    

  • improve China’s own air missile defense system to counter buildup of US nuclear weapons along China’s borders, including near North Korea. He applauds China’s successful February 2018 air missile defense tests which show China’s technology in this area is improving;
    

  • increase the size of China’s nuclear submarine fleet and the range of missiles those submarines carry;
    

• Wang concludes that China should promote greater dialogue on nuclear security issues with the United States, including through academic exchanges. In addition to reducing the likelihood for conflict, Wang notes that an important priority of these exchanges should be to convince skeptics in the United States that China has credible nuclear deterrent capabilities. 

Note: Wang Zhengda is a lecturer at Shandong University School of Political Science and Law. While Wang is not a well-known author, this paper appeared in the Journal of International Security Studies, which is published by the University of International Relations. Some prominent China analysts believe this university has institutional links to the Ministry of State Security.

Prosecuting “Protective Umbrellas” – How to Make it Easier to Prosecute Public Officials Linked to Organized Crime

Title: Underworld Organizations “Protective Umbrellas” — Review of Criminal Regulations (黑社会性质组织 “保护伞” 的 刑法规制检视与调试)
Journal: Social Sciences of Beijing (北京社会科学)
Authors: Xu Yongwei, Beijing Normal University (徐永伟)
Link: https://bit.ly/2NvC5Hk
Publication Date: May 2019

• In his anti-corruption crackdown, Xi Jinping has prioritized punishment of public officials involved with organized crime. Many Chinese legal scholars consider public official complicity in organized crime an “essential” element in the “survival, development, and growth” of organized criminal organizations, writes scholar Xu Yongwei. The state will inevitably discover these illegal organizations, and this has given the pursuit of a public official protector (which Xu refers to as a “protective umbrella” 保护伞) an inevitable choice for criminal enterprises.

• The number of prosecutions against public officials providing cover for criminal organizations is too few, Xu notes, especially given that organized crime and public official complicity often go hand in hand. Citing literature, Xu points to a 2014 study of organized crime prosecutions in Shanghai that identified the existence of “protective umbrellas” in just seven percent of cases. A 2018 review of organized crime cases in Guangdong identified “protective umbrellas” just 23 percent of the time. A 2011 review of cases in Chongqing showed a higher (but still underreported) “protective umbrella” recognition rate of 54 percent.
  

• To strengthen prosecutions against public officials working with organized crime, Xu makes the following policy recommendations:

  • Establish leniency clauses in the criminal code for criminals who assist investigations against “protective umbrellas.” Sentences for cooperating witnesses should be lessened to incentivize evidence discovery.
    

  • China’s 1997 Criminal Act classifies “covering and condoning the organization of organized crime” as a crime of obstructing social management. Public security bureaus have jurisdiction over these types of crimes. According to Xu, this is problematic. Corruption is endemic to nearly every state organ, but “protective umbrellas” that work with organized crime groups are most frequently found in public security bureaus (PSBs). The law should be amended so that “covering and condoning the organization of organized crime” is classified as official malfeasance, which would transfer the investigation authority to other agencies, such as the Supreme People’s Procuratorate, and away from PSBs.
    

  • In those cases where public officials have been prosecuted for involvement with organized crime, the law has focused on the active measures those officials took to protect the criminal organizations. The law should be clarified to make it easier to prosecute officials who passively protect criminal organizations, for example, by possessing knowledge of illegal activity but failing to report it.
    

  • Finally, the legal system has traditionally treated sentencing for public officials as separate from the sentencing of the organized criminals themselves, with more leniency for the former. The law should give the public official who protects a criminal enterprise the same status as the organized crime leadership, and both should receive sentences of equivalent severity.

Note: Beijing Academy of Social Sciences publishes Social Sciences of Beijing. Xu Yongwei is not a well-known author. However, as of December 2019, this paper had three citations and 989 downloads, making it the most cited and downloaded paper published in 2019 related to organized crime.

• Using a model developed by economists at Princeton and the Federal Reserve, economist Zhai Yonghui measures levels of interdependence between different sectors of China’s economy and the Chinese banking system. Zhai notes that financial crises often begin with failures in the “real economy” and then spill over to banks.

• Based on her analysis, which used daily financial index data from 24 industries between 2005 to 2018, Zhai notes that China’s banking system is most vulnerable to distress in the real estate, transportation, mining, steel, and chemical sectors. A serious downtown in the real-estate sector would put as much as 5.33 percent of the banking sector’s value at risk (VaR), according to Zhai’s analysis.  (See her paper for a sector-by-sector analysis and associated charts.)

• Zhai comments that it is not surprising that the real-estate sector poses the biggest risk for Chinese banks. At the end of December 2018, China’s real-estate loan balance was 38.7 trillion yuan, a 20 percent year-on-year increase over December 2017, and accounted for 28.3 percent of all bank lending. As housing prices have increased in recent years, so too have real-estate loan values. If housing prices suddenly fell, the ratio of non-performing loans would increase, and this would have serious impacts on China’s banking sector, Zhai writes.

• In the transportation sector, Zhai notes that banks have lent significant numbers of short- and medium-term loans to pay for long-term transportation investments. The mismatches between debt and asset maturity dates create significant banking risks.

• In the mining, steel, and chemical sectors, these capital-intensive industries have low liquidity and long turnover time and are very susceptible to external shocks, Zhai writes.

• Similarly, Zhai notes that a crisis in the banking sector would spill over to industries that are highly dependent on financing. According to Zhai’s analysis, the real estate, steel, and non-ferrous metals sectors are most vulnerable to a banking crisis.

• As policymakers consider reforms to deleverage China’s banks, Zhai argues these policies should be implemented carefully, given high interdependence between banks and major industries.

Note: The Bank of China and the China International Capital Corporation co-publish the journal Studies on International Finance. Zhai is a professor at the Henan Normal University School of Business.