TOKYO: Japan’s lower house on Tuesday (Jun 13) approved proposed legislation aimed at “promoting understanding” of LGBTQ issues but campaigners criticised the Bill for its watered-down language. The country’s coalition government had debated the wording for months, with conservative politicians saying an anti-discrimination clause could deepen social divisions or openContinue Reading
Claire Perry O’Neill was fresh-faced from the gym as she dialled in from her Singapore hotel room.
It was early in the morning in the high-fuelled atmosphere of Ecosperity Week, a three-day conference hosted in the Lion City from 6-8 June inviting business leaders, policy-makers and investors to track the path to Asia’s transition to a “net zero” carbon output.
On the tail end of record-breaking heat waves across Southeast Asia, such an event could leave room for cynicism. But Perry O’Neill, former U.K. energy minister and current managing director for climate and energy at the World Business Council for Sustainable Development, a global organisation of 200 businesses, sees plenty of reason for hope.
“I’m very optimistic,” she said. “The climate numbers are difficult. We’re dealing with record heat levels, which is a wake up call. But we’re up for the challenge. And I find that very, very energising.”
A long-time booster for energy transition policy, Perry O’Neil served as a minister in the Conservative-led government from 2017-2019. In that role, she made some milestones while pushing forward the U.K.’s ground-breaking net zero legislation and successful bid to host the UN Climate Change Conference (COP26) in 2021.
But now, following an abrupt split from the government at the start of the year – claiming the ruling Conservative party was dominated by “ideology and self-obsession” – Perry O’Neill is back to business.
Amidst the heat of a rising climate crisis paired with growing public scrutiny of corporate ‘greenwashing’, the private sector will likely need to do more to substantiate claims of environmental friendliness. Now, both with the council and as an advisor to Terrascope, a Singapore-based decarbonisation platform, Perry O’Neill aims to provide better tools to accurately monitor emissions along value chains. The goal is to help companies meet evolving reporting requirements while pushing investment to be more effectively climate-conscious.
“The slight tragedy of it is that the global climate community thinks businesses are the bad guys. There is a view that growth is bad business,” she observed. “[It’s] so much better to have public-private cooperation and really unleash business and have it do what is good.”
We still had a view that this was all highly negative and costly. And it is costly. But there was no conversation about the opportunity and the growth.”
Claire Perry O’Neill
Business is Perry O’Neill’s background, as her political career was preceded by 20 years in consulting and finance.
It wasn’t until a professional pause that the Oxford University geography graduate considered the increasingly ominous climate crisis as a core part of her career.
“It was the first spike in climate interest,” she recalled, describing the mid-2000s. “It was when Al Gore’s movie came out, there was that feeling of quick climate chaos.”
A policy role led to her becoming a member of parliament in the then-opposition Conservative party, and eventually a part of former Prime Minister Theresa May’s cabinet.
“It was just after the Paris Agreement of 2016-17, so we had this kind of shared narrative,” she said. “But we still had a view that this was all highly negative and costly. And it is costly. But there was no conversation about the opportunity and the growth and the fact that if we are going to do this, there are ways to do it fair and equitable – and also profitable.”
Now, more than half a decade later, Perry O’Neill is attempting to tackle these conversations from the other side of the public-private divide.
One example she points to is the buildings that make up tightly-packed cityscapes that make up regional metropolitan areas such as Singapore, Kuala Lumpur and Jakarta. Buildings account for around 40% of finite energy consumption in Southeast Asia. But as Perry points out, “we pass policies all the time that say we have to have more energy efficient buildings. [But] it’s really difficult to do on the ground.”
Transitioning 80% of Singapore’s buildings to ‘green buildings’ meeting certain environmental standards such as reduction in energy, water and material resource usage, is a key part of the government Building Construction Authority’s Green Building Masterplan.
But according to a report by energy management system company Schneider Electric and the Singapore Green Building Council (SGBC), 60% of 500 Singapore-based firms surveyed weren’t familiar with the concept of green buildings, and only 12% indicated that all their operations used them.
“There is a sense of urgency that needs to happen, because these are really long tail decisions.”
Claire Perry O’Neill
A key challenge contributing to this disconnect is lack of transparency and data. During an Ecosperity panel, Lauren Sorkin, executive director of the Resilient Cities Network, estimated that investors could miss out on $7 trillion in benefits from nature-based climate solutions, such as planting mangroves in coastal areas, before the end of the decade due to lack of data.
It is this kind of data that Perry O’Neill believes is critical for the private sector to integrate energy transition as a realistic, attainable part of business continuity.
“If you can’t measure it, you can’t manage it,” she said. “What you need to do is have your CFO, your procurement head, make decisions every day that reduce your overall value chain emissions.”
Increased scrutiny of businesses’ carbon emissions can help tackle the opaqueness that facilitates corporate greenwashing. On the flip side, it also forces governments and businesses to consider the potential impact of a dramatic energy shift, especially for a region that remains heavily reliant on fossil fuels.
Against that entrenched reliance on carbon-based energy, there is no shortage of ambitious promises in the region.
Indonesia – a country that exported a record 448.5 million tonnes of coal in 2022 and generates more than 60% of its energy from the carbon fuel – has recently claimed it can reach net zero emissions by 2055, ahead of its target.
Some private-sector actors seem to be on board to ditch coal. At an Ecosperity session, Singaporean bank DBS – Southeast Asia’s largest lender by assets and a member of the Sustainable Business Council – announced plans to take funding for new coal plants out of its lending matrix.
But to turn statements into action, there needs to be investment and new technologies that require collaboration between states and businesses, across industries and borders.
Such coordination will inevitably take time to come together. Perry O’Neill is clear in her view that “everyone needs to get off coal” but showed some wariness of the pace of change.
“There is a sense of urgency that needs to happen, because these are really long tail decisions,” she said.
China, despite its pledge to be carbon neutral by 2060, has approved more coal power projects in the first three months of 2023 than all of 2021, a move Perry O’Neil noted will doubtless influence Southeast Asia.
At an Ecosperity fireside chat, Singapore Minister for Development Desmond Lee noted the need to be “realists with a quiet sense of optimism”. Perry O’Neill liked this combination.
“I’m not for chaos,” she asserted. “I’m for order and transparency. But I’m also fed up being told why we can’t do things. I think that is a very dangerous mindset.
Tuesday’s surprise People’s Bank of China (PBOC) interest rate cut signaled the depths of Beijing’s concerns about the slowdown in Asia’s biggest economy.
Governor Yi Gang’s team lowered its seven-day reverse repurchase rate by 10 basis points to 1.9%, the first such move since August 2022. The swift reaction in global markets is a reminder that the global spotlight is on the PBOC as rarely before as three data points converge.
One is a slowing economy with factory-gate inflation trends falling even faster. Two, a cratering property sector crying out for monetary support. Three, news in the last five days that six state-owned banks cut their deposit rates under policymakers’ guidance. Put it all together and traders can begin to understand why the PBOC cut rates so unexpectedly.
Already, the debate is shifting to when might the PBOC ease again. It could be a while.
There are two different arguments here. One is that, sure, China’s financial system could possibly do with another official rate cut. The other is that, no, Governor Yi doesn’t want to go there if he can avoid opening the monetary floodgates anew.
It’s true that demand for credit is low and unevenly distributed. It’s true, too, that there are concerns as disinflationary trends might morph into full-blown deflation.
As a weaker-than-expected Covid-19 reopening trade weighs on manufacturing, China’s factory gate prices plunged 4.6% in May, the most precipitous decline in seven years.
Yet strategist Alvin Tan at RBC Capital Markets speaks for many when he warns that rate cuts alone won’t solve the biggest headwind — a “troubled property sector” that’s keeping households “under pressure.”
Goldman Sachs economist Wang Lisheng says a stumbling real estate sector is an increasing drag on China’s 2023, not least its ability to reach the government’s 5% gross domestic product (GDP) growth target.
The trouble, Wang says, is “falling demographic demand, a shift in policy focus to support strategically important sectors, and weaker housing affordability.”
The problem, in other words, is of a long-term structural nature, not something that adding yuan to the system can fix. This puts the onus less on Yi’s PBOC than Premier Li Qiang’s reform team, which is reportedly gearing up to recalibrate growth engines.
One important pivot that Li set in motion since March is stepping away from Beijing’s draconian tech crackdown. The fallout from President Xi Jinping’s maneuver, one that started with sidelining Alibaba Group founder Jack Ma, continues to cast a cloud over China’s appeal as an investment destination.
Look no further than the yuan trading well past 7 to the US dollar. It’s a sign, in part, that global investors are taking a trust-but-verify approach to Li’s insistence that China is once again open for business.
As Li said in late March: “We will align with international economic and trade rules that are of very high standards, expand our opening-up in a steady and systematic way, and strive to create a first-class business environment that is market-oriented, rule-of-law-based and internationalized. No matter how the international situation changes, China will unswervingly keep expanding our opening up.”
One example of that opening: the new “Swap Connect” program between China and Hong Kong. On top of earlier stock and bond connect arrangements, this new framework opens the way for overseas funds to access derivatives vital to hedging bets in China’s bond market. The dearth of hedging tools has long turned off the biggest of the big money.
That scheme also enables traders to deal in key money-market rates tied closely to PBOC policies. It deepens institutional investors’ involvement in China markets. And it’s a notable step toward fulfilling a pledge to open mainland capital markets to international funds.
Rose Zhu, chief China country officer at Deutsche Bank, calls it “a huge leap forward in developing the domestic derivatives and bond markets.”
If executed well, the capital pulled in via such connect dynamics could help to turn the page, to some extent, from the regulatory crackdowns of 2020 and 2021. It reminds top investment banks that the geopolitical turbulence and dueling sanctions between Beijing and Washington isn’t completely derailing market reforms.
However, that doesn’t mean the PBOC won’t be adding liquidity in the short-to-medium term. After all, as economists at Maybank warned last week, “there’s immense concern for the country’s economy especially given there appears to be limited sources of growth.”
As strategist Kelvin Wong at OANDA points out, the recent move by six state-owned banks to cut deposit rates proved the point. “These measures,” Wong says, “are made to stimulate consumer confidence and increased credit supply so that there will be lesser funds inflow into the banks’ fixed deposit products and lower the cost of funding for banks, which in turn can incentivize a reduction in lending rates.”
Economist Carlos Casanova at Union Bancaire Privée is in the camp that has been expecting stronger PBOC actions. “Weak May inflation reinforces the case for stronger policy support,” he says, adding that “although subdued inflation is good news for consumption, excessive deflation is also problematic, as it entails smaller profits for companies and slower job creation.”
Casanova says “we think the PBOC could also consider additional reserve requirement ratio cuts as well as continued support via liquidity operations and faster credit growth.” Monetary support, he adds, “will have to be accompanied by bottom-up policies” to boost demand for, say, electric vehicles and other big-ticket items like household appliances.
“Macroprudential support for the housing sector,” Casanova says, “is already underway on a province-by-province basis and could be expanded. We also expect measures to address youth unemployment over the summer months.”
Casanova views large state-owned domestic banks trimming deposit rates as a step in the right direction. “This should help to improve profit margins,” he says, “allowing more room to extend credit to key sectors” such as small-and-medium-sized enterprises.
Economist Li Chao at Zheshang Securities also sees good odds that the PBOC will be more active in the second half of the year — both through rate cuts and RRR reductions.
Add analyst Ming Ming at Citic Securities Co to the China-needs-a-rate-cut camp. “June is a key window of policy to stabilize economic growth,” Ming notes. “That, combined with some recent activity and financial indicators as well as market sentiment, has led to a clear increase in the necessity for an interest rate cut.”
Economist Zhiwei Zhang at Pinpoint Asset Management worries that the “risk of deflation is still weighing on the economy. Recent economic indicators send consistent signals that the economy is cooling.”
Yet things on the ground in China are rather complicated. Case in point: don’t rule out a rebound in consumer prices.
“We still think a tightening labor market will put some upward pressure on inflation later this year,” says economist Julian Evans-Pritchard at Capital Economics. Odds are, he says, mainland inflation “will remain well within policymakers’ comfort zone.”
Evans-Pritchard adds that the “government’s ceiling of around 3% for the headline rate is unlikely to be tested and we doubt inflation will become a barrier to increased policy support.”
Yet easier PBOC policies won’t easily resurrect China’s property sector. Though a cornerstone generator of mainland GDP didn’t collapse amid three years of Covid pain, it’s displaying telltale signs of stress. In May, for example, its post-pandemic resurgence slowed to just 6.7% from a 29%-plus pace in the previous two months.
Goldman’s Wang notes that Beijing policymakers are likely to loosen the availability of credit to new homebuyers. That could take the form of targeted lowering of mortgage rates and down-payment ratios and easing up on curbs on home purchases.
Yet Wang doesn’t expect to see Beijing moving to “engineer an up-cycle” that kicks off a “repeat of the 2015-2018 cash-backed shantytown renovation program.”
Rather, Wang sees Premier Li’s team favoring a non-PBOC “endgame for the property sector policy” that lowers the sector’s pivotal role in driving growth.
Along with fixing cracks in the property sector, Li’s team also must accelerate efforts to build wider and deeper social safety nets. Economists agree this is the key to prodding mainland households to save less and spend more over time to increase the role of domestic demand-led growth.
The “prioritization of spending on households over investment would also deliver larger stabilization benefits,” notes International Monetary Fund economist Thomas Helbling.
“For example, means-tested transfers to households would boost aggregate demand 50% more than an equivalent amount of public investment. To ensure consistency across policies, fiscal policy should be undertaken within a medium-term fiscal framework.”
Helbling argues for “an ambitious but feasible set of reforms [that] can improve these prospects, importantly in a way that is inclusive by raising the role of household consumption in demand.”
“Reforms such as gradually lifting the retirement age to increase labor supply, strengthening unemployment and health insurance benefits, and reforming state-owned enterprises to close their productivity gap with private firms would significantly boost growth in coming years,” he says.
Even so, the PPOC has limited ability to counter headwinds bearing down on China’s economy. Tuesday’s surprise rate move could be a confidence booster for global investors. But it also seems the central bank’s way of signaling that it’s time for the government to take the lead in safeguarding and stimulating growth.
Follow William Pesek on Twitter at @WilliamPesek
Getty ImagesFormer Twitter CEO Jack Dorsey has alleged that the Indian government had threatened to shut the platform and raid employees’ houses in the country.
In an interview with a US-based YouTube channel, Mr Dorsey said India requested removal of several tweets and accounts linked to the farmers’ protest in 2020.
Twitter was also asked to censor journalists critical of the government, he alleged.
India has denied the allegations and accused Twitter of violating laws.
“This is an outright lie… Perhaps an attempt to brush out that very dubious period of Twitter’s history,” federal minister Rajeev Chandrashekar tweeted on Tuesday.
“No one went to jail nor was Twitter ‘shutdown’. Dorsey’s Twitter regime had a problem accepting the sovereignty of Indian law. It behaved as if the laws of India did not apply to it,” he added.
Mr Dorsey’s comments – made to the American news series Breaking Points – are the latest in an already troubled relationship between Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) government and Twitter.
It also comes at a time when the platform has been caught up in an intensifying debate on its role in supporting principles of free speech amid demands in several countries to control Twittter’s influence.
Mr Dorsey quit as the Twitter CEO in 2021 and the social media platform was purchased by billionaire Elon Musk in 2022.
In the interview, which was uploaded on YouTube on Monday, Mr Dorsey said “countries like India and Turkey made many requests to us to take down journalists’ accounts that give tactile information and remove them from the platform”.
He added that he was “surprised at the level of engagement and requests” by governments of the world to censor content on the platform during his time.
“India, for example, was a country that had many requests around the farmers’ protests, around particular journalists that were critical of the government,” he said.
“It manifested in ways such as: ‘we will shut Twitter down in India’ – which is a very large market for us; ‘we will raid the homes of your employees,’ which they did; ‘we will shut down your offices if you don’t follow suit.’ And this is India, a democratic country,” Mr Dorsey told the show’s hosts Krystal Ball and Saagar Enjeti.
At the height of the farmers’ protests against a series of agriculture reform laws, the government had asked Twitter to remove tweets it believed that had used an incendiary hashtag, and accounts it alleged were used by Pakistan-backed Sikh separatist groups.
The request came after the largely peaceful agitation had been jolted by violence on 26 January 2021, which left one person dead and hundreds of policemen injured.
Twitter had first blocked some 250 accounts, including those of a news magazine and activists and organisations associated with supporting the months-long protests on the outskirts of Delhi.
But six hours later, Twitter restored the accounts, citing “insufficient justification” for continuing the suspension.
The Indian government immediately ordered Twitter to block the accounts again and told the company’s employees in India that legal action would be taken – which could be up to seven years in prison – if they did not comply.
Twitter responded saying it would not block accounts belonging to media companies, journalists, activists and politicians because that would “violate their fundamental right to free expression under the Indian law”.
Relations between Twitter and Mr Modi’s government have been downhill ever since.
Critics say that at the heart of this is a new internet law that puts social media platforms like Twitter and Facebook under the direct supervision of the government. The government says the rules are meant to tackle misinformation and hate speech, but experts worry it would lead to censorship.
Even Mr Musk who succeeded Mr Dorsey, had said in April that, “rules in India for what can appear on social media are quite strict”.
In Monday’s interview, Mr Dorsey compared India’s actions to those by governments in Turkey and Nigeria, which have briefly restricted the platform in the past.
“Turkey is very similar [to India], we had so many requests from Turkey. We fought Turkey in their courts and often won, but they threatened to shut us down constantly,” he said.
“Nigeria is another example… The situation was such that we could not even put our employees on the ground in the country out of fear of what the government might do to them.”
To stand in the election, Mr Goh has to first satisfy the criteria set out in the Constitution. For private sector candidates, they must have been, for three years or more, the chief executive of a company with shareholder equity of S$500 million or more.
A reporter also asked if Mr Goh was concerned that Ossia International was on the SGX watchlist. Companies are put on the list if they record pre-tax losses for the three most recently completed consecutive financial years and have an average daily market capitalisation of less than S$40 million over the last six months.
According to an Ossia announcement to SGX in December last year, the company had a pre-tax profit for the last three financial years, following “concerted efforts to increase its profitability”.
This fulfilled one of the requirements to be removed from the watchlist, the company said. However, the company did not have an average daily market capitalisation of S$40 million or more over the previous six months and had applied for an extension to meet the criteria for exiting the watchlist.
When asked if he was worried that Ossia International was on the SGX watchlist, Mr Goh said that he was not as Ossia was just one of his companies.
“This is only one of the companies, it’s not going to affect (my) eligibility,” he said.
Ossia International was trading at 0.18 cents on SGX at around noon on Tuesday.
Mr Goh was born in Negeri Sembilan, according to an interview with Chinese daily Lianhe Zaobao.
He has been living and working in Singapore since 1975, and became a Singapore citizen in 1990.
Married with four children, Mr Goh also co-founded the charity Border Mission and is a council member at the Red Cross Society, among other roles.
His wife, Madam Lysa Sumali, and his four children were at the ELD along with his supporters, who were mostly dressed in red. There were about 50 supporters present, Mr Goh’s media team said.
Mr Goh is the second person to declare his intention to run in the upcoming Presidential Election, after Senior Minister Tharman Shanmugaratnam.
Mr Tharman said on Sunday that he welcomes a contest, adding: “My whole approach is not to shy away from competition. It’s always been that way. It’s how I prove myself.”
Former Securities and Futures Commission (SFC) senior director, Roger Cheng, is set to join UK-headquartered law firm, Linklaters, at its Hong Kong base from August.
The move follows his nearly five years of experience at the special administrative region’s (SAR) financial regulator, where Cheng oversaw the operations of the Takeovers Team. The law firm’s announcement pointed to the instrumental role that he played during this time, developing Hong Kong’s takeovers and mergers policy, as well as driving forward other listing-related progress.
Prior to his tenure with the SFC, Cheng spent 13 years at Slaughter and May.
Offering some thoughts around trends affecting dealmaking in Hong Kong and China, Betty Yap, Linklaters partner and global co-head of the firm’s Financial Sponsor Group shared that there had been a noticeable rebound of M&A activity in the region post-pandemic, though activity has not yet returned to pre-pandemic levels.
“Inbound investment into mainland China is still somewhat marred by geo-politics and recent regulatory changes,” she told FinanceAsia, adding that her team is optimistic around sectors less affected by national security concerns, such as the consumer segment.
“Interest from Middle Eastern investors in M&A opportunities in China has increased as relations between [both] continue to strengthen. We are also seeing a number of sales by private equity (PE) sponsors in the market, as investments made in prior years mature,” she continued.
Her colleague, Hong Kong-based partner, Xiaoxi Lin, noted that recent financial stress in the Chinese real estate market has presented interesting M&A opportunity in Hong Kong, through the sale of prime commercial and residential properties to generate cashflow and service restructuring debts.
“A cocktail of factors including the distress in the PRC real estate sector, rising interest rates, and regulatory restrictions have meant that commercial banks are reducing their exposure to the real estate sector, including loans secured by residential and commercial properties,” Yap said.
“Credit funds – who are not subject to the same regulatory restrictions – are stepping into this funding gap,” she added, highlighting that while the current elevated interest rate environment means that borrowing costs are higher, credit funds are able to provide financing on the back of higher loan-to-value (LTV) ratios and can offer swift deal execution.
IPO dynamics
In terms of the IPO landscape ahead, Lin told FA, “Market participants are cautiously expecting a stronger HK IPO market this year with more companies listed than in 2022”.
Corporate partner, Donnelly Chan, added that Hong Kong’s recent introduction of the Chapter 18C regime – which reduces the listing requirements threshold for firms operating in new economy industries – together with recent China Securities Regulatory Commission (CSRC) reforms, is likely to support the market’s advancement.
“The track record and proven success of the pre-revenue Biotech listing regime and the weighted voting rights (WVR) listing regime since their introduction in 2018, coupled with the concession route for Greater China companies to secondary list on the main board has demonstrated the Hong Kong market’s flexible approach and readiness to evolve and explore opportunities,” he told FA.
Chan added that, as a result, it is hoped Hong Kong’s bourse will become “the stock exchange of choice” compared to other regional fundraising hubs.
Opportunity elsewhere
However, Yap is bullish on opportunity across the full breadth of Asian markets.
“For the remainder of 2023, we believe there will be continued interest in M&A opportunities in Asia,” she told FA.
“As inbound investment interest in China remains mixed given geo-politics, other single jurisdiction markets in Asia that can provide scale will be of interest to financial sponsor investors looking for efficiency in the deployment of capital.”
She pointed to markets such as India and Japan as benefitting from investor appetite – with the latter offering attractive costs “because of the lower yen”.
Yap added that Southeast Asia will continue to draw capital: “in particular Indonesia, with its relatively young demographics and the consumption power of its growing middle class.”
In terms of sectors, she noted that energy transition will remain of utmost importance “with interest in targets from renewables to electric vehicles to batteries to de-carbonising assets,” while digital infrastructure and data centre investment will continue to support the rise of e-commerce.
In the Linklaters release, head of Corporate, Sophie Mathur shared, “We are delighted to welcome Roger to our corporate practice. We are confident that his insights into takeovers and mergers regulations and policy matters will be of immense value-add to our clients when navigating take-privates and other public market transactions.”
Unlike the typical structure of a corporation, Linklaters employs a limited liability partnership which enables the firm’s partner leadership-base to make long-term strategic decisions for the business together.
Cheng’s appointment follows other key hires in Asia in recent months, including the appointment of Yoshiyuki Asaoka as corporate partner in Japan. In June 2021, William Liu was appointed as regional managing partner for Asia Pacific.
¬ Haymarket Media Limited. All rights reserved.
Russia and Iran plan to build a new killer drone factory, a joint venture that will serve to restock Russia’s depleted supplies of the crucial weapon amid the raging Ukraine war.
The New York Times reported this month that the planned facility will be based in the Yelabuga region east of Moscow, with production scheduled to start in 2024 and a projected output of 6,000 drones over the next few years to support Russia’s war effort.
Russian ships currently transport Iranian drones from Amirabad in Iran, across the Caspian Sea, where they are unloaded at Makhachkala in Russia, according to the report.
From there, The New York Times report says that the drones are transported to two bases, one northeast of Ukraine and another east of the country, before being deployed to attack Ukrainian targets.
The New York Times report says that Russia’s plans to build a drone factory with Iranian assistance have been known since January 2021, with the White House declassifying sensitive satellite imagery to raise international pressure on Iran and help international businesses from unintentionally contributing to Iran’s attack drone program.
Indeed, an October 2022 report from the Institute of Science and International Security think tank says that parts from Germany, China, the US, Poland and Austria have been recovered from Iranian drone remnants in Ukraine.
The ISIS report mentions that the diversity of parts shows that Iran has established and cultivated an extensive procurement network aimed at bypassing sanctions imposed against it to obtain critical military technology.
The Ukraine war has exposed systemic weaknesses in Russia’s drone program. Asia Times noted in November 2022 that while Russia is funding multiple drone programs it has faced multiple challenges in getting them up to speed.
These challenges include an immature local drone industry, limited access to advanced technologies that have been exacerbated by Western sanctions and a scarcity of high-end systems cleared for operational use.
Those limitations have been witnessed in Russia’s technologically-challenged short-range tactical drones, which are unable to carry heavy payloads. Russia also lags in key drone technologies such as optics, electronics and composite materials, with conflicting requirements from the different branches of the Russian military reportedly impeding its drone program.
Building Iranian-origin drones – and possibly missiles – in Russia could help to overcome these challenges, analysts say.
Paul Iddon notes in a January 2023 article for Forbes that Iranian defense companies have already supplied components for more rapid construction of drones in Russia. Iddon says that continued drone deliveries have been possible because Russian factories have manufactured drones using Iranian parts.
Russia has also been upgrading its Iranian-origin Shahed-136 drones, boosting their resistance against electronic attack while increasing their lethality.
In a February 2023 Forbes article, Iddon notes that Russia has upgraded its Shahed-136 drones with multipurpose warheads that have been used against Ukraine’s energy infrastructure and semi-armor-piercing warheads that have been launched against hardened targets.
He also notes plans to upgrade the Shahed-136’s notoriously noisy gasoline engine with a silent electric motor, which may have already been done to maximize the drone’s chances of evading Ukrainian defenses.
Iran is also allegedly preparing to send ballistic missiles to Russia, although deliveries have not yet materialized.
In October 2022, Asia Times reported that Iran is preparing to send shipments of Fateh 110 and Zolfaghar short-range ballistic missiles (SRBM) with ranges of up to 300 and 700 kilometers to Russia.
Russia has been burning through its missile stocks since the start of the Ukraine war. Less-than-ideal use of surface-to-air and anti-ship missiles to hit ground targets have contributed to shortages of these advanced munitions.
Indeed, Breaking Defense reported in May 2023 that Russia has been firing cruise missiles mere weeks after production.
Recovered Kh-59MK2 air-to-surface missile remains in March 2023 apparently showed that the missile was manufactured in the fourth quarter of 2022. The remains of one Kh-101 missile recovered in November 2022 indicated that it was manufactured just a month before.
The Ukraine war has also exposed Russia’s surprising dependence on Western electronics for its missiles. Analysis of Russian 9M727 Iskander cruise missile remains showed it included microchips from German and US manufacturers.
Asia Times noted in August 2022 that while Russia can produce critical electronics for missiles, such as microchips, its underfunded semiconductor industry is 20 to 30 years behind the US and has been reduced to copying Western designs.
While Western sanctions have impeded Russia’s access to hi-tech chips for its missiles, Russia has reportedly acquired unknown quantities of these sensitive components through its secret services and transshipment through third countries.
Russia’s massive oil and gas revenues have also allowed it to finance more missile orders from its state-run factories, hire additional staff and increase working hours.
The new drone factory to be built outside of Moscow is seemingly part of Iran’s emerging drone diplomacy. Asia Times noted in May 2022 that Iran’s move to establish drone factories abroad could be part of its efforts to avoid international isolation, bypass international sanctions and build partnerships with client states.
Iran’s drone-related assistance to Russia reinforces their strategic partnership, which will be strengthened and expanded through the supply of spare parts, munitions, training, maintenance and technical assistance.
Some suggest that joint drone production may serve as a stopgap before Iran can deliver SRBMs to Russia. Iddon reports that Iran may still be gauging the likely international reaction if it delivers SRBMs to Russia, which may trigger international sanctions under UN Security Council (UNSC) Resolution 2231.
He notes that Iran may be biding its time until UNSC Resolution 2231 restrictions regarding missiles and related technology expires in October 2023.
A retired People’s Liberation Army senior colonel recently wrote that the South China Sea “is far more dangerous” than Taiwan as a potential trigger for a US-China war.
His reasoning was that while close encounters between US and People’s Republic of China ships and aircraft are rare near Taiwan, they are frequent in the South China Sea, and could easily lead to an accidental shooting incident that escalates into a larger military conflict.
It is more plausible, however, to argue that the South China Sea is less war-prone than the Taiwan Strait. Beijing says increasing US support is pushing Taiwan toward independence, which the Chinese government has committed itself to go to war to prevent.
In contrast, US “freedom of navigation” operations in the South China Sea, in which US Navy vessels briefly sail through Chinese-claimed waters, do little if anything to weaken China’s position.
While both Taiwan and the South China Sea are cases of PRC expansionism, China’s policy toward the latter is characterized by patience – although buttressed by an insistence that other governments must not make permanent gains at China’s expense.
The PRC is uncompromising on the desired end state: ownership of the maritime territory and land features within its nine-dash line. Yet Beijing is willing to defer realization of that objective well into the future. It trades off a speedy victory for a less contentious one.
Is it fair to call China’s policy “expansionism”?
Beijing’s official articulation of its position is limited to the nine-dash line (sometimes with a tenth dash added to encompass Taiwan) and an oft-repeated statement, “China has undisputable sovereignty over the islands and their adjacent waters in the South China Sea.”
Every summer since 1999, Beijing has unilaterally imposed a ban on foreigners fishing in the northern part of the South China Sea far beyond any reasonable interpretation of a Chinese exclusive economic zone (EEZ). This is a calculated demonstration of administrative control.
Recently, in response to the many instances of PRC ships engaging in harassment or unauthorized activities near the coasts of Southeast Asian countries, PRC spokespersons have added: “There is no such thing as [China] entering in other countries’ exclusive economic zones,” seemingly suggesting that Beijing does not accept the principle of other countries having EEZs in the South China Sea.
The totality of PRC policy indicates an attempt to annex international waters and airspace, along with waters and features over which other governments claim they have ownership rights, and to convert them into Chinese territory. That constitutes expansionism.
Every expansionist power in the modern era has claimed that its annexation of foreign territory was justified. For its part, Beijing argues that historical Chinese usage and maps inherited from previous Chinese governments prove that the South China Sea rightfully belongs to China.
This obfuscates the issue by coating it with a veneer of irredentism, which seems less aggressive – that is, the Chinese are claiming territory they believe is theirs, not territory they believe belongs to other countries.
Unfortunately for Beijing, however, the widely accepted treaty produced by the United Nations Conference on the Law of the Sea (UNCLOS) does not support China’s claims. Despite being a signatory to the UNCLOS treaty, Beijing has disregarded the treaty’s relevance to the South China Sea dispute, famously blowing off the 2016 Permanent Court of Arbitration decision that went against China.
If there is no basis for Chinese irredentism, we are left with Chinese expansionism. It is, however, a patient expansionism. Pressing for a quick victory would entail a relatively high level of conflict.
At a minimum, it would intensify fears among regional states that the newly-risen China is a ravenous bully bent on fulfilling a self-interested agenda. It would also likely involve China in a military conflict. The long-term consequence would be to lock at least some regional states into counter-China security arrangements.
It would be far better, from Beijing’s standpoint, for regional capitals to individually reach the conclusion that resistance is futile, and that their better option is to accommodate China by accepting the vision of benevolent PRC ownership of the South China Sea.
Regime type is an important factor in Beijing’s patience. With respect to domestic politics, the PRC government can afford to take the long view because the ruling Chinese Communist Party has no challengers and paramount ruler Xi Jinping seems assured of lifetime tenure.
The PRC seeks to win without fighting by demonstrating overwhelming relative strength. China’s navy, coast guard and fishing fleet are all the world’s largest by numbers of ships. The PRC Coast Guard includes some repainted navy warships and boasts the world’s largest cutter, which weighs more than a US Navy cruiser.
The PRC government employs hundreds of civilian fishing boats to swarm and occupy parts of the South China Sea, and backup coast guard and navy vessels are never far away. None of the other claimants can compete with this vast armada. The omnipresence of Chinese ships signals that rival claimants cannot win.
Frequent PRC harassment of foreign vessels evinces a policy decision to rely on low-level intimidation rather than the kind of direct, violent military action that China opted for in 1988 to seize Johnson South Reef from Vietnam.
At the same time, Beijing offers assurances to make it easier for neighbors to accommodate the Chinese agenda. China says it doesn’t interfere with other countries’ freedom of navigation in the South China Sea. Beijing offers joint development projects with individual claimant states.
The PRC also invites rival claimants to reach a settlement with China via bilateral negotiations. Importantly, however, this is a format that would maximize China’s leverage as the much more powerful of the two states at the table. Beijing eschews permitting the other claimant states to negotiate as a group against China.
The PRC agreed to the non-binding Declaration on the Conduct of the Parties in the South China Sea (DoC) in 2002, and has remained involved in negotiations on a more robust Code of Conduct (CoC) since then.
By any reasonable interpretation, however, China has violated the declaration’s prohibitions against “activities that would complicate or escalate disputes” and against seizing new territory. Since 2002 the PRC has created new military bases on hundreds of acres of reclaimed land in the South China Sea as well as occupying Scarborough Shoal, which is within the Philippines EEZ and to which Philippine fishermen previously had access.
For two decades Beijing has obstructed progress toward a meaningful code of conduct, stalling the process and attempting to weaken the content of any proposed agreement.
Beijing has demanded that a code of conduct
Recently Beijing has expressed interest in quickly reaching agreement on a code of conduct. The motivation for this new urgency seems to be a desire to lock out the influence of the United States, which the PRC perceives as increasing its efforts to oppose Chinese claims.
PRC Foreign Minister Wang Yi said in 2022 that Southeast Asia was in danger of “being used as chess pieces in major power rivalry” and that “the future of our region should be in our own hands.” For the Chinese government, apparent support for the declaration and for a code of conduct is a mostly cynical exercise lacking intent to make any significant compromises.
This leads to the final element of PRC policy. Beijing’s patience is conditioned on an assessment that China’s progress toward achieving its preferred end-state is improving, even if only gradually. The Chinese government intervenes, often jarringly, where it believes there is a danger of losing ground to rival claimants or the United States.
The situation at Second Thomas Shoal (Ayungin Shoal) inside the Philippines’ EEZ is a good illustration. Both Beijing and Manila claim the feature as national territory.
The Philippines intentionally grounded the World War II-era tank landing ship Sierra Madre on the shoal in 1999 to serve as a guard post for Philippine soldiers. The ship is now a dilapidated hulk. The soldiers inhabiting the ship require regular resupply by other Philippine ships.
The official Chinese position is that resupply is allowable as “a provisional, special arrangement out of humanitarian considerations,” but that the Philippine government should remove the ship from the shoal.
In practice, Chinese vessels sometimes block and sometimes shadow resupply missions, and are especially aggressive in obstructing attempts to deliver construction materials to repair the Sierra Madre.
In 2021, Chinese vessels reportedly fired high-pressure water cannon at Philippine vessels trying to reach the Sierra Madre. On February 6 this year, according to the Philippine Coast Guard, a PRC vessel made aggressively dangerous blocking maneuvers and aimed a powerful laser at a Philippines patrol ship attempting to approach and resupply the Sierra Madre. The laser temporarily blinded some of the patrol ship’s crew.
The Philippine government released video evidence of the laser attack. Unable to plausibly deny it, Beijing said its coast guard vessel used a harmless hand-held laser (not a “military grade laser” as alleged) to measure the speed and distance of the Philippine ship.
Second Thomas Shoal exemplifies several broader aspects of PRC policy. Beijing does not demand an immediate realization of its ultimate goal (removal of the grounded ship), but is content with regular and low-level harassment to remind the Philippines that it must eventually capitulate.
Chinese attacks against Philippine ships remain in the gray zone – water cannon and lasers, not naval gunfire. Philippine President Ferdinand Marcos Jr said the laser attack was not sufficient to involve the US-Philippine defense treaty.
Beijing seems comfortable with a large gap between its words and deeds. The deeds signal a willingness to act with ruthless violence if necessary, while the words aim to maintain Beijing’s desired reasonable and non-aggressive image.
The steady deterioration of the ship suggests time is on the PRC’s side. Beijing reacts strongly, however, to any movement that will permanently undercut China’s position, such as repair work that would extend the life of the Sierra Madre.
Patient expansionism is preferable to urgent expansionism. But there is still much wrong with China’s South China Sea policy: intimidation, disingenuity and disdain for international law.
And even if the level of war-proneness is lower than in the Taiwan Strait, China does more than its share to maintain high geopolitical tensions in the South China Sea.
Denny Roy is a senior fellow at the East-West Center, Honolulu.
China has vowed to boost the development of its artificial intelligence sector but it is facing a shortage of software engineers in the country.
The latest illustration: Microsoft Research Asia (MSRA) has recently launched a “Vancouver Plan” to relocate a number of top AI specialists from Beijing to its new laboratory in Vancouver, the Financial Times reported on Saturday, citing some people familiar with the plan. The report said the plan was launched due to heightened political tensions between the US and China.
Chinese state media and some commentators say the relocation of MSRA specialists shows that a global AI race is heating up – a trend that will push China to nurture more AI experts.
After all, no one thinks there are enough of them – and that’s the basic handicap slowing Chinese progress. Elon Musk says China is only 12-month behind the US in artificial intelligence but other experts are more pessimistic.
Following the publication of the original FT story, Microsoft told the newspaper that it has nothing called a “Vancouver Plan” but is establishing a new lab in Vancouver, which will be staffed with people from other MSR labs around the world, including China. It added that the reported number of Chinese employees who will move to Canada – the original sources had said 20-40 – was not accurate, but it did not provide a corrected number.
Founded in 1998, MSRA conducts research in areas central to Microsoft’s long-term strategy and future computing vision, including natural user interface, AI, cloud and edge computing, big data and knowledge mining, computer science fundamentals, intelligent multimedia and computational science.
Concern that MSRA’s sharing approach might be insufficiently protective of US intellectual property goes back several years. In April 2019, MSRA was accused by a US-based think tank of working with the National University of Defense Technology (NUDR), a Chinese military-run university, on AI research that could be used for surveillance and censorship in Xinjiang.
The Global Times is taking an optimistic approach to news of the MSRA move. “Claiming that the relocation of some researchers from a single lab ‘threatens’ China’s talent training is pure exaggeration,” the newspaper says in a commentary published Monday. “China has made great strides in expanding its high-tech talent pool in recent years and the country has unique advantages with its massive market and growing high-tech sector to both train local talent and attract those from overseas.”
Global Times says China does not have inherent advantages in attracting global talent but the United States’s containment strategy has stimulated China’s talent cultivation for independent technological innovation, as well as government investment in high-tech fields.
“Some people think Microsoft is worried about the world’s escalating geopolitical conflicts while some others think the company does not want its top AI specialists to join its competitors in China,” a Hebei-based columnist writes in an article published Sunday. “No matter what, the decision to relocate its staff shows that Microsoft is lacking self-confidence.”
He says that three years ago, the company took the initiative to dismiss the rumor that it would leave the Chinese markets. With its staff relocation plan, Microsoft is now no different from the US government, which wants to suppress China’s AI development, he says.
“The proposed staff relocation may weaken Microsoft’s support for China’s technology sector, but it may also prompt Chinese companies to increase the cultivation and investment of local talents,” a Shandong-based writer says in an article published Saturday.
However, he adds that the MSRA was once a model of Sino-US high-tech research cooperation and has played a positive role in promoting the development of China’s technology industry. He says the MSRA’s latest move reflects a reduction in that kind of bilateral cooperation.
Back in 2019, a research report published by MarcoPolo, a think tank of the Paulson Institute in Chicago, pointed out that China faced a brain drain problem as most of its AI talents were choosing to stay in the US after completing their studies.
The report said 10 of the top 113 AI specialists selected for oral presentations at NeurIPS 2018, an annual AI conference, were Chinese-born while all of them were affiliated with US institutions or are about to join them.
It said 58% of Chinese upper-tier researchers attended graduate school in the US, with 35% attending graduate school in China and 7% in other countries, such as Australia and the United Kingdom. It said 78% of the Chinese AI researchers who completed graduate studies in the US were currently at US institutions, with only 21% at Chinese institutions.
Renrui Human Resources Technology, a Hong Kong-listed recruitment agency, said in a research report published in April this year that China will face a shortage of 5.5 million AI engineers in 2025, compared with 4.3 million in 2022. The report said that in 2025 it will be possible to fill only one out of 2.6 AI-related job positions.
“China always highlights its AI development but I think the country is seriously lacking mathematicians,” Shi Yuzhu, chairman and founder of the Giant Network Group, said in a speech in Wuxi on Monday. “The shortage of computational mathematicians will continue to be a bottleneck for the future development of China’s AI sector.”
Shi said in recent years, his company has used AI technologies to develop most of its online games and to monitor players’ responses.
He added he had donated 50 million yuan (US$7 million) to his alma mater, Zhejiang University, five years ago and encouraged it to groom more AI talent.
Last month, Tesla’s founder Elon Musk told CNBC that China is lagging about 12 months behind the US in terms of AI development. He said it’s hard to say whether and when China can narrow the gap.
A Chinese IT columnist surnamed Wang writes in an article that the US has strengthened its leading status in the AI sector over the past two years, especially after the Microsoft-backed OpenAI launched ChatGPT last November.
Wang says US firms have huge funds to build and train their AI programs. He says the English-speaking world also enjoys an advantage as it has accumulated a large database of English documents over the past century.
Qiu Xipeng, head of the Fudan University’s research team that is developing a ChatGPT-like model called MOSS, said on May 31 that OpenAI’s GPT-4 is far more advanced than Chinese chatbots, which cannot catch up within months.
Zhang Zhen, founder of Beijing Whaty Technology, said any breakthroughs in AI chatbots must be done by algorithms and have nothing to do with computing power.
Zhang said other firms can catch up with GPT-3.5 within a year only if they can hire OpenAI’s core software engineers.
On May 5, the Chinese Communist Party (CCP)’s Central Financial and Economic Affairs Commission, in a meeting, chaired by party secretary Xi Jinping, called for boosting the AI sector.
The Beijing municipal government issued a document on May 19 and two more on May 30 to support AI firms. Other cities such as Shanghai, Shenzhen and Chengdu also unveiled their supportive measures.
Read: Nvidia to turn Taiwan into a world-class AI hub
Follow Jeff Pao on Twitter at @jeffpao3
WASHINGTON: Chinese hackers are all but certain to disrupt American critical infrastructure, such as pipelines and railways, in the event of a conflict with the United States, a senior US cybersecurity official said on Monday (Jun 12). In comments made during an appearance at the Aspen Institute in Washington, CybersecurityContinue Reading