China seizing US arms markets in the Middle East

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China is poised to break into the Middle Eastern arms market through big deals with Saudi Arabia and Egypt, both of which have traditionally relied on the US for their big-ticket purchases.

South China Morning Post (SCMP) reported this month that Saudi Arabia Military Industries (SAMI) is in talks with China North Industries Group Corporation (Norinco) about acquiring China-made Sky Saker FX80 and CR500 vertical take-off and landing (VTOL) drones, Cruise Dragon 5 and 10 loitering munitions and the HQ-17AE short-range air defense (SHORAD) system.

The Egyptian Air Force is also reportedly poised to acquire China’s Chengdu Aircraft Industry Group (CAIG) J-10C multirole fighter, with the two sides set to meet during this year’s Langkawi International Maritime and Aerospace Exhibition in Malaysia.

SCMP says Egypt plans to acquire 12 J-10Cs, which feature advanced electronic warfare systems and active electronically scanned array (AESA) radar.

The 2022 Stockholm International Peace Research Institute (SIPRI) Trends in International Arms Transfers Report notes that, from 2018-2022, Saudi Arabia was the world’s second-largest arms importer, accounting for 9.8% of global arms imports over that period, with the US supplying 78% of Saudi Arabia purchases.

The same report notes that Egypt was the world’s sixth-largest arms buyer during the period, accounting for 4.5% of global arms imports, with 34% of its imports coming from Russia.

In a 2018 SIPRI article, Pieter Wezeman notes that Saudi Arabia aims to diversify its arms suppliers to widen and deepen its international political network to minimize the effects of Western arms sales restrictions.

Such restrictions have stemmed from Saudi Arabia’s widely-criticized military intervention in Yemen, the 2018 brutal murder of political dissident and journalist Jamal Khashoggi, and last year’s OPEC+ oil price dispute with the US.

Asia Times noted in February 2022 that Saudi Arabia’s push to find arms suppliers apart from the US might have been driven by the latter’s disastrous withdrawal from Afghanistan, foreign policy mistakes in Iraq and Syria, a fickle-minded approach to Ira, and shift of strategic attention from the Middle East to the Pacific.

Saudi Crown Prince Mohammed bin Salman greets Chinese President Xi Jinping during the China-GCC Summit in Riyadh on December 9, 2022. Image: Saudi Press Agency

Saudi Arabia’s arms purchases from the US have also been criticized for being politically motivated, overpriced and out of step with the kingdom’s underlying strategic needs.

According to the 2022 SIPRI report, Egypt is the world’s sixth-largest arms importer, accounting for 4.5% of global arms imports from 2018-2022, with Russia supplying 34% of its purchases.

Russia has not always been Egypt’s preferred arms provider. Bradley Bowman and other writers note in a May 2021 Defense News article that before the 2013 Egypt coup, wherein then-defense minister Abdel-Fattah el-Sissi deposed the then-incumbent president Mohammed Morsi, the US accounted for 47% of Egyptian arms imports.

However, after the 2013 coup, the Obama administration froze aircraft, tank, and missile sales to Cairo for two years until relations improved.

Due to that freeze, Bowman and the other writers note that Egypt tried to diversify its arms import providers by purchasing large quantities of weapons from Russia and France, both of which were willing to look the other way on its human rights violations.

However, the threat of US sanctions stemming from Russia’s 2022 invasion of Ukraine has forced Egypt to drop its planned purchase of 24 Su-35 fighter jets. The poor performance of Russian weapons in the ongoing Ukraine war may have tainted their appeal to established buyers like Egypt, causing Cairo to look for alternatives from China.

Sebastien Robin notes in a November 2020 Forbes article that China’s top jets, such as the J-10C, may already have surpassed the best Russia can offer. Robin notes that China has started to build a technical lead over Russia in fighter aircraft development, with Russia’s aerospace sector at a disadvantage due to structural and budgetary constraints.

Robin notes that Russia’s Su-35s have a passive electronically scanned array (PESA) radar, which is inferior to the AESA radar on the J-10C and other modern Chinese fighters. He also says that China has improved its indigenous jet engine technology and has superior missiles, more mature stealth technology and better integration of precision-guided weapons than Russia.

Mihir Kaulgud notes in a May 2022 article for Usanas Foundation that China wants to become a major power in the Middle East, but more pragmatic and restrained than the US.

Kaulgud says that China’s arms exports to the Middle East show its push to establish a “soft presence” in the region, as shown by its willingness to sell affordable advanced weapons to friendly countries without political strings attached.

Arms sales obviously involve decisions at the highest level of government and thus establish professional linkages via training and education with the selling country, making them ideal focal points of strategic cooperation for China.

Saudi Arabia flies US-made F-16s. Photo: US Air Force Staff Sgt Joseph Pick

Kaulgud states that China is expanding its relationships and networks in the region while not provoking the US. He notes a pragmatic aspect to these ties, as China may want to secure reliable oil and gas providers via its arms sales.

Those sales, Kaulgud notes, can cause Arab states previously aligned with the US to look at China as an alternative security partner, with China likely to create new regional security arrangements and even play a stronger role in Middle Eastern domestic politics.

He says that while present arms exports are the basis of China’s security engagement in the Middle East, they can also serve as stepping stones to a broader security and military presence in the region.

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Singapore pulling all stops to avert a housing collapse

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Singapore’s housing market is going through some big changes. It has a dual market structure consisting of a public and a private market. The public housing market is divided into a primary and a secondary (resale) market.

The Housing & Development Board is responsible for building and selling public housing flats at concessionary prices in the primary market to Singaporeans.

The primary public housing market is regulated and only open to Singaporean families, subject to a monthly household income cap of 14,000 Singapore dollars (US$10,400). After meeting the minimum occupation period of five years, owners can sell their flats in the secondary public housing market to Singaporean citizens and permanent residents who do not own private houses.

The private housing market is a laissez-faire market that supplies non-landed houses, such as apartments and condominiums, as well as landed houses, such as terrace, semi-detached and detached houses. Foreigners are prohibited from owning public housing flats. While they can buy and sell non-landed apartments and condominiums, they can only buy landed houses on Sentosa Island.

Despite Covid-19-related disruptions to supply chains and economic activities, the benchmark private residential property price index experienced 12 consecutive quarters of growth of 25% total after exiting the “circuit breaker” in June 2020. The resale public housing price grew by 28% over the same period.

The government introduced three rounds of cooling measures to pre-empt housing prices from diverging from economic fundamentals. On December 16, 2021, the government raised the Additional Buyer’s Stamp Duty (ABSD) — a form of transaction tax when buying private residential Singaporean properties — for foreigners from 20-30%.

The ABSD was also raised to 17% and 25% for Singaporean citizens and permanent residents respectively when buying second properties and 25% and 30% respectively when buying third and subsequent properties. Property developers also pay the ABSD of 40% — but 35% is remittable if developed units are sold within five years of the land acquisition date.

Another intervention occurred on September 29, 2022, when government agencies raised the medium-term interest rate floor — which is used to calculate the loan quantum granted by private financial institutions for property purchases — from 3.5-4%. The government also imposed a 15-month wait-out period for private owners to insulate first-time home buyers against intense competition in the public resale market.

The government is concerned about high housing prices weakening its social compact. Although foreign investments only constituted 7% of private property sales in 2023, they significantly drove up private housing prices, especially in the luxury housing segment. The latest ABSD rate hikes were intended to check the flows of oversea “hot money”, which have inflationary effects on the private housing markets.

On April 26, 2023, the government increased the ABSD from 30-60% for foreigners when buying private residential properties in Singapore. Singaporean citizens and permanent residents will now have to pay ABSD of 20% and 30% respectively — an increase of 3% and 5% — when purchasing second private properties for investment purposes.

Private residential property prices are already at historically high levels, with average launch prices ranging from S$2,000-S$2,900 (US$1,485–$2,153) per square foot. The current median housing price is 14 times that of medium-income — such high prices will make the private housing market unaffordable and inaccessible for medium-income families.

Using a recent project launched after the new ABSD rule, Blossoms by the Park, a local buyer purchasing a 3-room unit at S$2.28 million (US$1.7 million) will make a down payment of S$570,000 (US$423,000), based on a loan-to-value ratio of 75%.

Because of the 4% interest rate floor, their monthly mortgage payment will be S$10,360 (US$7,693). Based on the total debt servicing ratio of 55%, their monthly income must be at least S$18,840 (US$13,990) to obtain a mortgage loan from a local bank. This means that only the top 10% of Singaporean households by income could afford the unit in the Blossoms by the Park.

Interest rate hikes and geopolitical tension add significant risks to investing in private real estate markets. If macro-risks trigger negative economic outcomes — such as recession and unemployment — private housing market prices could spiral, leading to more socioeconomic consequences.

While the potential effects of the new ABSD of 60% are unclear, the costs of inaction could be more detrimental regardless of the direction private housing prices go.

A market failure could have a widespread impact on every stakeholder In the market. Developers may not recover the costs of investments and local buyers will face a negative equity situation when their housing value drops. Foreigners will lose money by selling their properties below the original costs. 

The housing market crash would destabilize Singapore’s financial system when borrowers default on their mortgage loans. But the economic costs of inaction would be higher than an intervention that curbs short-term foreign investment flows into the property market.

Tien Foo Sing is the Provost’s Chair Professor at the Department of Real Estate, Business School, National University of Singapore. The views expressed here are the author’s and do not represent the views of their companies and affiliates.

This article was originally published by East Asia Forum and is republished under a Creative Commons license.

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US-China: competitive peace or road to war?

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China is at a perilous crossroads between war and peace in a world led by the United States. But perhaps there are still elements the two countries could look at to try to defuse the situation. One is a crucial understanding of competition and war.

There are tensions around China. As Henry Kissinger commented in a recent interview, China is not set on Hitlerian world domination. It is not revamping old European colonialism in Africa. But something is happening there; it is not nothing.

As Kissinger remarked, one should try to look at and clarify it pitilessly to address and possibly solve the issue.

From an American point of view, China’s “hegemony” is to put China at the center of the world; the rest of the world will be at China’s service in hierarchical positioning, where China is at the top, America and Europe are ideally on a second rung, and then there is everybody else.

This perception is reinforced by China’s mercantilist policies, wanting open markets abroad while keeping a closed domestic market. Then who wants to be in this pyramid of power where your needs come second to the needs of the top? Some may. The wobbly elites of “lesser states” were lured in by promises of money and stabilization coming from the aspirational top of the pyramid. But most countries and people would rather have a different order.

But from China’s point of view, its position is similar to US “hegemony.” The world is at America’s service, only less transparently.

However, even if one admits this American position, the US doesn’t have an openly hierarchical system and mercantilist trade approach. The US may tilt the playing field in its favor but uses a rhetoric of equal positive competition. Moreover, the American system is in place; therefore, replacing it won’t be simple because everybody is used to it.

There are problems with the present US “hegemony.” There is mistrust among the allies about the US’s long-term intentions and lack of long-term global architecture.

The attempt to reestablish a world order around the World Trade Organization (WTO) failed; the US scuttled a free trade agreement with Asia; it is unclear what “decoupling” will mean for countries heavily invested in China; and there is always the hazard of sudden changes in US policies dominated by domestic concerns.

Conversely, like it or not, China has an architecture, a plan and a tradition of keeping its long-term commitments.

There are more disconcerting elements in the US. America views its problems in terms of race or gender. But you cannot change race, and gender issues decouple sex from reproduction and the actual body from intentions. Until a few years ago, there was only one way to have children, copulation. One could love people of the same sex but could not change one’s body. Now it is possible.

One could see a not-so-distant future when people change sex with a mix of pills and surgery, just like dyeing their hair. It is appalling to most people and creates a cultural schism between them and US domestic cultural dialogue. Desires and whims of a moment will shape one’s body, something unimaginable in human history when the body confined one’s desires. Now desires are boundless.

Actually, in America, the divide is about class, i e, income and opportunities. It should be addressed by admitting the elephant in the room: poor people (whatever their skin color) in America need options and the first opportunity is access to better education; people need to read and write well, learn sound mathematics and speak a second language.

Quotas for races are upending competition and performance. Improving opportunities for people with poorer incomes enhances everything. Tampering with bodies and natural reproduction is following in Frankenstein’s footsteps. Modern science is about pushing the boundaries of nature. Still, one can’t be careless with the monsters it creates, especially since the rest of the world is reluctant to follow this vision of the human body and its desires.

This new cultural sentiment is coupled with a different sense of international order. The West proposes one of constant competition, where each side may have a niche, and the provisional winner can bend the existing rules in its favor a little, but even he can’t totally subvert them. Competition, if not well channeled and controlled, trips into war almost as a continuation of competition.

Wars in different contexts

In fact, according to one of the founders of Western thought, Heraclitus (end of 6th century BC), war (Polemos) is “both the king and father of all,” with the capacity to bring all into existence and to destroy. 

Polemos resembles another Indo European god Shiva, the protector of destruction and creation, death and birth, one of the sacred trimurti of the Indian continent, a place also without much unity for most of its history. And Polemos returns with Shumpeter’s market’s creative destruction, a cornerstone of the modern approach to capitalism.

The concept seems inspired by Marx’s understanding of revolution. War is considered somehow a permanent state of affairs in the West. Yet it doesn’t entail the total destruction or annihilation of the enemy. It can be a positive competition that keeps you on your toes and helps you be better than others and yourself.

The ancient destruction of Carthage was the exception. It was razed to the ground, and salt was poured over it to make its return impossible. Still, the memory of the city and its formidable general Hannibal haunted the Roman Empire and the Western world forever.

Therefore, after that, we see that Roman expansion took a different turn. Representatives of the Gauls, who Caesar beat, were invited to join the Roman Senate; the Hellenistic empires of the east were won over, but the Romans converted themselves to Greek culture, so much so that the Roman empire became bilingual. Even the Byzantines, fighting for centuries with the daunting Persian Sassanid empire, never crushed it.

The Byzantines famously intervened in Persian court disputes with the Persian pretender, Chosroes II, in the early 7th century AD. When Chosroes II was overthrown by his son, Kavadh II, he sought refuge with the Byzantines and received support from Emperor Maurice. The balance of power with the neighbor secured the Byzantine eastern border until the Arabs toppled the Sassanid.

Moreover, in ancient Rome, each conquered people was ruled according to its law and kept its religion. Rome was a cultural sponge that boasted of preserving other cultures. It admired Egypt and imported cults from Persia, like Mitra, or Judaea, like Christianity.

In China, it was a very different situation. Well before the unified empire, sometime during the Spring and Autumn period, in the first half of the first millennium BC, powerful new states emerged by annihilating other states (mie guo 灭国).

The process of annihilation was systematic. All males of fighting age were killed, women and children were given to men of the winning state and temples and records were destroyed. The annihilation process grew in size and organization, so the Qin state, which unified the all under heaven in the 3rd century BC, annihilated all previous local cultures and people.

The Han-era Shiji recorded that the first emperor (Qin) accomplished the unification of standards, words and a writing system. It was a clear testimony that there was more than one standard, language or writing system before that. We now find archeological evidence in the newly unearthed documents written with some characters that have long been erased from the language.

This unification process apparently aimed to erase the idea of a constant state of war in the central plains, surrounded by sparsely populated deserts or mountainous forests.

Therefore, it was believed for centuries if power and wealth were maintained in the inner plain, the threats from neighboring peoples could be bought for little money.

Then war disrupted something very concrete, the well-being, stability, and peace, or an 安, home, as it represents a woman under a roof. The disruption of peace is the destruction of one’s home; it is the threat of being annihilated. A home/peace cannot be constantly threatened by permanent competition.

As for war, we don’t have an all-encompassing mythological term as in Greek. We have bing, 兵 coming from a pictograph of two hands holding a short ax; it indicates a weapon. It actually is military affairs, affairs of bearing arms. Then there are words meaning war zhan 战, indicating a formation of spears and some form of double-headed lances; we have wu 武 showing people standing firm holding halberds.

They are connected with the action of fighting a battle, not to the large concept of warring. Peace, conversely, is a much broader and more meaningful concept. Conversely, in Greece, the idea of Eirene was some king of distant, almost unattainable, against the dire reality of permanent wars.

Then in China, wars were practical, temporary and historically of two kinds. One is staving off border enemies or internal bandits. These are roughly police actions. The second kind is existential, for the survival of the dynasty. If the dynasty succumbs, it is erased from history like a mie guo. From this, we have the idea of harmony, he 和, which is etymologically mouths eating grain, i.e., having enough to eat is being content.

Then we have that peace is stability; it entails total control, nipping every possible threat to stability in the bud. If the danger to stability can’t be bought off, it must be eradicated. From this, peace and stability is the supreme value to be pursued by buying off or eliminating the threat.

Peace far supersedes justice; victory proves righteousness, and peace is practiced even despite justice. Survival becomes paramount for people, fearing the victor will exterminate the vanquished. The succession of dynasties proves that the ones who yield to the winning side will survive and keep their peace, stability, and home/an.

It implies that when victory/peace can’t be attained, the Chinese are prone to surrender to survive.

In the European tradition, with the constant state of war reinforced by dogged religious beliefs that drove the Mediterranean apart for over a millennium, it is harder to set apart justice and peace. People are not prone to surrender; many would rather be dead than wrong.

Is competition good or bad?

The differences between China and the rest of the Westernized world that convened in mid-May in Hiroshima around the G7 are not religious, but almost, they are profound. In a nutshell, it is about competition. Is it positive or not? And if competition is accepted, how can it be relatively fair without tripping into a war?

America knows this book well; China doesn’t. It is unfair, says China. Unlike any other country, we gave China 50 years to learn competition, but it didn’t; it cheated on the exams and didn’t learn, says the US.

But why should we learn your rules in the first place? Why shouldn’t you learn ours? Retorts China. You led us to believe you would learn, and now you say you didn’t mean to learn in the first place? Lying is cheating in a competition that should result in stopping authentic communication and attempts to understand, concludes the US on its own.

The competition has tripped into war, and it doesn’t matter what China’s “real” intentions were, and whoever tries to understand China becomes a collaborationist and traitor. The room for dialogue becomes extremely thin, but the Kissingerian defense of China’s intentions possibly fuels the fire; it doesn’t help a peaceful solution.

China should recognize that and seek a different path if it wants peace.

This essay first appeared on Settimana News and is republished with permission. The original article can be read here.

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US-China trade war as mutually assured destruction

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Analysts at Fitch Ratings aren’t looking out for China as they tiptoe up to downgrading Washington’s AAA credit rating. But written between the lines in bold font is how a US default would give Beijing the big trade war win Xi Jinping has been seeking.

To be sure, China won’t love the paper losses on its stockpile of US$870 billion of US Treasury securities. Nor will Chinese leader Xi or Premier Li Qiang welcome the ways in which surging US debt yields make China’s 5% growth target less attainable.

But the immediate devastating blow to US leadership and credibility from a default would play right into Xi’s goal of increasing the yuan’s role in finance and trade — and thus giving China a bigger say in global economic affairs.

And yet, it’s not quite that simple. Just as US Congress members play games with the debt ceiling and teeter towards default, Chinese stocks are cratering.

The CSI index has erased all its gains for the year so far as China’s post-Covid recovery disappoints. It’s hard not to wonder if the common link here isn’t the trade war that neither side seems ready to end.

Call it mutually assured economic destruction. In the 855 days of the Joe Biden presidency, his White House continued predecessor Donald Trump’s punitive tariffs against China.

In many ways, Biden has gone after China with even greater verve. Biden is not doing it with blunt taxes and angry tweets, but surgical and steady efforts to deprive China of access to vital technology.

China, of course, has retaliated in kind. But as the two biggest economies face intensifying headwinds, it’s high time US and Chinese officials lowered the temperature and found a way to stop the insanity, many analysts believe.

A widely watched meeting in Vienna earlier this month between US National Security Adviser Jake Sullivan and China’s top diplomat Wang Yi generated some muted optimism. Both sides described the discussions as “candid, substantive and constructive.”

Another chance to return to normalcy will come at a dinner planned for May 25 in Washington, where US Commerce Secretary Gina Raimondo will dine with her Chinese counterpart Wang Wentao, marking the first cabinet-level meeting in Washington between the two sides during the Biden administration.

Yet where Biden or Xi stands on the it’s-time-to-talk continuum is anyone’s guess.

Chinese leader Xi Jinping and US President Joe Biden are locked in a contest for economic supremacy. Photo: Pool / Twitter / Screengrab

It’s time to admit the ongoing “decoupling” drama between the US and China is having an “adverse effect” on the companies of both nations, saysErgys Islamaj, senior economist at the World Bank.

What’s more, Islamaj notes, “the fragmentation of standards, especially between the world’s two largest markets, can not only constitute additional barriers to trade and investment between the two countries.”

The “fragmentation,” he says, “creates additional burdens and diseconomies on exporters and multinational corporations from third countries, as companies need to adjust their products and processes to comply with different regulations.”

All this is creating “additional costs and complexity in sourcing decisions” and it’s not a formula for innovation or economic confidence, Islamaj concludes.

Wang Qi, CEO of MegaTrust Investment, thinks ending what he calls an all-out “investment war” will be hard. As he puts it: “Trump started the trade war. Biden initiated the tech war. Yet they both wanted an investment war with China.”

Worries about heightened US-China tensions have weighed on Chinese stocks since late April. This is just months after the US Public Company Accounting Oversight Board completed its first round of audit inspections on Chinese ADRs, or American depositary receipts, “which reduced the delisting risk,” Wang says.

For now, at least. Many, though, “seriously underestimated the gravity of the so-called investment war, which is still on today,” Wang says. “Trying to limit Chinese companies’ growth by trade or tech sanctions is one thing. Putting an explicit cap on the US investments in Chinese stocks is another. The latter is arguably more direct and detrimental to the share price.”

US officers can, and do, make reciprocal claims about Beijing. Yet neither economy is thriving in this environment. US growth cooled in the first quarter. Gross domestic product (GDP) rose at an annual rate of 1.1% in the January to March period, down from 2.6% in the previous quarter last year.

“Compared to the fourth quarter, the deceleration in real GDP in the first quarter primarily reflected a downturn in private inventory investment and a slowdown in nonresidential fixed investment,” the US Commerce Department said earlier this month.

To Fitch economist Olu Sonola, the downshift is not a fluke. Despite unemployment sitting at a 54-year low, Sonola notes, US labor markets will weaken as aggregate demand stagnates in response to higher interest rates and tightening credit conditions, exacerbated by stress in the banking sector.

Silicon Valley Bank’s collapse could yet be the tip of the iceberg for US banks. Image: Screengrab / Twitter / TechCrunch

“Labor demand still exceeds supply, but this imbalance is declining, now at approximately 2.3% of the labor force in first quarter 2023 compared with 3.2% last quarter,” Sonola says. “Job openings have also declined by 1.6 million from peak levels. Wage growth year-over-year has decelerated significantly since last quarter in a number of states.”

Clearly, trade headwinds aren’t doing China any favors either. Retail sales, industrial output and fixed investment expanded much less than hoped in April. The youth unemployment rate hit a record high of 20.4%, raising concerns for social stability.

Economist Jeffrey Currie at Goldman Sachs says deep concerns over the health of the global financial sector, US debt ceiling risks, fears of an impending demand slowdown in the West and a disappointing recovery in China in April have all contributed to “fears of an upcoming US or global recession.”

Those fears will be turned up to 11 or higher as the US flirts with default. Enter Fitch, with a perilously timed downgrade warning as US politicians play with fire. It moved the US to “rating watch negative” the “X-date” when Washington runs out of cash.

In its statement, Fitch said “we believe risks have risen that the debt limit will not be raised or suspended before the X-date and consequently that the government could begin to miss payments on some of its obligations. Prioritization of debt securities over other due payments after the X-date would avoid a default.”

Adding to the uncertainty is where Biden and Xi might take their economic clash next.

Some think Team Biden should be careful what it wishes for. Economist Michael Beckley at the Washington-based Wilson Center says that “most debates on US-China policy focus on the dangers of a rising, confident China. But the United States actually faces a more volatile threat: an insecure China mired in a protracted economic slowdown.”

Chinese growth, he adds, has fallen by half over the past decade and is “likely to plunge in the years ahead as massive debt, foreign protectionism, resource depletion and rapid aging take their toll. Past rising powers that suffered such slowdowns became more repressive at home and aggressive abroad as they struggled to revive their economies and maintain domestic stability and international influence. China already seems to be headed down this ugly path.”

Performers dance during a show as part of the celebration of the 100th anniversary of the founding of the Communist Party of China, at the Bird’s Nest stadium in Beijing on June 28, 2021. Photo: AFP / Noel Celis

The bottom line, Beckley concludes, is that “slowing growth makes China a less competitive long-term rival to the United States, but a more explosive near-term threat. As US policymakers determine how to counter China’s repression and aggression, they should recognize that economic insecurity has spurred great power expansion in the past and is driving China’s belligerence today.”

Clearly, China could make a similar argument about the specter of Trump getting a second shot at power after the November 2024 election. Trump, after all, recently reiterated he favors a US default.

But if the definition of insanity, as Albert Einstein said, is trying the same play over and over expecting a different result, then there’s still too much crazy in US-China relations.

Follow William Pesek on Twitter at @WilliamPesek

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Indian PM Narendra Modi wraps up Australia visit as both sides seek closer ties amid growing regional tensions

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“China’s economic coercion towards Australia in recent years, and the clashes along the Indian-Chinese border, are driving these two countries closer together quickly,” said Mr James Schwemlein, a nonresident scholar in the South Asia programme at the Carnegie Endowment for International Peace.

Australia has been looking to diversify its export markets, after diplomatic ties with its biggest trading partner China soured in the past few years.

Meanwhile, India is struggling to cut its import dependence with its neighbour on the back of a surging trade deficit.

However, experts said China will likely remain the largest trading partner to both nations, and efforts to significantly reduce economic ties to China continues to be an “aspirational dream”.

“There’s no question that India’s potential economically is a strong one – a democratic, fast growing, large country with a highly educated population and yet still relatively low wage labour,” Mr Schwemlein told CNA938’s Asia First.

“Competitively, India is an important way to respond to China. But (replacing China) is not something that is close to occurring today.”

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Singapore downgrades trade forecasts with ‘worse-than-expected’ first quarter

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SINGAPORE: Singapore downgraded its 2023 trade forecasts on Thursday (May 25) due to “worse-than-expected” performance in the first quarter of the year. Besides the first quarter showing, the forecast was also weighed down by the manufacturing downcycle and lower expected oil prices, said Enterprise Singapore (ESG) in its review. Non-oilContinue Reading

China’s chip sector needs change after OPPO setback

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Mystified staff members of Zeku – a fabless chip firm started in 2019 by OPPO, China’s third largest smartphone company – were told on the evening of May 11 that they should work from home the following day.

The next morning, with staff dutifully absent from the premises, the mystery was dispelled when OPPO chief executive Liu Jun announced the closure of Zeku. Even most director-level employees had not been given advance warning.

“The global economy and the mobile phone industry are currently in an extremely pessimistic situation, and the company’s overall revenue is far below expectations,” Liu told Zeku’s staff. “Under such circumstances, a huge investment in chip-making is beyond our affordability.” He stressed that the decision to shut down Zeku was made after a careful discussion. He also said it was not caused by any issues related to the performance of Zeku’s staff.

Citing Qing Dynasty novelist Wei Zi’an’s poem “Traces of Flowers and the Moon,” Liu said that “a romantic person is always left with regret, and it’s easy to wake up from sweet dreams.” He meant that OPPO should wake up from its chip-making dream in time to avoid any big cause for regret.

In August 2019, OPPO founded Zeku and vowed to invest up to 50 billion yuan ($7.1 billion) within three years to make its own semiconductors. But on May 12 this year, OPPO shut down Zeku and dismissed its 3,000 employees. It was a sudden move, as shown by the fact Zeku was still recruiting engineers in late April.

There’s considerable debate about what caused Zeku’s failure, with many commentators blaming US sanctions, but one dominant theme that has emerged in the aftermath is that Chinese smartphone makers should jointly develop their chips, instead of working – and in some cases failing – individually.

Market forces

Some Chinese commentators said the failure of Zeku was caused not by US sanctions but by slowing demand in the smartphone markets. However, some analysts said it’s strange that Zeku was closed ahead of a chip debut that had been scheduled for next month; they insist that OPPO does not lack the cash to run the unit.

Jiang Han disagrees with that analysis. “It costs a huge amount of resources to make chips but the success rate is low,” Jiang, a senior analyst at Pangoal Institution, a public policy think tank, says in an article. “And the current smartphone market cannot support such an operation.” 

He adds: “Even if OPPO has already achieved some technological breakthroughs, it remains far from having an advantage in the industry. In this situation, cutting losses now is a good option.”

The OPPO case shows “that it is very difficult for Chinese smartphone makers to develop their own chips individually; even the chip-making equipment giant ASML could only be built after key chip makers worked together,” Jiang says. “In the past, China Mobile, China Unicom and China Telecom jointly set up China Tower Corp to boost efficiency and lower the costs of infrastructure facilities. Why can’t Chinese chip-design firms collaborate with one another?”

Another view emphasizes bad luck. Zeku was founded at the wrong time, Shen Meng, chief consultant at Guangke Management Consulting, a unit of the Guangdong Polytechnic of Science and Technology, told Beijing Business Today. 

“When OPPO decided to invest in chip-designing in 2019, the pandemic had not yet broken out,” Shen said. “The Covid-19 epidemic did not only hurt the global demand for smartphones but also created a lot more challenges to the chip-making sector.”

Last year, China’s smartphone shipments fell 13.2% to 286 million units from 2021, according to IDC, a market data provider. It is the first time that the figure dropped below the 300 million mark in ten years.

Oppo’s shipment fell 28.2% for the period while its market share in China dropped from 20.4% to 16.8%. Honor replaced OPPO to be the second largest smartphone maker in China, following the number one player, Vivo. 

In the first quarter of this year, global smartphone shipments decreased 13% year on year to 269.8 million units, according to Canalys, a Singapore-based market analyst firm. Samsung’s shipments declined by 18% but Apple’s grew 3%. Xiaomi and OPPO saw their shipments down by 22% and 8%, respectively. 

How to identify the real problem

Shen Yiren, a former vice president of OPPO, wrote in a post that “A problem that can be solved by money is no big deal. One that cannot be solved by money is the real problem.” He then removed the post, which caused a lot of speculation.

Some netizens speculated that OPPO had been pressured by its US supplier Qualcomm or Taiwanese partners TSMC or MediaTek. Some said the time when OPPO finally realized that it is not economically up to making its chips came after its 4-nanometer application processor (AP) chip failed in the “tape out” process, which makes a prototype before mass production.

In February, media reports said Zeku’s AP chip would enter the “tape out” phase in the second quarter and mass production in the third quarter. 

In a smartphone, there are two kinds of high-end processors, namely the AP and the baseband processor (BP). AP refers to the central processing unit (CPU) and graph processing unit (GPU). BP is like a modem that receives wireless signals and transforms them into digital data.

According to Statista, Qualcomm had a 55.7% share in the BP chip market, followed by MediaTek (27.6%), Samsung (7.4%) and others (9.3%) in 2021. Huawei’s HiSilicon Technologies had for a time achieved a 16-18% share with its 5G BP chips but it started fading out from the market once TSMC was ordered by Washington to stop producing chips for Huawei in September 2020. 

US sanctions

Chinese IT experts have recently discussed whether the US sanctions played any role in the shutdown of Zeku.

An IT columnist says in an article published by China’s NetEase.com that OPPO is not lacking money judging by the fact that it compensated Zeku’s staff generously, spending about 500 million yuan on severance packages. He says, Zeku may have burned only 10 billion to 13.5 billion yuan over the past three years, far below its planned budget of 50 billion yuan. 

He says Zeku’s AP chip has not failed in the “tape out” process as the result will only be released in mid-June. Besides, he says, MediaTek also felt surprised as it had to stop a BP chip project related to Zeku’s AP chip.

While “the sudden dismissal of Zeku staff remains a mystery, it is normal that some netizens think OPPO is deeply scared of the curbs imposed on the Chinese chip sector in recent years,” he says.  

In a report published by the Powerhouse, a media unit of Jiemian.com, an unnamed analyst says that it is a conspiracy theory that Zeku was shut down because of the US curbs.

“If there is any potential risk against Zeku, TSMC would be the first one to notice it,” the analyst says. “But over the past month, there had not been any such signal. TSMC was only told after Zeku was dissolved.”

A Zeku employee says OPPO can only blame itself as its previously-launched MariSilicon X and Y chipsets have failed to receive positive responses from the markets. He says Chinese consumers only care about the user experience, not about whether the chips are designed in China. He points out that OPPO did not promote its own chips in its own marketing campaigns. 

The Powerhouse report says the fall of Zeku has raised an alarm among other Chinese mobile phone makers, such as Xiaomi, which invested heavily in chip design.

OPPO launched its first chipset, called MariSilicon X, a 6nm imaging neural processing unit (NPU), in December 2021. The company then unveiled MariSilicon Y, a 4nm bluetooth audio system-on-a-chip (SoC), last December.  

While it remains unclear what was the straw that broke the camel’s back, some observers said Xiaomi Corp, a Beijing-based smartphone maker, could be the next to close its chip design division as its sales dropped 22% year on year in the first quarter of this year. But Xiaomi said on May 18 that it will continue to make its own chips.

Read: US sanctions bite as Huawei runs out of phone chipsets

Read: Sanctions starting to bite Huawei 4G chips sourcing

Follow Jeff Pao on Twitter at @jeffpao3

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Indonesia’s economic reform deeper than recognized

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The Covid-19 pandemic posed a tremendous economic challenge, especially for emerging economies such as Indonesia. But it also marked a watershed moment for the country’s economic reform efforts. The crisis enabled Indonesia to reduce its reliance on volatile foreign capital inflows and rethink its growth pathway.

During the pandemic, Indonesia was temporarily set free from its reliance on foreign capital as global investors fled emerging markets bonds and equity. At the same time, slumping domestic demand, which suppressed imports, and relatively large national savings ameliorated Indonesia’s current account deficit problem.

Russia’s war in Ukraine led to a commodity price boom that further boosted the domestic economy while it was still recovering from the pandemic.

Indonesia’s current account deficit problem stems from insufficient foreign direct investment (FDI). In 2021, Indonesia’s FDI inflow was only 1.8% of GDP, compared to Vietnam’s 4.3% and Malaysia’s 5%.

Instead, the economy has depended on volatile commodity-related exports and volatile foreign inflows in bonds and equity markets. The shallow and inadequate domestic financial market has not been able to sufficiently mobilize savings to finance the country’s investment needs.

In previous cycles of global volatility, subsequent outflows of foreign capital have significantly depreciated the Indonesian rupiah and caused liquidity crunches in the financial system.

This negatively impacted the domestic economy by increasing the government and corporate sector’s debt burden, creating inflationary pressure and raising funding costs and non-performing loans in the banking system.

Reform efforts to handle the problem by shrinking the account deficit have faced challenges. In previous years, reducing the current account deficit usually meant slowing down domestic consumption and imports, which inhibits economic growth. Efforts to boost manufacturing exports also have hit a brick wall.

The Indonesia rupiah is near a 20-year low. Photo: AFP / Bay Ismoyo
Stacks of Indonesian rupiah. Photo: AFP / Bay Ismoyo

As Indonesian wages are relatively higher, other Asian exporters — notably Vietnam and Bangladesh — have become more competitive.

Numerous financial scandals have undermined efforts to effectively mobilize savings and deepen financial markets. Despite these setbacks, institutional reforms are making some headway. The Ministry of Finance and Bank Indonesia are increasingly seen as credible institutions that adopt evidence-based policies, defend Western-style central bank independence and are led by respected figures.

Implementing measures to prevent excessive capital flows has proved complicated. Even a hint of capital controls or other regulations that would restrain the country’s relatively free and open capital markets have been met with resistance due to the experience of the Asian financial crisis. Relatively loose global monetary policy and prudent fiscal policies have also led to Indonesia’s rising popularity for foreign portfolio investment.

The government was quick to implement policy reforms that have partly borne fruit. The first of them is reform in the real economy. The government pushed through the Omnibus law in November 2020, which aims to improve Indonesia’s competitiveness and encourage labor-intensive industries’ growth. But its implementation is yet to be seen due to pushback by special interest groups.

The global energy crisis also inspired the government to enact a series of controversial policies, including “downstreaming” and the prohibition of raw material exports. These policies have partly contributed to increasing exports of nickel derivatives between 2011–2022 and stimulated economic growth in regional provinces.

The second policy group included financial sector reforms. The government passed a new financial omnibus bill to improve the credibility of the financial system, widen and deepen the domestic financial market, support new technologies growth and clarify crisis responses. Plans were also put in place to restructure the entire non-bank financial system after the collapse of a major state-owned insurance company in 2020.

The local bond market has grown substantially since the pandemic. Local banks are inclined to hold a large number of government bonds due to slumping credit demand, significantly boosting local ownership. The Ministry of Finance’s successful campaign to push savvy domestic investors to buy retail government bonds further mobilizes consumer savings and improves market discovery.

Indonesia’s central bank — Bank Indonesia — has also pulled its act in the domestic foreign exchange market. New derivative instruments have succeeded in driving market expectations of local currency movements and relieving pressure on the current exchange rate. The launch of a new time deposit facility for exporters also boosted foreign exchange supply.

A fishing boat is seen near a container terminal in Tanjung Priok , north Jakarta Indonesia November 16, 2016. Photo: Reuters/Darren Whiteside/File Photo
A fishing boat is seen near a container terminal in Tanjung Priok , north Jakarta Indonesia November 16, 2016. Photo: Agencies

In anticipating the sudden global dollar liquidity crunch, the central bank has intensified efforts to proliferate local currency settlements (LCS) — a program that encourages using local currencies to settle bilateral transactions — with Indonesia’s main trade partners.

Its efforts have significantly increased its monthly LCS usage. The central bank has also sought to reduce Indonesia’s reliance on foreign service providers by launching a new national credit card gateway.

Bank Indonesia has also embraced digitalization. The Indonesian QR standard has become widely available, logging over 24 million merchants and daily transactions of more than US$800 million.

It has enabled millions of informal sector vendors to interact with the mainstream financial system via Indonesia’s growing digital banking industry. This could be a potential goldmine for the government to increase fiscal policy effectiveness.

Indonesia has taken advantage of the Covid-19 pandemic and undergone fundamental reforms to address its previous flaws. Its job now is to finish implementing those “structural reforms” by enhancing the ease of doing business, reducing investment barriers and improving labor productivity and financial inclusion.

Suryaputra Wijaksana is an economist at Bank Rakyat Indonesia. The views expressed in this article are the author’s own.

This article was originally published by East Asia Forum and is republished under a Creative Commons license.

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Asia winks as gun-mad US put on travel advisory lists

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JAKARTA – After being the focus of dire American travel warnings during more than 15 years of terrorist attacks, Indonesians may be excused for cracking a wry smile now that six countries are doing the same for the United States, the mass shooting capital of the world. 

New Zealand, which along with Iceland shares the top two slots in the 2022 Global Peace Index, Australia, Canada, Britain, France, Venezuela and Uruguay have all issued advisories warning their citizens about gun violence when traveling to the US.

They all allude to the prevalence of gun ownership – and the absence of controls – blamed for the 200-plus mass shootings so far this year in which four or more victims have been killed or wounded, excluding the shooter.

Australia tells its nationals that gun crime is possible anywhere in the US and advises those living there to learn active shooter drills. “There is always a risk of being in the wrong place at the wrong time,” the advisory says.

That’s Canada’s line too, reminding citizens that “frequent mass shootings occur, resulting most often in casualties.” Britain says “violent crime, including gun crime, rarely involves tourists, but you should take care walking in unfamiliar areas.”

Venezuela is an anomaly, its travel warning apparently a reaction to the US placing it on its “no go” list – one reason perhaps being it has one of the world’s highest homicide rates.

While mass shootings may have fallen slightly in the US last year, the Kentucky-based non-profit group Gun Violence Archive has recorded 600 cases in each of the last three years in the only country where the number of weapons outnumbers the population.

A gun enthusiast looks at a rifle scope during a 2019 National Rifle Association annual convention. Image: Getty / Twitter Screengrab / CFR

So far, few tourists have been affected, but as with the immediate impact on tourism from past terror bombings in Indonesia and violent military coups and other actions in Thailand and the Philippines, perception is everything when it comes to personal safety.

Take Bali, ghost-like after the October 2002 bombings, but still managing to stay afloat commercially during the two-year Covid-19 pandemic when 109,000 foreigners elected to stay on and sit it out.

US citizens are probably safer from random violence in Indonesia and Thailand – and even in the trigger-happy Philippines, a former colony with a penchant for copying America’s bad habits – than at home unless stupidity becomes a factor. 

The Global Peace Index ranks Indonesia in 47th place, far ahead of the US, which lies in 129th position behind Zimbabwe and Azerbaijan and ahead of Brazil among 163 countries.

Singapore is best among the Southeast Asian nations at ninth, trailed by Malaysia (18), Vietnam (44), Laos (51), Timor Leste (54), Cambodia (63), Thailand (103), the Philippines (125) and Myanmar, unsurprisingly, at 139.

American commentators like to think their country is as safe as anywhere, and probably is. But rates of lethal violence – and a willingness to shoot first and ask questions later – are far higher than in other developed nations thanks to its 2nd Amendment, which protects the right to bear arms.

According to Wisevoter, the gun death rate in the US in 2022 was 4.1 per 100,000 people, leaving it in 32nd place behind El Salvador (35.5), Venezuela (32.7), Guatemala (28.2), Colombia (24.8) and Honduras (20.2) – all known for their drug trafficking and violent crime.

The Philippines leads the way in Asia in 21st place with 8.28 per 1,000. The 9,028 deaths make it sixth in the world, but still far behind Brazil (47,510), Mexico (20,509) and the United States, where two-thirds of the 13,001 deaths were by suicide.

Filipino police officers investigate an alleged drug dealer killed by unidentified gunman in Manila earlier this year.Photo: AFP/ Noel Celis
Filipino police officers investigate an alleged drug dealer killed by unidentified gunman in Manila in a file photo.
Photo: AFP/ Noel Celis

Thailand, home of the Petchburi hired gunmen made notorious internationally by the film “Bangkok Dangerous”, is in 47th place with 3.1 per 1,000, though its 2,351 gun deaths put it 12th in the world.

Indonesia, which doesn’t have a gun culture, places 187th globally. It had a firearm death rate in 2022 of only 0.06 per 1,000, a breakdown indicating that most of the 153 fatalities were caused by either accidents or suicides.

But Islamic extremist groups are still active, both from inside and outside Indonesia.

Early last month, three Uzbeks linked to the al-Qaeda-affiliated Katiba al Tawhid wal Jihad escaped from a North Jakarta detention center after stabbing to death two immigration officers. A fourth Uzbek died from a head injury in the escape attempt.

The three escapees were recaptured, and investigations are now focused on whether they entered Indonesia intending to attack the Israeli football team, which was due to take part in the now-canceled FIFA Under-20 tournament.

Indonesian authorities were alerted to their presence by US intelligence, which tracked them from the Afghanistan capital of Kabul via Dubai in the United Arab Emirates.

Later in mid-April, two terrorists were killed and four arrested in a rare shootout with Detachment 88 counter-terrorism officers in the southern Sumatran province of Lampung.

In December 2022, in another sign that terrorist cells remain a security threat, a suicide bomber attacked a suburban police station in Bandung, killing one policeman and wounding 11 others.

Although deradicalization efforts have been notably ineffective, terrorism expert Sydney Jones says the global decline of the Islamic State (ISIS) and effective police work have been the major factors for the current lull.

In fact, ithas now been more than five years since the last major incident, in the East Java port city of Surabaya in 2018 where the simultaneous bombing of three churches left 28 people dread, including 15 victims and 13 attackers.

Even after the first string of bombings by the newly-emerged Jemaah Islamiyah terror network in 2000, which claimed 35 innocent victims, it took the Megawati Sukarnoputri government two years to acknowledge it had a home-grown extremist threat on its hands.

In August 2001, US ambassador Robert Gelbard directed the evacuation of all dependents and non-essential staff in response to intelligence reports of a planned Yemeni double truck bomb attack on the embassy.

When an equally complacent City Hall refused his request to build a bomb-proof wall along the mission’s street frontage, he had to settle for giant reinforcedflowerpots instead. The alert level remained high as a result, exacerbated by the 9/11 attacks that year.

Gelbard’s successor, Ralph Boyce, recalls a group of Bali hoteliers coming to see him in late 2001 asking the embassy to exclude Bali from its travel advisory because as a Hindu enclave nothing would ever happen there.

Exactly a year later, the twin bombings of two packed nightclubs on Bali’s tourist strip killed 202 people, including 164 foreigners, in the worst terrorist outrage since the 2001 attacks in New York and Washington.

The scene of the Jemaah Islamiyah terror bombings in Bali in 2002. Photo: AFP

Seven further attacks followed in Bali, Jakarta and Central Sulawesi between 2003 and 2009, claiming another 82 lives and leaving scores wounded, mostly in hotels and markets. 

The US currently lists Indonesia at Alert Level 2 (exercise increased caution due to terrorism and earthquakes) on a color-coded scale where four is the highest.

But it does advise against any travel to Central Papua and Highland Papua where security forces have been trying to secure the release of a New Zealand pilot kidnapped by Papuan rebels last February.

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