WASHINGTON: Washington and Beijing both want to stabilise US-China ties and deal constructively with problems in their relationship, Treasury Secretary Janet Yellen said in an interview airing on Monday (Jul 10). Yellen’s comments on National Public Radio’s Marketplace program come after a four-day visit to Beijing during which she metContinue Reading
A lack of bloodshed doesn’t mean an absence of war.
For the past two years, a cyber conflict has quietly boiled across the Asia Pacific region. At the centre of the virtual fighting is a shadowy figure: known to some as Ocean Buffalo or to others as Dark Pink. Not to be mistaken for the K-pop group with a similar name, the enigmatic hacker group has been targeting government and military agencies mainly in Southeast Asia but also as far away as eastern Europe.
“Every attack starts from a human,” said Dmitry Volkov, CEO and co-founder of the global cybersecurity provider Group-IB, a private firm that works with national authorities and groups such as Interpol.
The company has been tracking the hacks and came up with the Dark Pink codename. The use of such names is a common practice in the cybersecurity sector, where analysts caution there’s seldom any true certainty in nailing down organisations that exist only as digital shadows.
Since the hacker organisation’s attacks gained public attention in June 2021, the perpetrators have infiltrated 13 entities, mostly in Southeast Asia. This spree targeted government agencies in Brunei, Cambodia, Indonesia and Bosnia and Herzegovina; military bodies in Malaysia, the Philippines and Thailand; and religious groups, non-profit organisations and educational institutions in Vietnam and Belgium.
The latest moves triggered major concerns among international cybersecurity experts who say the scope of the attacks might be much broader than they originally thought.
But analysts also say the group is just one of many engaged in constant, simmering cyber-espionage campaigns across the region and beyond. As the world increasingly goes digital, both criminal groups and national intelligence organisations alike have pushed fast-developing techniques to more efficiently break down defences, steal information and carry out attacks of real-world significance. Sometimes, as with Dark Pink or Ocean Buffalo, the line between rogue groups and officially sanctioned activities is blurry as can be.
“There’s a lot of sensationalising around it,” Aaron Ng, senior systems engineer at CrowdStrike, another global cybersecurity firm that came up with the Ocean Buffalo name. “At the core, it is really just an extension of spycraft evolving with the times. Like a business adopting digital technologies, spying organisations across the world also have to follow the trend.”
According to Group-IB, Dark Pink seems to follow that pattern. The entity’s latest intrusion was detected in May, showing no sign of an end to its espionage campaign.
“Dark Pink has a strong focus on military organisations,” Volkov said. “They want to get military secrets and we need to think a few steps ahead if we want to catch who’s behind these attacks.”
They started off primarily as an instrument of the state.
Aaron Ng, CrowdStrike
But while the group gained publicity as Dark Pink only two years ago, there are hints that suggest its true origins could extend much further back. Threat intelligence at CrowdStrike reported the group’s attacks bear a very close similarity to the activities of what they’ve been referring to as Ocean Buffalo, a hacker entity that has likely been working since 2012. CrowdStrike believes the earlier-detected group is likely connected to the Vietnamese government – and maybe only recently turned outwards into the rest of the world.
“We have been tracking these intrusion activities for so many years, but we attribute the intrusions to the group Ocean Buffalo,” said Ng. “Ocean Buffalo has been around for more than a decade now and they started off primarily as an instrument of the state to perform domestic surveillance.”
According to Ng’s experience researching the group’s activities, Ocean Buffalo’s modus operandi matches with that of what Group-IB is tracking as Dark Pink. As earlier research already confirmed that Ocean Buffalo was Vietnam-originated, CrowdStrike has strong reasons to believe that so is Dark Pink.
The inherently secretive nature of digital espionage helps give cover to such organisations as they evolve and expand their reach. Even if groups such as CrowdStrike are confident about the origins of Ocean Buffalo, national cybersecurity authorities in Southeast Asia are still investigating the nature of Dark Pink. The group’s attacks were mostly carried out through sophisticated custom malware and “spear-phishing” emails aimed at specific users.
Both experts explained that cyberattacks almost always begin with gathering information on the data potential and internal procedures of the targeted organisation.
While Ocean Buffalo may have Vietnamese roots, Ng believes the vast majority of today’s cyberattacks across Southeast Asia are carried out by groups from China for the purposes of intelligence gathering and economic espionage.
“That often means collecting information that would help them with better foreign policy decision-making and that fits the Chinese communist regime’s agenda,” he said. “For example, gathering information about dissidents who live abroad.”
Ng added that he saw a correlation between the Chinese governments five-year policy plan and the nature of the intellectual property threats happening in the cyber-realm. He also pointed to the conflicting interests of China and Vietnam in the disputed South China Sea as another thread carrying over into the digital world.
“Intelligence is inherently political,” Ng said. “The countries would collect information that would help them with better foreign policy decision-making.”
While sharing similar perspectives on the reasons behind cyberattacks, Group-IB refrained from calling out any specific country. However, they linked the early intrusions by Dark Pink to a sequence of attacks in Vietnam and Indonesia in mid-2021.
The hacking group was seemingly inactive throughout the second half of last year. But Group-IB was later able to link several attacks on government institutions in Indonesia, Malaysia and Thailand to Dark Pink using digital evidence gathered through the analysis of past infection chains.
“We identified Dark Pink attackers in their early stage, information gathering,” Volkov said. “That’s why we are motivated to follow their steps and find them before they get a command to disrupt some kind of military operations in the Asia Pacific region.”
What is most concerning, according to Group-IB, is that once the threat group gains access to its target, it can remain undetected and control the conquered cyberspace.
Threats are similar everywhere, but the devil is in the details
Dmitry Volkov, Group-IB
Whoever is behind Dark Pink is clearly skilled in keeping their activities original enough to remain active while getting away with their crimes.
According to malware analysts at Group-IB, Dark Pink uses spear-phishing to gain initial access and tricks users into opening a file that looks like it’s from Microsoft Word but is really a virus.
The group also uses the off-the-shelf commercial programme Microsoft Build to launch a highly advanced form of malware called KamiKakaBot, which can control devices and steal sensitive information while evading detection by anti-virus software. Through commands from a Telegram channel, hackers can use this tool to intercept key data by placing their attack between an infected system and the targeted institution.
The use of the well-known Microsoft Build and a popular communication platform such as Telegram makes it even more difficult to diagnose and prevent these attacks.
Speaking generally, Volkov said organisations should take measures to protect their systems and users from such attacks, such as educating employees on the risks of spear-phishing. He also said countries should invest more on a national level to train experts who can stay up-to-date on the rapidly evolving cybersecurity landscape.
“Threats are similar everywhere, but the devil is in the details,” he said. “We need to understand how exactly these threat factors are able to bypass different security control systems. Without this knowledge, it is impossible to develop the right protection technologies and respond effectively to cyber threats.”
Given the persistent, international threat posed by groups such as Dark Pink and Ocean Buffalo, the analysts who spoke to Globe said it was crucial for governments and international organisations to stay ahead of the curve in the digital arms race.
“This is the reason why threat intelligence exists,” said Volkov. “We try to understand what happens in one region, then structure the collected information and share it with the rest of the world so other regions can be prepared in advance.”
Washington’s delayed decision to provide Ukraine with cluster munitions, a controversial weapon banned by many US allies, is exposing the risks of depending on a distant and sometime slow-acting power with its own interests primarily at heart.
Since the Ukraine war’s beginning 18 months ago, the US has spearheaded a massive Western campaign of military aid to Kiev, yet it often makes decisions in reaction to Russia’s largely predictable moves on the battlefield.
Advanced air defense weaponry, for instance, was supplied only after Russian planes and drones had bombarded Ukrainian military positions and towns.
Supplies of advanced, longer-range artillery like the High Mobility Artillery Rocket System (HIMARS) only came after Russia began to hit Ukrainian positions from further and further distances.
Ukraine is now lobbying heavily for fighter jets, but so far to no avail due to concerns it would escalate the conflict in unpredictable ways. Moscow has repeatedly threatened to use tactical nuclear weapons in the conflict.
Over the weekend, US President Joe Biden decided to supply Ukraine with cluster bombs, which are launched in flocks over a wide area from a single shell. Ukrainian officials had requested them more than seven months ago for use in a planned counteroffensive campaign.
The Biden administration refused the request and the Ukrainians launched the broad counterattacks on Russian forces anyway without them. Progress on the ground has been slow and Ukrainians are beginning to publicly complain.
The delayed cluster munitions supply decision reflects the sometimes frustrating disconnect between Washington’s decision-makers and Kiev’s commanders on the ground over how best to prosecute the war.
Critics say the US, by far the main supplier of weapons to Ukraine, is sometimes slow in anticipating shifting battlefield necessities for fear of seeming the aggressor in a war Russia instigated.
In this case, Ukraine wanted the cluster bombs as part of an arsenal to use in its current campaign to help drive Russian troops eastward and out of the country.
Under pressure to show military progress to impress its allies, Kiev launched the offensive not only without the cluster munitions but also in the face of dwindling artillery ammunition and the lack of air power support it desires.
Biden seemed apologetic when he announced the cluster bomb decision over the weekend. He suggested it is meant not to become a permanent part of Ukraine’s military kit, but rather a temporary supplement to its dwindling supplies of artillery shells.
“It was a very difficult decision on my part,” Biden said. “The Ukrainians are running out of ammunition. And so, what I finally did – I took the recommendation of the Defense Department to not permanently but to allow for this transition period.”
Biden’s stated reluctance apparently aimed to mitigate both domestic and foreign concerns about the weapons’ deployment. In February 2022, Biden officials decried reports of Russia’s use of cluster munitions. “We have seen the reports. If that were true, it would potentially be a war crime,” said then-spokesperson Jen Psaki.
The next month, Linda Greenfield-Thomas, the US ambassador to the United Nations, told the General Assembly that she had seen reports of Russia moving cluster bombs, “which are banned under the Geneva Convention” into Ukraine.
In reality, neither the US, Ukraine nor Russia prohibits the use of cluster munitions. Eastern European NATO allies along Russia’s border also embrace the weapon, while several NATO allies to the West prohibit them – hence Biden’s message that the shipment is a temporary decision to fill a logistical hole.
More than 120 countries have banned cluster bomb use. Last week, Human Rights Watch, the international rights monitor, decried the use of cluster bombs by both Ukrainians and Russians.
“Ukrainian forces have used cluster munitions that caused deaths and serious injury to civilians. Russian forces have extensively used cluster munitions, causing many civilian deaths,” HRW said in its report.
“Both countries should stop using these inherently indiscriminate weapons, and no country should supply cluster munitions because of their foreseeable danger to civilians,” HRW concluded.
However, Ukraine views the Biden administration’s decision as more than a temporary fix, said Ryan Brobst, a research analyst for the Foundation for Defense of Democracies, a Washington-based lobbying outfit.
“Cluster munitions are more effective than unitary artillery shells because they inflict damage over a wider area,” said Brobst. “This is important for Ukraine as they try to clear heavily-fortified Russian positions.”
Ukrainian officials, hoping to soothe allied concerns, pledged to only use them on military targets and not to drop them on Russia.
The US military possesses as many as three million cluster munitions, according to reports. The Ukrainians will fire them via 155-millimeter artillery shells that are already widely in use rather than dropping them from jet bombers, the more advanced method.
That’s because the US and its allies have supplied artillery pieces in the hundreds to Ukraine but not provided F-16 fighter jets, which are atop Ukraine’s current weaponry wish list.
The Ukrainians also desire new air defense systems and more advanced tanks, which have been promised but not yet delivered, according to reports
Biden’s cluster bomb decision coincided with a sudden outburst of pessimism from Ukrainian officials about the course of the war.
Ukraine’s usually upbeat President Volodymyr Zelensky sourly told reporters that allied help was welcome but the tardiness of actual weaponry shipments has done harm to the war effort.
“I’m grateful to the US as the leaders of our support,” Zelensky said. “But I told them that we would like to start our counteroffensive earlier, and we need all the weapons and materiel for that. Why? Simply because if we start later, it will go slower.”
The delays reportedly allowed Russia more time to prepare its defenses. “Everyone understood that if the counteroffensive unfolds later, then a bigger part of our territory will be mined,” Zelensky said. “We give our enemy the time and possibility to place more mines and prepare their defensive lines.”
General Valerii Zaluzhnyi, Ukraine’s top military commander, meanwhile said Ukraine’s allies have not supplied him with enough advanced weapons to effectively push the offensive.
“Without being fully supplied, these plans are not feasible at all,” he told the Washington Post last month. “But they are being carried out. Yes, maybe not as fast as the participants in the show, the observers, would like, but that is their problem.”
Ukrainian journalist Mykhailo Podolyak delivered an unusually bitter critique of the slow Western response to his country’s military needs. “Every decision has to be literally gnawed out with teeth, wasting months of empty talk,” he wrote on Twitter.
Russia, meanwhile, was critical of Biden’s decision to supply cluster munitions — without, of course, mentioning its own rampant use of the weapon.
“It is an act of desperation and shows weakness against the backdrop of the failure of the much-touted Ukrainian counteroffensive,” Russia’s foreign ministry spokeswoman Maria Zakharova said in a written statement.
TOKYO: They are drenched in sweat, their hands bloodied from clapping, and their voices hoarse from shouting – meet Japan’s predominantly male and unashamedly macho “leadership section” cheerleaders. The cheerleaders are part of a century-old tradition that some fear faces an existential crisis, with fewer students showing an interest inContinue Reading
That perfect preservation is the result of several unique characteristics, explained Yusuke Yokoyama, a professor at the University of Tokyo’s Atmosphere and Ocean Research Institute, who has analysed core samples from the site. The bay floor dips down quickly from the shoreline, creating a basin that traps material in theContinue Reading
SEOUL: North Korea denounced on Monday (Jul 10) what it called a move by the United States to introduce a nuclear-powered ballistic missile submarine to waters near the Korean peninsula, saying it creates a situation that brings a nuclear conflict closer to reality. North Korea also claimed US reconnaissance planesContinue Reading
“NUCLEAR BLACKMAIL” The moves by the United States to introduce strategic nuclear assets to the Korean peninsula is “the most undisguised nuclear blackmail” against North Korea and regional countries and presents a grave threat to peace, KCNA said. “Whether the extreme situation, desired by nobody, is created or not onContinue Reading
The contradictions of China-bashing in the United States begin with how often it is flat-out untrue.
The Wall Street Journal reports that the “Chinese spy” balloon that President Joe Biden shot down with immense patriotic fanfare in February did not in fact transmit pictures or anything else to China.
White House economists have been trying to excuse persistent US inflation saying it is a global problem and inflation is worse elsewhere in the world. China’s inflation rate is 0.7% year on year.
Financial media outlets stress how China’s GDP growth rate is lower than it used to be. China now estimates that its 2023 GDP growth will be 5-5.5%. Estimates for the US GDP growth rate in 2023, meanwhile, vacillate around 1-2%.
China-bashing has intensified into denial and self-delusion – it is akin to pretending that the United States did not lose wars in Vietnam, Afghanistan, Iraq and more.
The BRICS coalition (China and its allies) now has a significantly larger global economic footprint (higher total GDP) than the Group of Seven (the United States and its allies).
China is outgrowing the rest of the world in research and development expenditures.
The American empire (like its foundation, American capitalism) is not the dominating global force it once was right after World War II. The empire and the economy have shrunk in size, power and influence considerably since then. And they continue to do so.
Putting that genie back into the bottle is a battle against history that the United States is not likely to win.
Denial and self-delusion about the changing world economy have led to major strategic mistakes. US leaders predicted before and shortly after February 2022, when the Ukraine war began, for example, that Russia’s economy would crash from the effects of the “greatest of all sanctions,” led by the United States. Some US leaders still believe that the crash will take place (publicly, if not privately) despite there being no such indication.
Such predictions badly miscalculated the economic strength and potential of Russia’s allies in the BRICS. Led by China and India, the BRICS nations responded to Russia’s need for buyers of its oil and gas.
The United States made its European allies cut off purchasing Russian oil and gas as part of the sanctions war against the Kremlin over Ukraine. However, US pressure tactics used on China, India, and many other nations (inside and outside BRICS) likewise to stop buying Russian exports failed. They not only purchased oil and gas from Russia but then also re-exported some of it to European nations.
World power configurations had followed the changes in the world economy at the expense of the US position.
War games with allies, threats from US officials, and US warships off China’s coast may delude some to imagine that these moves intimidate China. The reality is that the military disparity between China and the United States is smaller now than it has ever been in modern China’s history.
China’s military alliances are the strongest they have ever been. Intimidation that did not work from the time of the Korean War and since then will certainly not be effective now.
Former president Donald Trump’s tariff and trade wars were meang, US officials said, to persuade China to change its “authoritarian” economic system. If so, that aim was not achieved. The United States simply lacks the power to force the matter.
American polls suggest that media outlets have been successful in a) portraying China’s advances economically and technologically as a threat, and b) using that threat to lobby against regulations of US high-tech industries.
Of course, business opposition to government regulation predates China’s emergence. However, encouraging hostility toward China provides convenient additional cover for all sorts of business interests.
China’s technological challenge flows from and depends on a massive educational effort based on training far more STEM (science, technology, engineering and mathematics) studengs than the United States does. Yet US business does not support paying taxes to fund education equivalently.
The reporting by the media on this issue rarely covers that obvious contradiction and politicians mostly avoid it as dangerous to their electoral prospects.
Scapegoating China joins with scapegoating immigrants, BIPOCs (black and Indigenous people of color), and many of the other usual targets.
The broader decline of the US empire and capitalist economic system confronts the nation with the stark question: Whose standard of living will bear the burden of the impact of this decline? The answer to that question has been crystal clear: The US government will pursue austerity policies (cut vital public services) and will allow price inflation and then rising interest rates that reduce living standards and jobs.
Coming on top of 2020’s combined economic crash and Covid-19 pandemic, the middle- and-lower-income majority have so far borne most of the cost of the United States’ decline. That has been the pattern followed by declining empires throughout human history: Those who control wealth and power are best positioned to offload the costs of decline on to the general population.
The real sufferings of that population cause vulnerability to the political agendas of demagogues. They offer scapegoats to offset popular upset, bitterness and anger.
Leading capitalists and the politicians they own welcome or tolerate scapegoating as a distraction from those leaders’ responsibilities for mass suffering. Demagogic leaders scapegoat old and new targets: immigrants, BIPOCs, women, socialists, liberals, minorities of various kinds, and foreign threats.
The scapegoating usually does little more than hurt its intended victims. Its failure to solve any real problem keeps that problem alive and available for demagogues to exploit at a later stage (at least until scapegoating’s victims resist enough to end it).
The contradictions of scapegoating include the dangerous risk that it overflows its original purposes and causes capitalism more problems than it relieves.
If anti-immigrant agitation actually slows or stops immigration (as has happened recently in the United States), domestic labor shortages may appear or worsen, which may drive up wages, and thereby hurt profits.
If racism similarly leads to disruptive civil disturbances (as has happened recently in France), profits may be depressed.
If China-bashing leads the United States and Beijing to move further against US businesses investing in and trading with China, that could prove very costly to the US economy. That this may happen now is a dangerous consequence of China-bashing.
Because they believed it would be in the US interest, then-president Richard Nixon resumed diplomatic and other relations with Beijing during his 1972 trip to the country. Chinese chairman Mao Zedong, premier Zhou Enlai, and Nixon started a period of economic growth, trade, investment and prosperity for both China and the United States.
The success of that period prompted China to seek to continue it. That same success prompted the United States in recent years to change its attitude and policies. More accurately, that success prompted US political leaders like Trump and Biden to now perceive China as the enemy whose economic development represents a threat. They demonize the Beijing leadership accordingly.
The majority of US mega-corporations disagree. They profited mightily from their access to the Chinese labor force and the rapidly growing Chinese market since the 1980s. That was a large part of what they meant when they celebrated “neoliberal globalization.” A significant part of the US business community, however, wants continued access to China.
The fight inside the United States now pits major parts of the US business community against Biden and his equally “neoconservative” foreign-policy advisers. The outcome of that fight depends on domestic economic conditions, the presidential election campaign, and the political fallout of the Ukraine war as well the ongoing twists and turns of the China-US relations.
The outcome also depends on how the masses of Chinese and US people understand and intervene in relations between these two countries. Will they see through the contradictions of China-bashing to prevent war, seek mutual accommodation, and thereby rebuild a new version of the joint prosperity that existed before Trump and Biden?
This article was produced by Economy for All, a project of the Independent Media Institute, which provided it to Asia Times.
As Janet Yellen kicks China’s economic tires in Beijing this week, she may be surprised by how often the attention is veering toward neighboring Japan.
It just so happens that Yellen’s first China trip as US Treasury secretary coincides with intense debate about Asia’s biggest economy experiencing a Japan-like “balance sheet recession,” one that, if true, will be devilishly hard to reverse.
The reference here is to economist Richard Koo’s oft-cited observation about why Japan plunged into deflation and stagnation in the 1990s. Specifically, this is when economic insecurity prods a critical mass of households and companies to prioritize boosting savings and paying down debt over consuming and investing.
Unlike a formal recession, where gross domestic product (GDP) contracts, the balance sheet variety condemns an economy to underperform for several years.
It’s clear that as 2023 unfolds, “investors are concerned that China may have entered a liquidity trap or is experiencing a balance sheet recession,” says economist Carlos Casanova at Union Bancaire Privée, with the caveat that for now “these fears might be overstated.”
Yet the trouble with Japan-like economic funks is how souring sentiment can take on a life of its own. Herein lies the greater risk for Chinese leader Xi Jinping and Premier Li Qiang.
“Chinese policymakers are going about tackling the different factors underpinning weak sentiment,” Casanova explains. “Given the scattered nature of this support, it may take time for upside pressures on domestic asset prices to build and the Chinese yuan to stabilize.”
Koo, too, thinks China “is entering a balance-sheet recession,” partly because “people are no longer borrowing money” due to worries about the growth outlook and stability of asset markets. As households and companies focus on reducing debt, China’s growth can’t return to pre-Covid levels, he worries.
“I hope Chinese policymakers understand and respond to these challenges, because this might be the last chance for China to reach the living standards of the First World,” Koo explains.
Economist Ting Lu at Nomura Holdings worries that “China’s real estate sector is now starting to look somewhat similar to Japan in the 1990s.” As of May, for example, contract sales among the mainland’s 100 top developers were down roughly 57% versus pre-Covid-19 levels in 2019.
Though Japan’s plunge into deflation had several causes, cratering land prices — and the high degree of exposure to those prices among the nation’s biggest banks — was a key catalyst. The overhang set in motion the bad loan crisis that was core to Japan’s multi-decade malaise.
Economist Alicia Garcia Herrero at Natixis says land sales are “one of the most important components of China’s local government revenue.” She adds that “given the challenges faced by China’s property market are largely structural, i.e., slower income growth, population aging, we expect the land sales revenue to continue being under stress down the road.”
Xi’s policymakers have sought to downplay such concerns. In March, Chinese Finance Minister Liu Kun argued that a 2 trillion yuan (US$276 billion) drop in land sales would only result in a 300 billion yuan loss to local governments’ fiscal positions. That neat assessment may or may not add, however.
Clearly, economists can take the Japan-China comparisons too far. In 2021, economist Lan Xiaohuan published a best-selling book, “Embedded Power: Chinese Government and Economic Development”, detailing the unique dynamics of local property markets.
As Lan explains, “the real power is not ‘land as fiscal finance,’” but “using land as collateral to accelerate bank lending and other forms of credit. When ‘land as fiscal-finance’ meets the capital market and adds leverage, it becomes ‘land finance’” with Chinese characteristics.
Extreme opacity is an added problem. Along with privately-owned real estate companies, the top power brokers are state-owned entities known as Local Government Financing Vehicles (LGFVs), which borrow to finance infrastructure, industrial parks and housing across Asia’s biggest economy.
LGFVs’ outsized revenue role is now among the “main obstacles for broad-based macro support” for an economy losing momentum, says Casanova. They’re at the core of “PBOC concerns about financial risks” along with “households remaining on the fence” about “deploying pandemic surpluses due to weak sentiment.”
However, Casanova notes, “without additional targeted measures, those two reinforce each other, resulting in a deflationary spiral and making it harder for the economic recovery to broaden its base.”
Yet Koo argues that China has a key advantage over Japan: it can learn from Tokyo’s mistakes.
The key lesson, Koo says, is that stimulus treats the symptoms of China’s troubles, not the underlying ailment. While it’s vital that Beijing steps forward to ensure that giant building projects are completed, reforms to repair the property sector and build robust social safety nets are the key to avoiding “Japanification” risks.
Stabilizing property is vital to improving the quality of economic growth and reducing the frequency of boom-bust cycles. Social safety nets are needed to prod households to save less and spend more.
The good news is that China has “a fairly strong administrative system which can put losses where they should be — where they can be easily absorbed,” Raghuram Rajan, former chief economist at the International Monetary Fund, told Bloomberg.
It may help, too, that the economic reform portfolio is now in Li’s hands. Unlike his predecessor, the newish premier appears to have Xi’s full confidence. That top-level buy-in is vital if Li is to pull off a monumentally difficult balancing act.
Li must support growth in the short run while maintaining the progress China has made in reducing extreme leverage and getting under the economy’s hood to recalibrate engines from exports to domestic consumption. Naturally, the People’s Bank of China (PBOC) will play a key role in smoothing out GDP.
Markets need to be “thinking about the likelihood of further easing ahead,” says economist Rob Carnell at ING Bank referring to benchmark Chinese interest rates. He adds that “we’re going to get plenty more of those” moves to add liquidity in coming months “to keep [the] yuan on the back foot.”
Economist Joey Chew at HSBC Holdings says “some think that more concrete, non-monetary stimulus measures will only come out at or after the Politburo meeting in end-July. If so, some foreign-exchange policy smoothing may be needed in the meantime as we head into the dividend outflow season for China.”
Not everyone is convinced big stimulus moves are coming. Goldman Sachs economist Maggie Wei notes that recent meetings with greater China region investors unearthed lots of doubt. “Local clients did not expect major policy easing measures or structural reform measures to be rolled out in the July Politburo meeting” later this month, Wei says.
To some extent, the yuan’s 5% drop this year limits the PBOC’s options. Indeed, additional rate cuts might weaken the yuan to levels that exacerbate trade tensions with Washington and Tokyo. At the same time, a weaker yuan would increase default risks for China’s bigger property developers.
“The lesson from Japan’s lost decades is that without a timely debt clean-up and demand stimulus, the deleveraging mindset could become entrenched in the private sector and, after a certain point, even zero interest rates would not be able to help,” says economist Wei Yao at Societe Generale. It follows that “such a danger seems increasingly relevant for China, as evident in households’ strong appetite for savings.”
In the interim, interest margins among mainland banks “will be under persistent downward pressure if more of their lending capacity is used for extending loans to LGFVs at below-market rates,” Yao says.
China also faces an imponderable that Japan didn’t in the 1990s: a full-blown trade war with Washington.
Yellen’s presence in Beijing this week speaks to the high drama complicating Li’s job in stabilizing the economy. To some observers, Yellen’s trip is meant to reduce the geopolitical temperature following US Secretary of State Antony Blinken’s recent visit.
“I would say it’s a little bit like good cop, bad cop, Blinken being the bad cop,” former IMF chief economist Ken Rogoff told the BBC. “And now Yellen going in as the good cop trying to say, look, you know, we have a lot in common. Let’s see what we can do together.”
Even so, Yellen manages to throw some sharp elbows. On Friday, she chided Beijing for policies toward US companies and a recent move to limit the export of gallium and germanium, niche minerals used in some chip-making.
“During meetings with my counterparts,” Yellen said, “I am communicating the concerns that I’ve heard from the US business community — including China’s use of non-market tools like expanded subsidies for its state-owned enterprises and domestic firms, as well as barriers to market access for foreign firms. I’ve been particularly troubled by punitive actions that have been taken against US firms in recent months.”
Xi’s government, of course, has its own gripes about US President Joe Biden’s efforts to make American manufacturers less reliant on Chinese production.
In the meantime, though, it’s hard to refute that “China’s economic development model resembles that of Japan over 30 years ago with high savings and high investment, but with restrained consumption and rigid institutions weighing increasingly on macroeconomic success,” notes George Magnus, a research associate at Oxford University’s China Centre.
Magnus adds that “China’s chronic over-investment and misallocation of capital, particularly in the property sector, pose a potentially bigger economic problem than Japan’s banking crisis in the 1990s.”
On the bright side, Magnus says, “China has some advantages over Japan, such as a state-owned financial system that can prevent significant banks from failing and a closed capital account that can protect the country’s banking system and the economy from the risk of significant capital flight. This however might not prevent China from taking the same economic trajectory [of] Japan.”
That requires urgent and creative moves to repair the property market, create robust social safety nets and put China on a path toward more productive economic growth. China can surely avoid Japan’s lost decades, but there’s not a moment to waste in shifting the narrative about the economy’s downward trajectory.
Follow William Pesek on Twitter at @WilliamPesek
Any decision on NATO membership is between the 31 Allies and aspirant country. And so, in this case, when it comes to Ukraine, we have been discussing with our NATO Allies and Ukraine how we can collectively support Ukraine’s aspiration for Euro-Atlantic integration.
Ukraine would have to make reforms to meet the same standards as any NATO country before they join. President Biden thinks that Ukraine can do that.
US President Joe Biden will spend three days in Europe at the NATO Summit in Vilnius scheduled for 11 and 12 July. The main topic will be Ukraine and where to go from here.
Ukraine is pushing for either immediate NATO membership or actionable security guarantees from NATO. But Ukraine’s position is undermined by the failure of the counteroffensive against Russia, and the failure of its attempts – via sabotage, assassination and lethal drones aimed at the Kremlin – to destabilize the Putin government. Now Ukraine is saying it needs NATO air power to be able to win its war.
It will be very hard to get a NATO consensus on the road ahead, no matter how much arm twisting Washington uses on its European partners.
Europe is already in a recession thanks to the Covid catastrophe, the sanctions on Russian energy and the huge unemployment levels, which impact recent immigrants. The result of all that is social unrest across Europe. France is already experiencing a serious revolt, and while the French situation has eased in the past few days, it will come back.
Meanwhile, the German government coalition is steadily losing popular support and the AfD, Germany’s right-wing party, is now the second most popular party in the country. Olaf Scholz and his coalition partners don’t know what to do: they may try banning AfD as a last ditch effort. Italy is also far from out of the mess.
The country has a conservative leadership but is being battered by unprecedented waves of immigrants coming from the Middle East.
Europe is out of money and out of bullets. It is not in a mood to give a blank check to Ukraine or risk a bigger war that might spread into Europe. President Biden will have a hard time trying to squeeze more from the Europeans.
Biden knows that he cannot unilaterally use US forces, especially airpower, without airbases and supply centers in Europe. Right now, Washington has a free hand because US warplanes are not bombing Russian positions in Ukraine. Bombing them, however, would force a strong European reaction and shatter NATO.
Ukrainian leader Volodymyr Zelensky has been pressuring Washington for advanced warplanes, saying airpower would make it possible for Ukraine to win. But the only practical way forward with that over the next year is to operate from bases outside of Ukraine using US and possibly other NATO aircraft.
This would certainly mean war in Europe and the currently ruling governments in Europe either would have to say no or face being removed by force. It is, therefore, an unlikely, if highly dangerous, scenario.
Washington has already signaled that it has been unable to convince its partners about Ukrainian NATO membership. It is likely that behind the scenes Washington is trying to craft some sort of security guarantee for Ukraine, but any meaningful guarantee is probably a bridge too far.
Russia is also restive after the Yevgeny Prigozhin-led coup attempt. Putin wants a military victory soon, as does the Russian army, which was badly stressed by the Prigozhin accusations.
Holding the line against a Ukrainian counteroffensive is not really a victory for the Russians since their image remains tarnished at home. It is reasonable to expect, therefore, that once the Ukrainian losses mount up high enough in the coming weeks, the Russian army will make dramatic offensive moves against Ukraine.
The big unknown is what the Russian army will do: Will it launch a big attack on Kiev, Kharkiv or Odesa? If, after Vilnius, Moscow sees Zelensky without any expectation of NATO coming to save him, it will exploit the situation very quickly.
Part of the Western foundation for Ukraine’s offensive was the introduction of modern technology on the battlefield, represented especially by the appearance of the Leopard tank. Unfortunately for NATO, the Leopard tanks have not saved the day for Ukraine.
So far, between 16 and 20 Leopards have been knocked out on the battlefield along with lots of other NATO-supplied armor, including infantry fighting vehicles such as the US Bradley and mine clearing systems like the Finnish Leopard 2R HMBV and the German Wisent 1.
The Leopard and US Abrams main battle tank form the armor backbone of NATO’s land defense.
While the US and its allies have superior airpower, they have sparse and inadequate air defenses compared with what Russia can bring forward. This means that a land defense needs to stand up to Russian attack helicopters armed with missiles, lethal drones and air-launched mines in addition to artillery.
The failure of the Leopard in Ukraine represents a huge challenge for NATO and signals that the current NATO “tripwire” strategy may not work.
Under the tripwire paradigm, the idea is that an initial Russian attack (most likely in the Baltic states because Russian forces are very close to Estonia and Latvia) can be held for some days while the US ships heavy forces into Europe. But if the tripwire is illusory, then NATO is exposed to rapid Russian advances in Europe should an attack be launched.
The bottom line is that NATO’s strategy needs revision or, alternatively, that the Europeans and Russians need to work out a mutually acceptable security arrangement. It is exactly such an arrangement that Russia proposed to NATO in December 2021. It was rejected without discussion.
Now the ammunition cupboard is bare, even in the United States. The Russians are learning how to counter advanced Western systems, a negative development for NATO’s security. It could not be a worse time to risk Europe’s security on the basis of being able to stop a Russian attack.
It may be easy for British politicians to scream they want NATO to fight in Ukraine, but it isn’t London that is likely the first target of Russia’s missiles. Cracks in the alliance are emerging more quickly than anticipated, and Europe’s weak governments are in trouble.
It will be interesting to see how Vilnius plays out. It will certainly be a propagandistic show, but there is a good chance Vilnius will be a flop.
Stephen Bryen is a senior fellow at the Center for Security Policy and the Yorktown Institute. This article was originally published on his Substack, Weapons and Strategy. Asia Times is republishing it with permission.