February 11, 2022-Stealth War 75: Argentina to Join BRI; China and Sri Lanka’s Debt; China falls flat on Phase 1 Trade Deal; Xi Olympic Diplomacy; Zero-COVID and Hong Kong

By: John Foulkes

Mon March, 2022, Age: 4 months

 

 


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February 11, 2022

Welcome to the Stealth War Newsletter, a collection of the top 5 recent news items, collected on The Jamestown Foundation’s website, stealth-war.org. To continue to receive this weekly collection, click the button below to subscribe. 

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Strategic Indicator
This issue’s number to watch32
Number of Foreign Heads of State who visited Beijing for the 2022 Winter Olympic games (see fourth story below).

This Week: 

*  BRI Roundup: Argentina to Join Belt and Road Initiative

*  China Stands by as Sri Lanka is Reportedly on the Verge of Default

 After China Fails to Meet Obligations of Phase I Trade Agreement, U.S. Calls for Action

Xi’s Olympic Welcoming Banquet Stresses Cooperation Amidst Diplomatic Boycotts and Strategic Competition

*  In Step with the Mainland: Hong Kong’s Zero-COVID Policy and the “Fifth Wave” of Omicron

Top Stories

BRI Roundup: Argentina to Join Belt and Road Initiative

On February 6, President Xi Jinping met with Argentine President Alberto Fernandez in Beijing. At the conclusion of their meeting, the two leaders announced that they had signed a Memorandum of Understanding (MoU) that Argentina would join the Belt and Road Initiative (BRI). The MoU also affirmed that the two countries would cooperate on “policy communication, connectivity, unimpeded trade, financial integration, people-to-people exchanges, and third-party markets.” In addition to the MoU, both sides “also signed cooperation documents for over ten areas, including green development, the digital economy, aerospace, the BeiDou Navigation Satellite System, technological innovation and agriculture.” Argentina claimed that these deals would lead to $23.7 billion of Chinese investments, but China did not provide an exact figure. These developments underscore the growing cooperation between the two countries on security, infrastructure, banking, trade, development, space programs, technology, raw materials, and, recently nuclear power, (click here for a deep dive on these topics). In recent years, China has at times replaced Brazil as Argentina’s largest trading partner, with Buenos Aires primarily exporting food products to China. In addition to this historical context, there were several developments surrounding the MoU worth noting.

A primary factor precipitating Argentina’s interest in the BRI is the country’s high-level of IMF debt, which is a long-time source of frustration. In 2018, the IMF lent Argentina almost $45 billion to bailout the country, a record loan for the nation. By 2020, the IMF determined that Argentina’s debt was unsustainable and needed to be restructured. Further, by 2021, the IMF released an unprecedented criticism of its own loan agreement and its detrimental impact. Throughout this period, China and Argentina agreed to renew an existing currency swap for almost $19 billion, and just a few days ago, they agreed to expand this arrangement by $3 billion. This occurred around the same time that the IMF and Argentina reached a restructuring agreement, which, in spite of its improved terms, has been met with public protests. Second, after the two presidents met, they jointly declared that the Falkland Islands (a.k.a. Las Malvinas) should be relinquished by the UK to Argentina. Third,  as Chinese media reported, it is hoped that since, “Argentina is holding the rotating presidency of the Community of Latin American and Caribbean States (CELAC) in 2022,” Argentina will be an instrumental partner in expanding China’s presence in the region. Finally, China is excited to see a resurgence of left-wing politicians in Latin American governments, predicting that this trend will work in its favor. 

China Stands by as Sri Lanka is Reportedly on the Verge of Default

Yesterday, the Central Bank of Sri Lanka declared that claims that the nation is in danger of defaulting on its sovereign debt are, “totally unsubstantiated.” It further stated that the nation had already “settled the US $500 million International Sovereign Bond (ISB) that matured in January 2022,” and was on track to meet the government’s goal of reducing the nation’s ISB debt to 10 percent of GDP. Nonetheless, the Sri Lankan parliament appears nervous about the upcoming IMF report on the nation’s finances, with key members calling for a pre-emptive debate in search of a solution. This is for good reason. Investors are running scared, casting doubt on the Central Bank’s plans for a smooth landing. Additionally, the day before the bank’s statement, it was reported that in January 2022 the bank had sold off almost half of its gold reserves, taking it from $175 million in gold reserves in December 2020 to $83 million by the end of January 2022. In spite of this liquidity boost, “foreign reserves dropped to USD 2.3 billion from USD 3.1 billion in Dec 2021 whereas foreign currency reserve [sic] dropped from USD 2.77 billion in Dec 2021 to 2.07 billion in January.”

Meanwhile, between the global impacts of COVID-19, existing economic troubles, and political leadership, the country is facing a variety of socio-economic pressures. The Consumer Price Index increased by 14.2 percent in January, increasing the annual average CPI inflation to 6.9 percent, reflecting amongst other things a 300 percent increase in international shipping prices since October 2021. A large percent of small and medium enterprises have already closed, and many more are in danger of closing. Notably, the government has been forced to make an emergency purchase of energy from independent producers while asking the public to restrict energy usage. Compounding all of this, it is facing a food supply crisis due to various factors, prompting food donations from China and loans from Pakistan. The crisis has also spurred Sri Lankans abroad to increase remittances. The financial crisis has resulted in strikes and protests, further disrupting the economy. In spite of owning about 10 percent of Sri Lanka’s ISBs, and a larger unknown percent of Sri Lanka’s total debt, largely as investments in its Maritime Silk Road, China has been reticent about restructuring the nation’s debt. Perhaps it wishes to claim another key piece of the nation’s infrastructure in return (a.k.a. debt trap). It has however capitalized on the crisis by blaming the U.S. and India for contributing to the crisis and politicizing it, while denying any responsibility for Sri Lanka’s sovereign decision to take loans from China. Nonetheless, as Sri Lanka has thus far not asked for IMF assistance, discontent with China in Sri Lanka may open opportunities for India and the Quad to neutralize a potential risk or gain an ally.

(source: Global Times)

After China Fails to Meet Obligations of Phase I Trade Agreement, U.S. Calls for Action

In February 2020, the first phase of the U.S.-China Economic and Trade Agreement went into effect, wherein China vowed to purchase $200 billion worth of additional U.S. exports over the next two years. Early this week, it was revealed that China fell far short of this target, purchasing none of the additional imports it had promised, which were based on 2017 levels. A report released by the Peterson Institute for International Economics (PIIE) found that China had bought $288.8 billion of the $502.4 billion of U.S. goods and services it had committed—roughly 57 percent. The agreement came after two years of escalating tariffs and warnings of economic decoupling. The report found that China was never on target, facing the impacts of the pandemic and U.S.-China trade war. According to the report, Chinese purchase of American autos, aircrafts, and agricultural exports fell short, while American semiconductors, semiconductor equipment, and COVID-19 supplies outperformed.

President Biden said the trade deal did not solve the fundamental issues facing China’s state-led economy, and deputy U.S. Trade Representative Sarah Bianchi claimed they are working with Beijing to address the issues. However, U.S. officials have called for “concrete action” from China to fulfill its obligations, seeking additional pressure on Beijing, including through a new tariff probe. Last Friday, Washington passed the America COMPETES Act, which devotes nearly a quarter trillion dollars to subsidize domestic semiconductor manufacturing and research on AI and other critical technologies, and is largely aimed against China.

Gao Feng, China’s Ministry of Commerce spokesperson, emphasized China’s economic achievements amidst the pandemic, global recession, and disrupted supply chains, claiming that “the phase one agreement is beneficial for both China and the U.S.” Foreign Ministry spokesperson Zhao Lijian also commented on the report, saying that “threats and pressures based on the U.S. unilateral interests will not help solve the problem, but only damage the atmosphere of mutual trust and dialogue between the two sides,” urging the U.S. not to pursue additional sanctions and tariffs. A recent report by Chinese think tank, the Peking University Institute of International and Strategic Studies (IISS), found that economic decoupling would negatively impact both sides, analyzing each country’s relative strength in information technology, AI, and aerospace, but “at this point, it looks like China’s loss may be greater.” The report was pulled immediately within China, but copies were still circulated online.

Xi’s Olympic Welcoming Banquet Stresses Cooperation Amidst Diplomatic Boycotts and Strategic Competition

On February 5, President Xi Jinping and his wife Peng Liyuan hosted a welcoming banquet for nearly 20 foreign leaders who attended the opening ceremony of the Winter Olympics Games. Attendees of the Lunar New Year-themed banquet, which was held in the Golden Hall of the Great Hall of the People located in Tiananmen Square, included Singaporean President Halimah Yacob, Cambodian King Nordom Sihamoni, Mongolian Prime Minister Luvsannamsrai Oyun-Erdene, Prince of Monaco Albert II, Thailand’s Princess Maha Chakri Sirindhorn, South Korea National Assembly Speaker Park Byeong-seug, Grand Duke Henri of Luxembourg, IOC President Thomas Bach, UN Secretary-General Antonio Guterres, UN General Assembly President Abdulla Shahid, and World Health Organization Director-General Tedros Adhanom Ghebreyseus. Russian President Vladimir Putin who held a summit with Xi the previous day was notably not in attendance.

In his opening remarks, Xi emphasized cooperation among the international community. “We need to practice true multilateralism, uphold the international system centered on the United Nations and the international order underpinned by international law, and work together to build an international family of harmony and cooperation,” he said. Following Xi’s welcome, Bach and Guterres both delivered remarks that congratulated China for the successful opening ceremony and also stressed solidarity and cooperation in the face of global challenges, such as COVID-19, climate change, and terrorism. Chinese state media claimed that the high attendance of foreign leaders “underscores China’s capacity to unify others amid a challenging time, which also signals the widely shared support and expectations of the global community for the Games.”

The banquet’s emphasis on international cooperation comes after the notable absence and diplomatic boycott of the Olympics by major democratic powers, including the U.S., Britain, Australia, India and Canada. While President Putin did not attend the banquet, Xi and Putin held talks prior to the banquet. Xi’s diplomatic efforts also included bilateral meetings with leaders from Egypt and Serbia, as well as presidents of Kazakhstan, Turkmenistan, Uzbekistan, and Tajikistan, which may signal Beijing’s strategic interests in Central Asia. Attendees were largely from countries with growing dependence on Chinese trade and business, and with comparatively low rankings of political freedoms by Freedom House.

In Step with the Mainland: Hong Kong’s Zero-Covid Policy and the “Fifth Wave” of Omicron

In the struggle against the coronavirus pandemic, Hong Kong has shown remarkable epidemic independence from the rest of the world, a stark contrast to its dying political autonomy. Until just recently, it never saw its hospitals overwhelmed nor suffer mass casualties, enabling its citizens to go about their daily lives in relative normalcy. Its citizens, the elderly included, have forgone pleas from the government to be vaccinated, with a mere 22 percent of people over 80 receiving the coronavirus vaccine. The zero-Covid approach, as it is termed, may be responsible for Hong Kong’s earlier successes, as well as its depressing vaccination ratios. With the onset of Omicron, however, these seeming successes have reversed into disaster.

The zero-Covid approach, the official policy of mainland China, has been implemented in Hong Kong for over two years. The policy consists of an initial suppression phase whereby entrants are required to quarantine for 21 days–after they have spent four days in a bare bones government camp. Once inside, residents face aggressive public gathering restrictions, even so far as monitoring the number of families in private dwellings, and closures of nearly all public facilities including gyms, schools, beauty salons, and restaurants. The goal of the zero-Covid policy is to keep transmission of the virus as close to zero as possible, eventually eliminating the virus altogether from a particular geographic area. In China, implementing the strategy in specific cities such as Wuhan has allowed the rising power to weather the so-called “storms” of virus surges that we keep seeing, working wonders in one of the world’s most densely populated regions.

Despite its early success in containing COVID-19, Hong Kong has struggled with the arrival of the Omicron variant.

Since the variant reached Hong Kong in December, Covid has spiked throughout the densely populated neighborhoods, leading to more than 1,200 new infections over the last two days, and over 4,000 quarantined citizens. Desperate to stop the spread, Hong Kong authorities have even begun euthanizing pet hamsters, on the suspicion that they may be transmitting the virus. Now flights from eight different countries have been suspended to halt the damage, to no avail.

According to public health experts, Hong Kong and China’s pursuit of the zero-covid strategy is a failing endeavor, leaving both wholly unprepared for a pandemic that has become endemic. 


 


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China will need to take on additional debt to fill one trillion funding gap this year https://www.cnbc.com/2022/05/31/china-faces-a-nearly-1-trillion-funding-gap-it-will-need-more-debt-to-fill-it.html

Per Bloomberg India is scrutinizing ZTE, Vivo for alleged financial irregularities. https://www.bloomberg.com/news/articles/2022-05-30/india-said-to-probe-zte-vivo-as-more-china-firms-under-scrutiny


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