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Fiat Chrysler in Talks With Foxconn to Develop Electric Cars

Fiat Chrysler is in talks with the Taiwanese company Foxconn to develop and manufacture battery-powered vehicles, the U.S.-Italian automaker said on Jan.17.

Fiat Chrysler is in the process of merging with France’s PSA Peugeot, which is 12 percent owned by Chinese company Dongfeng Motor Co. Both Fiat Chrysler and Peugeot have lagged in developing electric powertrains and also have been struggling to increase sales in China, the world’s biggest auto market.

It was unclear what impact Fiat Chrysler’s proposed joint venture with Foxconn, formally known as Hon Hai Precision Ind. Co., Ltd., would have on the broader merger, due to be completed in the next year or so.

If a deal with Foxconn is reached, a joint venture will focus first on China, the biggest market for electric cars with 1.2 million vehicles sold last year—half the global total.

“The proposed cooperation … would enable the parties to bring together the engineering and manufacturing and mobile software technology to focus on the growing battery electric vehicle market,″ Fiat Chrysler said in a statement.

Talks were aimed at reaching a binding agreement “in the next few months,” the company said.

Automakers around the world have announced a series of electric vehicle partnerships to share the soaring cost of technology development.

Companies including General Motors Co. and Toyota Motor Co. have electric vehicle joint ventures with Chinese partners to take advantage of their experience at making low-cost vehicles.

The Chinese government has a credit-based system that encourages automakers to sell electric vehicles, leading to a proliferation of brands. But industry analysts expect high development costs to drive many of them to merge.

The trend has led to a complicated mix of ties among competitors.

Daimler AG’s Mercedes Benz has electric vehicle joint ventures with both BYD Auto, one of the biggest global makers of battery-powered vehicles, and rival Geely Holding, which is best known abroad as the owner of Sweden’s Volvo Cars. Geely also has two separate electric brands, Geometry, and…

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US-China trade rapprochement round one

US President Donald Trump stands Chinese Vice Premier Liu He after signing

Author: Yao Yang, Peking University

The conclusion of phase one of the trade negotiations between the United States and China has been  welcomed by global markets because it has brushed off many uncertainties caused by the tense relationship between the world’s two largest economies over the past two years.

According to the now publicised text, the deal is a more or less one-sided agreement targeting China. Over the next two years, China will need to increase imports from the United States by US$200 billion. China also needs to take steps to further open its markets, strengthen intellectual property rights protection, get rid of forced technological transfers and increase the transparency of its exchange rate policy.

In return, the United States will cut half the tariffs it imposed in 2019, while keeping the 2018 tariffs intact. This is sufficient for President Trump to claim victory in the trade war. Equivalent to 1 per cent of US GDP, the US$200 billion increase in exports to China will certainly boost his chances of re-election.

Despite its one-sided nature, the phase one agreement is not all bad for China. For one thing, China has geared up on policy reform. It has adopted a new law for liberalising foreign direct investment, banning forced technological transfers and allowing wholly foreign-owned financial institutions to operate in the country.

And the US$200 billion increase in purchases is not necessarily bad for China. Purchasing more US goods will deepen economic ties between the two countries. US voices calling for decoupling with China are growing louder. But the new purchases will strengthen integration in two ways. One obvious way is through the purchases themselves. If the target is reached, China’s imports from the United States will almost double, and if China’s exports to the United States stay the same, the US trade deficit with China will be eliminated.

The second way lies in how the purchase agreement is going to be fulfilled. While China can find ways to increase its imports from the United States — including diverting some imports from other countries — there is a question about how the United States can increase its supply of US$200 billion exports in such a short period of time. The US economy is now in full employment; except in agriculture, there is not much slack in the economy.

One possible remedy is to allow Chinese companies to invest in the United States’ production capacity. For example, liquefied natural gas (LNG) could contribute a large share to new exports, but there are insufficient LNG pipelines and port terminals in the United States. If Chinese companies are allowed to invest in those facilities, US LNG exports to China will be expedited. As a result, the two countries will be even more deeply integrated.

Importing more US products is also good for the welfare of Chinese people. High tariffs have created a large wedge between consumer prices in China and those in the United States. In addition, to fulfill China’s commitment to cutting carbon emissions, and also to increase people’s living standards, China has to cut the share of coal in its energy mix and increase clean energy sources, including natural gas. Importing more gas from the United States will help fulfil that goal.

The conclusion of the phase one agreement shows that the United States has not ‘given up’ on China. Despite some hysteric panic about China, mainstream US politics still favours maintaining normal, if not deeper economic relations with China. After two years of strife, the two countries now enter a new phase of rapprochement.

Last October, 37 scholars from China, the United States and other countries signed a joint statement calling for a pragmatic approach to settle the US–China trade dispute. The starting point was that both countries should leave room for each other to conduct domestic policy to address domestic concerns, as well as respond to the external spillovers of each other’s domestic policies. Beggar-thy-neighbour policies should be corrected, and domestic policies with spillover effects should be negotiated. If negotiation fails, the negatively affected party can use domestic policy to safeguard its interests.

Dividing the negotiations into phases is consistent with this idea. The first phase dealt with issues concerning cross-border trade and investment. The second phase will deal with structural issues, particularly subsidies and state-owned enterprises in China, and restrictions on technological transfers in the United States.

The World Trade…

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China’s plan to slash health care costs sees global pharmaceu…

China’s biggest-ever round of drug price cuts saw global pharmaceutical firms losing most of the nationwide contracts to local rivals, as Beijing aggressively pushes to contain health care costs by an average of 53 per cent decline in latest bulk purchase.Among 33 commonly used medicines in a bidding exercise on Friday, some moneymakers for global pharmaceutical companies had the deepest cuts, with the biggest one being as high as 93 per cent as shown in a government-funded medical procurement…

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China trade questions confound Australia’s Indo-Pacific shift

Australian Foreign Minister Marise Payne attends talks to her Chinese counterpart Wang Yi (not pictured) at the Diaoyutai State Guesthouse in Beijing, China, 8 November 2018 (Photo: Reuters/Thomas Peter/Pool).

Author: James Laurenceson, University of Technology Sydney

The ‘Indo-Pacific’, stretching from the eastern Indian Ocean to the Pacific, is the Australian government’s framing of the international environment for its foreign policy. In strategic terms, it encompasses major powers such as India, Indonesia, China, Japan and the United States — a multipolar region that is resistant to the emergence of a new and potentially unfavourable hegemon. There is an economic dimension too, with a vision of more diversified trade. High hopes are placed on India, with the Australian government releasing in 2018 its India Economic Strategy to 2035.

On the strategic front, Canberra would be mostly pleased with developments last year. In November, Australian Defence Minister Linda Reynolds made her first official visit to Japan. The measures Reynolds unveiled with her Japanese counterpart Taro Kono were designed to deepen Australia–Japan defence cooperation, explains Grant Wyeth, ‘consolidating the perception that Tokyo and Canberra now see each other as their most important and reliable security partner after their respective alliances with the United States’.

In September, Quadrilateral Security Dialogue (Quad) meetings involving Australia, Japan, the United States and India were upgraded to the ministerial level. But disappointingly, in the same month, Australia was again not invited to participate in the Indian-led Malabar naval exercise involving its three fellow Quad members, India, the United States and Japan.

It has become clear over time, and dramatically so last year, however, that the Indo-Pacific frame has limited utility in delivering Australia its hoped-for pattern of economic ties. Trade flows are driven by factors exogenous to Australia — notably markets and comparative advantage. The wishes of elected politicians and bureaucrats sitting in Canberra are largely irrelevant.

In 2012, when the Indo-Pacific was starting to make a regular appearance in official government documents, China was the destination for 27.3 per cent of Australia’s total goods exports. Among Australia’s more substantial regional trading partners, the shares of East Asia excluding China (Japan, South Korea, Hong Kong and Taiwan), Southeast Asia (Indonesia, Malaysia, Philippines, Thailand and Singapore), India and the United States were 33.3, 9.5, 4.9 and 3.8 per cent, respectively.

Despite fervent championing of the Indo-Pacific, in the 12 months leading up to October 2019, China’s share of goods exports leapt more than 10 percentage points to 37.7 per cent. But the shares of East Asia (excluding China), Southeast Asia, India and the United States all fell to 26.4, 8.8, 3.8 and 3.7 per cent, respectively.

The story is mirrored on the import side of the trade equation. In 2012, China supplied 17.3 per cent of Australia’s goods imports while East Asia (excluding China), Southeast Asia, India and the United States accounted for 13.2, 16, 1 and 11.8 per cent, respectively. In the 12 months to October 2019, China’s share surged to 25.5 per cent. The shares of East Asia (excluding China), Southeast Asia and the United States all fell to 12.9, 14.2 and 11.1 percent, respectively. Only the importance of India had risen, but to a still marginal 1.6 per cent.

The evidence is mixed on whether Indo-Pacific countries have sympathy for Australia’s preferred economic architecture, headlined by a multilateral rules-based order. Countries like Japan and Singapore have emerged as strongly like-minded, being fellow members of initiatives like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP or TPP-11) and the Regional Comprehensive Economic Partnership (RCEP).

In contrast, the United States has veered in the opposite direction. On his first day in office, President Trump withdrew the United States from the CPTPP’s predecessor, the Trans-Pacific Partnership (TPP). Now, US blocking actions have rendered the WTO’s Dispute Settlement Body unable to provide independent adjudication on new cases.

Developments with India are similarly dismal. Despite launching negotiations for an Australia–India Comprehensive Economic Cooperation Agreement in 2011, progress towards such a bilateral deal has stalled. And in November, India opted out when RCEP’s 15 members successfully concluded negotiations.

Last November too, Peter Varghese, the author of the Australian government’s India Economic Strategy to 2035, admitted that ‘the big end of town still doesn’t buy the India story’. Varghese’s report…

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Difficult times for China’s political elite  

Chinese President Xi Jinping delivers a speech at the opening ceremony of the second China International Import Expo (CIIE) in Shanghai, China, 5 November 2019 (Photo: Reuters/Aly Song).

Author: Ryan Manuel, Official China Ltd.

In Zhongnanhai, the Beijing compound where China’s Communist Party leaders reside and conduct business, 2019 was a bad year. The trade war with the United States dragged on  — an accountability issue for President Xi Jinping who’s responsible above all for foreign policy. Despite common perceptions that he’s an autocrat with a totalitarian’s attitude to power and a bureaucrat’s attention to detail, Xi couldn’t easily get his cabinet to sign off on the US–China trade deal. The proposed text fell apart amid bitter debate about whether it was sufficiently nationalist.

Xi’s strategy of using others to negotiate issues while personally staying above the fray failed. For months, China’s lead trade negotiator was a vice minister of commerce. Meanwhile, back in Beijing, everyone deflected responsibility in order not to be blamed for the constant ups and downs of dealing with US President Donald Trump.

While this shows that China is less dictatorial than outsiders may think, it also reflects Xi’s 2020 dilemma. He wants a deal done but cannot be seen as weak. He wants to make China more self-sufficient but needs access to foreign technologies to make that happen. The unusual events of the past few years, which saw China become the primary proponent of an international order it didn’t establish, are therefore likely to continue into 2020.

Xi is a realist and he and his fellow leaders have already presented themselves as facing a ‘difficult international environment’ in their assessment of the year — led by foreign reactions to Chinese domestic political events. There is increasing international outrage over China’s policies in Xinjiang where it was estimated that over one million Uyghurs were detained. The leak of documents on Xinjiang to The New York Times by a ‘concerned official’ was the most authoritative such release in decades.  There’s likely to be increased pressure on Xi from international bodies, although much of the outrage that comes through modern social media is filtered by China’s Great Firewall.

There has been the flood of stories about Chinese influence overseas — especially activities involving the nebulous United Front. Expect these too to increase in the year ahead. The case of Chinese telecommunications giant Huawei sent shivers through overseas business communities. The arrest of a Huawei senior executive in Canada on an American warrant was followed by the detention of two Canadian citizens in China.

The ongoing protests in Hong Kong remain a weeping sore that Beijing is unlikely easily to be able to salve. Hong Kong remains essential to Beijing’s future plans, acting as both an international arbitration centre and the prize regional stock exchange.

The ‘difficult international environment’ makes it is easy to miss the changes taking place in China’s domestic politics.

Xi’s signature anti-corruption drive continued its sweep, adding rules that make it easier to remove officials for perceived incompetence and lack of obedience to ideological norms rather than just for graft. This is Xi’s way: he changes rules within the Chinese Communist Party and then uses China’s legal system to ensure that the public service — 80 per cent of whom are Party members — is also bound by Party rules.

A central preoccupation is Xi’s fear that local leaders do not follow central command and, therefore, that he should centralise power and put his own name and face onto reforms. He has changed how leaders are held accountable, adding a system of personal accountability to the previously inviolable rule of collective decision making. Rather than the public not knowing who made a decision and passing the blame onto a committee, Xi is making individuals responsible for decisions.

He has also extended the Party’s reach over grassroots local politics — shrinking the scope of local leaders to run their own affairs. His annual meeting of Party leaders, the Fourth Plenum of the 19th Congress of the Party Central Committee offered few new reforms as almost all of the heavy lifting had already been done through Xi’s rule changes.

The Chinese economy remains a source of worry. Domestic debate rages over whether China should accept a lower and more sustainable growth rate or whether it should push on for the targeted 6 per cent GDP growth. Last year saw the pork crisis and fears of rapidly rising food prices. The direction of fiscal policy is confused as local governments deal with conflicting messages about whether…

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Auto Industry Cautious as China Starts 2020 With Forecast of a 2% Sales Decline

BEIJING/SHANGHAI—Automakers in China need to get used to a new normal of “low speed growth” in the world’s largest car market, the country’s top auto body said on Jan. 13, as it reiterated predictions that sales will likely shrink for the third consecutive year in 2020.

The China Association of Automobile Manufacturers (CAAM) expects a 2 percent fall in vehicle sales. That would compare with an 8.2 percent drop last year, when sales were pressured by new emission standards in a shrinking economy also contending with tit-for-tat import tariffs with the United States.

CAAM, affirming its forecast announced last month, also said auto sales declined for the 18th consecutive month in December. Annual sales started falling in 2018, by 2.8 percent, halting a growth march that had started in the 1990s.

Industry watchers, though, are hoping a sales recovery in lower-tier cities, and an easing of trade tensions between China and the United States, can help ease the decline.

“We have moved away from the high-speed development stage. We have to accept the reality of low-speed development,” Shi Jianhua, a senior official at CAAM, told a news briefing.

“We had high-speed growth for a consecutive 28 years, which was really not bad, so I hope everyone can calmly look at the market.”

Sales of new energy vehicles (NEV) sank 27.4 percent in December, resulting in an overall 4 percent decline to 1.24 million units in 2019. China’s NEV sales jumped 62 percent in 2018 but a subsidy cut hurt sales last year.

When asked if the industry could sell 2 million NEVs this year, a target originally set by China’s industry ministry in 2017, CAAM’s assistant secretary general, Xu Haidong, said this was “not possible.”

NEV sales for 2020 would likely “stay at the same level or slightly increase” versus last year, Xu said.

Cautious

Global automakers have been cautious with their predictions after cutting production, shutting factories and firing staff last year.

Executives at automakers such as Geely and Ford Motor partner Chongqing Changan Automobile have said they expect fiercer competition…

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Strengthening the ASEAN-centric multilateral security architecture

Vietnam

Author: Sarah Teo, RSIS

For a good part of the post-Cold War period, ASEAN enjoyed relative success as the central multilateral organisation in its region. Its expansion through the late 1990s, as well as its inclusive approach towards non-ASEAN powers, helped it become the main convener of multilateral dialogue and cooperative platforms in the wider Asia Pacific.

But over the last decade, ASEAN’s role in the multilateral architecture has faced challenges from what some analysts call the rise of ‘multilateralism 2.0’ — multilateralism driven by major powers rather than ASEAN — and the proliferation of non-ASEAN-centric minilateral arrangements.

Such developments resulted in concerns about the robustness of the ASEAN-centric multilateral architecture amid a period of structural and strategic transitions. These concerns have been exacerbated by the current US administration’s apparent disdain for multilateralism, including those centred on ASEAN.

The danger is that in light of criticisms of ASEAN’s ineffectiveness, the Association’s so-called centrality in regional multilateralism could rapidly diminish if non-ASEAN powers succeed in creating credible alternatives to ASEAN-centric forums. The Quadrilateral Security Dialogue (Quad) involving Australia, India, Japan and the United States, as well as the Lancang-Mekong Cooperation (LMC) mechanism comprising Cambodia, China, Laos, Myanmar, Thailand and Vietnam are examples that evoke such concerns.

Yet, the ASEAN-centric multilateral security architecture may be more robust than commonly acknowledged. ASEAN currently has a reasonably full suite of mechanisms to address a range of issues, including the leaders-level ASEAN Summit and East Asia Summit, the foreign ministers-led ASEAN Ministerial Meeting and ASEAN Regional Forum, as well as the defence ministers-led ASEAN Defence Ministers’ Meeting (ADMM) and the ADMM-Plus.

For security and strategic issues, avenues already exist for dialogue and practical cooperation — both at the ASEAN and the wider Asia Pacific levels. China may have its Xiangshan Forum and Boao Forum and the United States is typically seen to dominate the Shangri-La Dialogue but ASEAN remains the best equipped for bringing together all the main regional actors across different sectors.

The key is to strengthen this ASEAN-centric multilateral security architecture and ensure that it remains the best option for both ASEAN and non-ASEAN countries when it comes to wider-level regional multilateralism. In this sense, even if the major powers form like-minded coalitions to address specific issues, they would still turn to ASEAN-centric platforms because they offer the highest returns for broader multilateral consultations and collaboration.

One way to strengthen the ASEAN-centric multilateral security architecture would be to enhance ASEAN’s capacity as an independent actor.

Since its establishment, the ASEAN narrative has been one of strength in weakness. Because its member states possess neither sufficient economic nor military resources to be threatening, ASEAN is able to leverage this ‘weakness’ to serve as the convenor of regional multilateralism that includes major powers such as China, Japan and the United States. The competition between China and Japan over leadership of the East Asia Summit in the mid-2000s, for instance, resulted in ASEAN assuming the reins of the new multilateral platform by default. A similar scenario may well repeat itself to ASEAN’s benefit.

But going forwards it is likely that ASEAN will find such opportunities rare as major power rivalry intensifies and the major powers create networks aimed specifically at their own interests. For example, some observers have highlighted the potential for China to extend its influence southwards through the LMC mechanism — this may pose the risk of deepening divisions within ASEAN. Likewise, the Quad, even with the debates surrounding its sustainability, reflects the priority concerns of its four members that may not necessarily dovetail with ASEAN’s.

Whether ASEAN retains its position as the hub of regional multilateralism largely depends on the extent it can come across as a credible independent actor. Declarations that ASEAN does not wish to choose between China and the United States must be backed up with the capacity that actually allows ASEAN the option of not choosing.

A starting point towards acquiring this capacity is to strengthen the cohesion among ASEAN member states. The aim should be to prevent another instance of ASEAN failing to agree on…

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Meeting the challenge of China’s changing population

An elderly woman walks with a stick along a street in downtown Beijing, China 30 July, 2019 (Photo: Reuters/Lee).

Authors: Xiaoyan Lei, Peking University, and Chen Bai, Renmin University

The shrinking demographic dividend and managing an ageing population are now major challenges to China’s economic development. According to the most recent population projections released by the Population Division of the United Nations, World Bank and China’s Population and Development Research Center, the ageing of China’s population will have four main characteristics in the coming years.

First, the elderly population will enter a period of sustained high growth, especially after 2030 when the average annual growth of the population aged 65 or above will exceed 11.2 million. In 2050, the number of people over 65 is expected to exceed 400 million, close to one-third of the population. At that time, about 10 per cent of all households will have at least one member over 65. The proportion of the elderly in China will not only be higher than the average for OECD countries, but twice that of less developed countries.

Second, the growth of the elderly population will gradually transition from the young-old (60–80) to the oldest-old (over 80). While the proportion of the young-old is decreasing year by year, the growth rate of the oldest-old can be expected to increase. Around 2050, the number of the oldest-old will reach 144 million and exceed the total number of oldest-old in Europe and North America.

Third, the total dependency ratio will continue to increase and will reach about 73 in 2050. That is, every 100 people of working age will need to support 73 people, including 22 children and 51 individuals aged 65 above. At that time, China’s total dependency ratio will be 32 points higher than it was in 2018 at 41.

Fourth, by around 2030, the old-age dependency ratio will be greater than the child dependency ratio. This means the obligation of care for the elderly is increasingly becoming the main burden for the working-age population. By 2050, the old-age dependency ratio in China will have risen to 49.9, which is 6 points higher than the average level of the OECD countries.

The decline in household size in China is occurring primarily because of the country’s demographic transition. The country’s average household size started to decrease in 1982 when strict family planning policies were launched. Since then, the average family size has continued to drop, from 4.4 in 1982 to 2.89 in 2015. Over the next 30 years, China’s average family size will decrease to 2.51 and the downtrend will be most dramatic in rural areas.

Correspondingly, there will be unprecedented growth in the number of elderly individuals living alone. The number of ‘empty-nest elderly’ suffering from insufficient care and companionship from family members is projected to increase from 17.5 million in 2010 to 53.1 million in 2050.

In general, there are two mechanisms through which population ageing is likely to affect economic growth in China. The first mechanism is the decreasing supply of labour. With a low overall fertility rate, the ever-expanding population of people over age 65 will continue to compress the growth of the working-age population. By 2050, the number of working-age people will fall by about 200 million.

While delaying the retirement age somewhat alleviates the problem of a shrinking labour supply, older workers are not perfect substitutes for younger workers and productivity per worker may decrease.

The second mechanism is the effect of ageing on savings and investment growth. A growing elderly population tends to reduce the savings rate as savings become the source of spending. As a result, it will be difficult for China to maintain high levels of domestic savings. A larger ageing population will also lead to an increase in government spending, especially on health care, pension security and other welfare benefits.

The resources available for productive investment will reduce, which will ultimately affect economic growth. Private consumption may also weaken. This might drive down aggregate demand and the incentive for businesses to invest.

The Chinese government will not only have to promote the reform and innovation of its social security system, but also address urgent issues such as building a long-term care system and providing medical security for ageing workers. It is also necessary to make full use of modern technology to improve the utilisation and efficiency of human resources and to cope with the challenge of a shrinking future labour supply.

The practical results of the ‘universal two-child’ policy launched in 2015…

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