Lessons in Putin's war for China investors, "Impotence” in efforts to end war in Ukraine batters China's image & U.S. will impose travel bans on Chinese government officials -- China Boss News 3.28.22
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Lessons in Putin’s war for China investors
Sam Goodman, senior policy advisor at Hong Kong Watch and director of the forthcoming China Risks Institute, last week examined the "serious lessons" that Russia's invasion of Ukraine can offer for "U.S. financial institutions and their exposure to Chinese equities in a future crisis."
Goodman, Foreign Policy:
The escalating cocktail of targeted sanctions against individual oligarchs, de-listing Russian companies from Western stock exchanges, and freezing the Russian Central Bank’s assets overseas—mixed with the growing number of corporate boycotts—make it difficult to survey the current losses that U.S. financial institutions have incurred at the hands of Putin’s all-out gamble of war in Ukraine. However, an MSCI index tracking Russian stocks traded in London and New York is down more than 95 percent this year, and BlackRock has reported $17 billion in losses on its Russian-exposed securities.
Yet, the fact that the U.S. intelligence community’s warning of a Russian invasion in early December 2021 fell on deaf ears should serve as a cautionary tale for those investors who willfully ignore the prospect of Chinese President Xi Jinping ordering a military invasion of Taiwan.
Many of the same investors "were recently burned by Xi's surprise crackdown on Chinese technology and tutoring companies," Goodman added, especially those who held assets in funds managed by Goldman Sachs and Morgan Stanley - two banks with "substantial stakes in Chinese tutoring companies."
UC San Diego professor Victor Shih also recently highlighted the regulatory clampdown on China’s tech industry as an example of “unexpected and potentially devastating state interventions” in the Chinese market.
Shih, Atlantic Council:
Gaming, live-streaming, online fan clubs, and online tutoring were all multi-billion dollar industries where consumers in China and beyond sought entertainment and ways to improve their lives. Measures enacted by CAC [Cyberspace Administration of China] and other regulatory bodies in China resulted in catastrophic losses for some of these companies, while others have scrambled to revise their business models at great costs. This has led to enormous losses in Chinese wealth. Just Tencent, Alibaba, Pinduoduo, and Didi alone had lost close to 1 trillion dollars in market value since the beginning of 2021, only recovering about 20% of the lost value in the recent rally. Although a policy reorientation by FSDC is welcoming, it does little to reassure investors in the technology sector if a similar reorientation does not happen at CAC and other regulatory bodies, such as the State Administration of Market Regulation (SAMR).
More importantly for the future development of the technology sector in China, the Chinese regulatory system continues to be top-down. A change in the top leadership’s preferences or attention would lead to dramatic policy changes impacting listed companies and their investors. As generations of China scholars have noted, the power of China’s authoritarian government is “fragmented” into several major bureaucratic groupings. With dictatorial power at the top determining nearly all senior level promotions, leaders of these various bureaucracies vie with each other to gain the attention and favors of the top leadership. This power dynamic will continue to create incentives for mid-level ministers to respond immediately to the wishes of the top leadership without too much reflection on the impact of resulting policies on firms and individuals in China. Officials may even be incentivized to enact policies leading to underperformance by bureaucratic or political rivals. But in the process of doing so, companies face potentially catastrophic new regulatory requirements.
Emphasis added.
So, what are some of the “lessons” from Putin’s unlawful invasion of Ukraine that China investors can apply to President Xi Jinping?
Personal whims can become government policy overnight: Although there might be consequences later, Putin and Xi don’t need anyone’s permission to make an unexpected left turn and can renege on previously held commitments in an instant. These dictators have the power to make sole determinations about how resources are used and prioritized and can use national assets to support their own personal ambitions in spite of business interests.
No checks or balances: In the same vein, both, Putin and Xi lord over autocratic systems that have severed accountability and consensus from elite decision-making. This incentivizes reckless risk-taking at the top and degrades predictability in the business climate.
Developed countries are built on institutions that require a response to unlawful and egregious international behavior, especially unprovoked aggression: President Biden and European leaders are accountable to voters and subject to laws that guarantee national, regional and global security. As a result, there is greater chance of a clash between expansionist strongmen, like Putin and Xi, and leaders of liberal democracies.
For the rest of Sam Goodman’s piece in Foreign Policy, Ukraine Should Give Investors Second Thoughts on China, click here. For Victor Shih’s analysis for the Atlantic Council, Can one statement fundamentally calm market volatility in China?, click here.
Law and International Xi
“Impotence” in efforts to end war in Ukraine batters China’s image
China has been on the receiving end of growing criticism for not doing more to "press Vladimir Putin to stop the fighting in Ukraine, the New York Times has reported.
NYT:
Despite calls from other world leaders to play a more proactive role, China has instead tried to keep its distance. It has urged peace but not stepped up to mediate or organize talks, leaving such efforts to far smaller powers, including France, Turkey and Israel.
John Delury, a professor of Chinese studies at Yonsei University in South Korea, told the Times that China's reputation as rising power is at stake: “If Xi truly wants the crisis to end, then the flat-footed response testifies to China’s impotence in world politics, despite decades of rising to great power status," he said.
Times’ writers Steven Lee Myers and Chris Buckley also noted that China's refusal to criticize Russia "undermines its claim to be a neutral party, and has "hardened views toward it in Europe,” while, “[i]n Washington, officials view Mr. Xi’s position as duplicitous.” China’s slippery position in international organizations hasn’t won it any friends. either, the Times said.
NYT:
Last week, Xue Hanqin, China’s judge on the International Court of Justice, the United Nations’ top judicial body, joined a Russian judge in dissenting from a ruling last week calling for Russia to halt its military campaign in Ukraine.
In her dissent, Judge Xue wrote that a provisional ruling on Ukraine’s claim of a genocide unfolding would “not contribute to the resolution of the crisis in Ukraine.”
In other international forums, too, China has gone so far as to discourage multilateral peace efforts, dismissing an appeal by Ukraine to bring up the war for debate in the ministerial meetings of the Group of 20 major economies, being held this year in Indonesia.
Perhaps most damaging, however, have been the insensitive remarks from MOFA’s wolf warrior diplomats and China’s state-bolstered “experts” which, at the minimum are ill-considered, and can sometimes seem designed to thrash, both, Ukraine and Europe, in a time of unimaginable violence, loss of life and displacement.
NYT:
At a recent meeting of Chinese foreign policy and security scholars in Beijing to discuss the crisis in Ukraine, at least some concluded that there was “no urgency in bringing about an end to the war,” according to a summary of their discussion that was posted on a Chinese website. China also lacked experience in leading global negotiations, some of the scholars argued at the meeting organized by MacroChina, an economic research group based in Beijing. (The summary was later removed.)
“The war is sapping the national strength of the old powers of the United States, Europe and Russia,” the summary described the scholars as saying. “China needs to watch the fire from the opposite bank and stay out of the war.”
For the rest of the NYT’s report, China Takes a Back Seat in International Diplomacy Over Ukraine, click here.
U.S. will impose travel bans on Chinese government officials, State Dept says
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