"Virtual Control": Why China wants to be #1 in digital currency, 58 countries unite against hostage diplomacy & Beijing constructs the illusion of reincarnation in Tibet -- China Boss News 2.22.21
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"Virtual Control": Why China wants to be #1 in digital currency
Financial Times had the best scoop on the Chinese government’s Lunar New Year trials of the “e-yuan” last week in “Virtual control: the agenda behind China’s new digital currency” :
Authorities in several cities have given away tens of millions of renminbi as new year “red packets” that can be downloaded on to a smartphone.
…China is intent on becoming the first large economy to introduce a digital currency, showcasing its position as the global leader in payments technology to the world at next year’s Winter Olympics.
The report is great because it lifts the sheen off the China blockchain hype that permeates fintech news to get at why the Chinese government is so obsessed with issuing its own digital currency, despite concerns over the potential downsides of a cashless society, like increasing household debt and the marginalization of millions of individuals who may not have access or know-how to fully participate an internet economy. Normally cautious with monetary reforms, China is running full-steam ahead with its plans to introduce a national digital currency for the following reasons:
China wants to control cryptocurrency trading to stop capital flight
According to an August 2020 CNBC report, Chainalysis, a blockchain forensics firm, revealed that $50 billion of cryptocurrency moved out of China in the previous year hinting at capital flight against Beijing’s rules:
Chinese citizens are only allowed to buy up to $50,000 of foreign currency a year at a financial institution. In the past, wealthy citizens have circumvented the limit through foreign investments in real estate and other assets. But the government has cracked down on these methods…Cryptocurrency could be picking up some of the slack …
In a 2019 Forbes article “Bitcoin is all about Chinese capital flight,” Bryan Rich wrote:
[W]ith …an outlook of a worsening economy, the Chinese people will use any means possible to get money out of China.
… [I]n 2017, China cracked down on the capital flow exodus… the Chinese then discovered Bitcoin. The value skyrocketed from $1k to over $19k. China cryptocurrency exchanges were said to account for 90% of global bitcoin trading.
But in late 2017, the Chinese government cracked down on Bitcoin — banning cryptocurrency exchanges. That set off [a] crash, from $19k to $3k.
But even though China believes its e-yuan can compete with cryptocurrencies despite the loss of features that make cryptocurrencies appealing, like anonymous trading in unlimited transactions with others around the globe, that’s far from clear. According to Bloomberg, even if China’s digital currency takes off nationally, the government may still not allow it to move across borders - though “there could be great appeal for a secure international payment method with instantaneous transfers” - but only for those who don’t include digital privacy in the definition of security, as we’ll see below.
China also wants to reassert state control over fintech
Beijing’s timetable for popularizing the e-yuan “by running city-level trials this year and next, having it ready for use by the time it hosts the Winter Olympic Games in late 2022” not only puts it “far ahead of a long tail of national governments that are starting to experiment with the idea,” but has huge ramifications for Chinese fintech companies, also. Analysts interviewed by FT say:
…In trials so far, users have been able to withdraw e-yuan via ATM machines on to their smartphones’ e-wallets. Then they pay for items by holding their smartphone app close to an e-yuan point-of-sale device. Such a system represents a clear alternative to Alipay and WeChat Pay, which are estimated to have a combined worldwide active user base of around 1.9bn.
They also note that the Chinese government is already using its enormous state media apparatus to promote the e-yuan over other alternatives:
In a dispatch from the streets of Beijing during Chinese new year, a reporter from CCTV, the official television station, said that using the e-yuan was “more convenient” than other payments systems.
And a director at a large state-owned bank noted:
The digital currency will deal a blow to Alipay and WeChat as it could replace them. It is likely that the government will use administrative power to promote the use of digital renminbi to undermine the monopoly on consumer data held by the technology firms.
So, the move can be seen as, yet, another effort to reduce the dominance of private actors in the digital payment space.
And China wants to reinforce its surveillance state
But before getting caught up in the festivities leading up to the launch of China’s e-yuan at the 2022 Winter Olympics in Beijing, do keep your eye on the government’s Orwellian ball. From Financial Times:
The “e-yuan” … is issued and regulated by the central bank and its status as legal tender is guaranteed by the Chinese state. Its digital format enables the central bank to track all transactions at the individual level in real time.
Beijing aims to use this feature to combat money laundering, corruption and the financing of “terrorism” at home by strengthening the already formidable surveillance powers of the ruling Communist party.
Emphasis added.
But the ramifications of the latter are truly extraordinary, as Samantha Hoffman at the ASPI told Financial Times:
Requirements like anti-terrorist financing or anti-money laundering are normal for central banks, but what is different in China is who is scrutinised. The definition of a terrorist includes the party’s political opponents.
And, in their report last month for the Centre for a New American Security, a Washington-based think-tank, Yaya Fanusie and Emily Jin opined:
If the central bank can successfully roll out the digital renminbi, it indeed would be a crucial tool for domestic control. People could still try to circumvent the monitoring capability of [the currency], but… that would be incredibly difficult given that the system would allow the central bank to track real-time transactions.
That is to say, China’s race to be first in digital currency is the aim of a regime on the cusp of totalitarianism and not the kind of race democratic and freer societies should want to run.
Law and International Xi
Fifty-eight countries back Canada’s “Declaration Against the Use of Arbitrary Detention in State-to-State Relations”
A total of fifty-eight countries have signed a Canadian-led initiative to denounce the practice of countries detaining each others’ nationals for political leverage in international relations in a move widely seen as targeting countries like Iran, Russia, and China. Canadian Foreign Minister Marc Garneau said in a statement:
Today, a quarter of all countries, from all continents, come together to tell those who are being arbitrarily detained for diplomatic gain that they are not alone — we stand with them. This illegal and immoral practice puts citizens of all countries at risk and it undermines the rule of law. It is unacceptable and it must stop.
On February 5th, Chinese officials formally arrested Australian television anchor Cheng Lei on national security charges after holding her for months without charge. Canadians Michael Spavor and Michael Kovring have been held since December 2018 after the Vancouver arrest of Huawei Technologies Co.’s Meng Wanzhou over a U.S. extradition request.
In a February 15 press release, US Secretary of State Antony Blinken announced US support of the initiative:
Human beings are not bargaining chips. The United States wholeheartedly endorses this declaration and calls on all like-minded countries to work together to pressure the nations that engage in such detentions to put an end to this practice, to release those detained under such conditions, and to respect the rule of law and human rights.
Beijing quickly expressed its “strong dissatisfaction” in a statement Tuesday:
The Canadian side’s attempt to pressure China by using ‘Megaphone Diplomacy’ or ganging up is totally futile and will only head towards a dead end.
Maybe so. But it’s equally plausible that like-minded governments are testing the waters for more decisive action against China’s human rights abuses, like calling for a boycott of Beijing’s 2022 Winter Olympics, for example.
Geopolitics
Xi’s all-or-nothing gamble: China moves for more control over BRI in Pakistan
The China-Pakistan Economic Corridor (CPEC), and, in particular, Gwadar port city hold enormous geopolitical significance similar to that of the South China Sea. Gwadar, a port city in the region of Baluchistan that is owned and operated by a Chinese firm is the focal point of President Xi Jinping’s CPEC vision and could even be a future site for the next PLA overseas base. However, the port’s most important quality is its geographic position that provides China with highly-prized access to the Indian Ocean which hosts a crucial maritime route connecting Asia with Europe - one that is pivotal for the worldwide supply of energy.
China has sunk billions of dollars over decades to build a road from China’s Xinjiang to Gwadar Port. But now that the port is finally partly operational - Chinese cargo is already being transported overland to Gwadar - Baluchistan separatists threaten the lives of Chinese workers and Prime Minister Imran Khan’s apparent ambivalence towards CPEC has resulted in delays on additional reinforcement and logistics, throwing one very large wrench in President Xi’s plans.
Nevertheless, experts believe that China wants to make CPEC work at all costs.
This past week, Li Zhanshu, the chairman of the National People's Congress of China, proposed the formation of a joint parliamentary oversight committee to tighten control over the speed and quality of China-Pakistan Economic Corridor (CPEC) projects, in a virtual meeting “held with Asad Qaiser, the speaker of Pakistan's National Assembly” and “[b]oth heads of parliament directed their secretaries to form the joint parliamentary oversight committee.”
Thus, it would appear that China has had enough CPEC dillydallying and is throwing its heavier weight behind getting things done, no doubt expecting to use the “joint” parliamentary oversight committee to execute CCP orders like it does back home in the one-party state. But such a thickheaded approach on the part of Chinese officials is likely to increase Pakistani opposition to CPEC, not tame it. Stay tuned for additional tension in this all-or-nothing geopolitical drama which is making it increasingly hard to fathom why President Xi has bet China’s future on such a wobbly BRI centerpiece in the first place.
The Week’s Best China Reads
China Blocked Jack Ma’s Ant IPO After Investigation Revealed Likely Beneficiaries (WSJ)
WOW. There’s even a flowchart. Incredible reporting from Lingling Wei, co-author of Superpower Showdown: How the Battle Between Trump and Xi Threatens a New Cold War and award-winning journalist at the Wall Street Journal, who’s precariously stationed in Beijing. A must read if you’re interested in Chinese politics or anything related to the “Shanghai faction.”
Has Angela Merkel's Germany given China too much leeway? (DW)
Excellent read to illustrate Germany’s current struggle over its relationship with China. Note that significant opposition to Merkel’s “pragmatism” does exist, but whether it will prevail over powerful business interests is another matter.
From the intro:
Debate has intensified about Angela Merkel's efforts to tighten ties with China. The question is whether Merkel ushered in an era of smart engagement — or one of dangerous dependency on an authoritarian superpower.
Middle Kingdom Surreal
Destabilizing “the authoritative circle”: How the CCP is constructing the illusion of reincarnation in Tibet
CNN’S Ben Wescott wrote a moving piece for CNN, “When the Dalai Lama dies, his reincarnation will be a religious crisis. Here's how it will happen.” I’m including it in this section rather than recommended reads due to Wescott’s detailed explanation of Beijing’s surreal attempt to replace Tibet’s 14th Dalai Lama, Tenzin Gyatso, with a CCP-friendly version after Gyatso’s death:
In recent years, Beijing has been selecting and grooming a group of senior lamas who are friendly to Beijing, and when the time comes to select the Dalai Lama's successor, they might make it appear that the Dalai Lama was chosen by Tibetan Buddhist religious leaders, rather than CCP officials.
Ruth Gamble, an expert in Tibetan religion at La Trobe University in Melbourne, Australia, says the Dalai Lama reincarnation process has been based on the steady building of religious authority over generations, as one lama recognized another's reincarnation, and then that lama in turn recognized his patron when they returned as a child:
Their authority lends authority to the next Dalai Lama and then that Dalai Lama gives them back authority by finding them when they're kids and that's what the Chinese government are trying to get themselves involved in, to destabilize that authoritative circle.
That the government will likely select a Dalai Lama “who is expected to support the ruling Chinese Communist Party's (CCP) control of the region” once the 14th Dalai Lama dies will inevitably lead to an even stranger situation - two separate new Dalai Lamas -- one in China and one in India:
At the moment, there are no official instructions laying out how the 14th Dalai Lama's reincarnation will take place, if he dies before returning to Tibet.
The Dalai Lama added that if he chose to reincarnate, the responsibility for finding the 15th Dalai Lama will rest on the Gaden Phodrang Trust, a India-based group he founded after going into exile to preserve and promote Tibetan culture and support the Tibetan people.
…One thing that has become increasingly clear is that the reincarnation is unlikely to take place in Tibet, an area the Gaden Phodrang Trust cannot even access -- especially after the contested reincarnation of the Panchen Lama in the 1990s.
Beijing’s far-reaching effort to disrupt the authoritative circle of the Dalai Lama’s reincarnation might make one wonder why Chinese authorities - who have sole political control over Tibet - would go to the trouble of grooming preferred candidates years in advance rather than ban reincarnation outright? But I think Noam Chomsky said it best when he described how totalitarian regimes historically rely on illusions for thought control:
Fabrication of necessary illusions for social management is as old as history … even a totalitarian state of the Hitler or Stalin variety relies on mass mobilization and voluntary submission.
Put another way, it’s more administratively advantageous for China, which appears to be on the verge of totalitarianism 2.0, to wield power using the illusion of legitimacy rather than by subjugating Tibetans to Chinese rule through overt acts of state oppression.
Greatest Hits (most popular posts)
My first 100K+ views of 2021: This post sharing an Aljazeera update on China’s unsteady northeast neighbor “Kim fires senior economic official amid deepening N Korea crisis” received an astounding 101,155 views. The look on Kim’s face when he heard the news - same as mine! :)
This excellent update from Nikkei Asia that I also use in my Geopolitics section feature story: “China moves for more control over Belt and Road in Pakistan” received 11,683 views.
A Reuters report I shared: “UK says it shares U.S. concerns over WHO COVID-19 mission to China” received 9,168 views.
China news in 2021 is already giving 2020 a run for its money. Wouldn’t expect any less. Have a great week, boss.