March 12, 2021 – Stealth War Newsletter 28

China concluded its annual “Two Sessions” meetings of the Chinese People’s Political Consultative Conference (CPPCC) and National People’s Congress (NPC) on March 11. A draft of the 14th Five Year Plan (FYP) released last Friday included a conservative GDP growth target of above 6 percent for 2021 and reined in its central government budget deficit to 3.2 percent, down from 3.6 percent last year—signalling a willingness to face austerity as the government implements sustainable development measures likely to hurt economic growth in the short-run. The IMF has predicted that China’s GDP will grow at 8.1 percent in 2021.

The opening session of the NPC also included a defense budget increase of 6.8 percent, with the Center for Strategic and International Studies China Power team noting that this marks only the third yearly increase in the past decade. Military spending as a percentage of overall government spending will be at a several-year high, demonstrating the government’s prioritization of military modernization. One top Chinese general said at a military session during the NPC that China must boost its capabilities “facing the ‘Thucydides Trap’ and border disturbances,” referring to the inevitable conflict between a rising power and an established power as well as increased tensions along China’s border with India and in the East and South China Sea.

The announced defense budget does not include research and development of new weapons and does not include spending on quasi-military bodies such as the People’s Armed Police (PAP) and the China Coast Guard. Like many countries, China’s defense spending is opaque, but foreign estimates have put China’s real defense spending in past years at 40 percent higher than official numbers, with the U.S. Department of Defense stating that China’s actual yearly spending could be higher than $200 billion. The draft 14th FYP also included targets to increase spending on research and development by 7 percent each year from 2021 to 2025, underscoring the government’s drive towards self-reliance in science and technology.

Stock markets in China have undergone a volatile week. The Shanghai Stock Exchange plummeted five percent to its lowest value since December 2020, while the Star 50 and CSI 300 dropped nearly eight percent over the past five days. Amid the COVID-19 pandemic, stock market watchers have feared the incidence of a stock bubble in China’s markets. The central bank has been wary of fueling another stock bubble. Authorities first signaled monetary tightening ahead of the Lunar New Year when it abruptly reduced liquidity from the financial system. The rollout of COVID-19 vaccines worldwide and a slow return to normalcy from the pandemic has also caused stock traders to move from technology stocks back to more traditional sectors. Investors closely watched the National People’s Congress (NPC) for signals on the central government’s monetary policy and its impact on stocks. At the 14th NPC, authorities set a relatively unambitious GDP growth target at six percent. The conservative goal gives authorities greater ability to control the stock market without pressure to meet a high growth target, such as limiting lending. Consequently, experts believe that the stock market will continue to fall in upcoming days in response to NPC developments. On Tuesday, China appeared to have blocked “stock market” and other related terms on popular microblogging platform Weibo. In addition, major financial newspapers did not report the drop in stock prices. The hush in news over the stock market signals the Chinese government’s efforts to prevent the situation from escalating with public panic.

The 14th Five-Year plan passed Thursday NPC contained a controversial provision likely to further deteriorate relations with India. The plan approved the construction of a hydropower dam on the Brahmaputra River, known traditionally in Tibet as the Yarlung Zangbo, near the border of the northeastern Indian state of Arunachal Pradesh, which China claims as “South Tibet.”

This is not the first dam that China has built on the Brahmaputra. About a dozen are currently operating on the river, with more under construction. But, according to Indian strategist and water security expert Brahma Chellaney, those earlier dams are located in the upper reaches of the river. The new dam approved on Thursday would be located closer to the Sino-Indian border, giving Beijing greater control of the transboundary flow of water.

The plan has raised anxieties in India and Bangladesh that China will use this dam and others as a coercive tool of influence during times of heightened tensions. These worries come from Chinese actions in recent years. During the 2017 stand-off at Doklam, China ceased sharing hydrological information with India, which during the monsoon season is vital for flood control and planning. The episode convinced many in New Delhi that Beijing would use water as a weapon during future periods of tension. Furthermore, the Institute for Defence Studies and Analyzes, an Indian think tank, published a report in 2018 stating that the dams currently operating on the Brahmaputra are large enough to operate as storage dams, meaning that China could freely control water flow down the river.

In response to China’s plans, Indian government officials have floated the idea of creating a 10-gigawatt dam in Arunachal Pradesh. If completed, the move would likely only be the beginning of a long-term competition to secure water resources in a region with a rapidly growing population and engaged, in the case of India and China, in a border stand-off that have negatively affected relations.

This week, the Biden administration released new restrictions on companies’ ability to Chinese telecom giant Huawei. The change reportedly limits export licenses, potentially disrupting existing agreements between some businesses and Huawei. The new rules place restrictions on companies wishing to export components like semiconductors, antennas and batteries to Huawei for purposes of 5G related devices. The restrictions continue policies from the Trump Administration, which targeted Huawei’s chip and other technical components suppliers.

U.S. bans and restrictions have caused the company to lose market share in international markets last year, a new report found. Huawei remains the third-largest cellular equipment provider in the world, behind rivals Ericsson and Nokia but lost two percent of the share of global revenue when excluding China.

In a speech delivered earlier this year, Huawei’s founder Ren Zhengfei admitted that Huawei would have to adapt to a changing legal landscape by pivoting to other business strategies. In the wake of the U.S.’s campaign against Huawei, other countries have joined suit including the U.K. and Australia and several other European countries.

Huawei is not just being assailed by Western powers, however, as it was revealed this week that India was bent on enacting legislation that would prohibit Huawei from supplying devices and technology to the country’s largest mobile carriers, some of whom currently use Huawei technology.

In its first 100 days, the Biden administration has begun to indicate its foreign policy goals in Asia through upcoming high-profile diplomatic meetings with its allies as well as China. Today, President Biden met with the leaders of Australia, Japan and India. The informal Quadrilateral Security Dialogue, or the “Quad,” mechanism first came into form following the 2004 Indian Ocean tsunami, but went into hibernation in 2015 following pressure from China. However, the Quad relationship has grown since 2017 as Beijing has become increasingly aggressive on the world stage.

In today’s meeting, top agenda items included COVID-19 vaccine accessibility, 5G network developments and the rare earth supply chain security, in addition to regular maritime security cooperation. The four countries had previously conducted joint military exercises in the South China Sea. The meeting is a signal of the Biden administration’s commitment to work with Indo-Pacific allies to counter the rise of China.

In addition, the United States and China have recently confirmed an upcoming meeting between top envoys on March 18 in Anchorage, Alaska. U.S. Secretary of State Antony Blinken and National Security Adviser Jake Sullivan will meet with top Chinese diplomat Yang Jiechi and State Councillor Wang Yi. Chinese Premier Li Keqiang lauded the summit as an opportunity for both sides to find common ground in a conciliatory statement, while Blinken took a more assertive approach reaffirming the United States’ commitment to its allies in the Indo-Pacific. Amid rising tensions, the U.S. and China have both indicated their hope to collaborate on common issues.

Want to change how you receive these emails?
You can update your preferences or unsubscribe from this list

The Jamestown Foundation 
1310 L St. NW, Suite #810, Washington, DC 20005
202-483-8888 (phone) – https://www.jamestown.org.