Financial Times Europe - 26.08.2019

(Axel Boer) #1
4 ★ FINANCIAL TIMES Monday26 August 2019



In one of China’s poorest provinces,
mountainous Guizhou, millions of lives
have been transformed by an unprece-
dented infrastructure spending spree.
At Evergrande Happiness Number 33
Village — named after the now highly
indebted real estate company that built
it — several hundred farmers were per-
suaded two years ago to leave the corn-
fields and mud-floored homes of their
ancestral hamlets and move to the
newly constructed settlement.
Along with the change of housing
came the promise of jobs in a booming
construction sector. Infrastructure
investment in Guizhou has grown
20 per cent annually over the past five
years with the state adding high-speed
railways, nearly half of the world’s 100
tallest bridges and amotorwaynetwork
to rival France’s.
“The houses are good but there is no
work to do in the village,” said Yan
Hengfu, a resident of the Evergrande
settlement. “So the men have to find
part-time jobs in construction.”
Today, however, the surge in govern-
ment infrastructure investment that
brought this new prosperity is under
threat. After being an important driver
of Chinese economic growth and jobs
over the past decade, national infra-
structure investment growth has fallen
to historic lows. It grew 2.8 per cent year
on year in July compared with 17 per
cent the same month just two years ear-
lier, according to official statistics.
The drop in infrastructure invest-
ment is part of the reason China’s GDP
growth is slowing. The economy

expanded 6.2 per cent year on year in
the second quarter, itsslowest pacein
nearly 30 years. That has ramifications
for the global economy.
While the US’strade warwith China
has weighed on exports and consumer
sentiment, most economists agree that
the slowdown is a result of Beijing’s bat-
tle to keep debt levels under control.
“Slower growth may become the new
norm of China’s infrastructure invest-
ment,” said Betty Wang, a China econo-
mist at Australian bank ANZ.
Infrastructure spending is generally
funded by the issuance of local govern-
ment bonds that are mostly bought by
state banks, helping to push China’s gov-
ernment debt up to 73 per cent of GDP
last year, according tothe IMF.
Beijing has responded by clamping
down on debt issuance. The downside
has been slowing infrastructure spend-
ing. Last year, fixed asset investment
growth slowed to 0.7 per cent year on
year from 5.7 per cent in 2017.
The change was “largely due to
weaker infrastructure investment amid
the tightening of local government
investment vehicles”, according to Louis
Kuijs of Oxford Economics, a consul-
tancy. He added that Beijingstabilised
total debts in the economy last year.
The ratio of total government debt to
GDP in Guizhou was the highest in
China last year at 170 per cent, accord-
ing to Houze Song of the Paulson Insti-
tute, a US think-tank.
But many of the investments are loss-
making as the revenueis less than their
cost of borrowing. Losses last year were
equivalent to more than 12 per cent of
Guizhou’s GDP, Mr Song estimated.

“Guizhou’s investment has been way
ahead of its needs. There is a large gap
between the supply of infrastructure
and the demand,” said Mr Song.
While few expect Beijing to allow a
province such as Guizhou to go bank-
rupt,the central government has sent a
clear message to slow the issuance of
new debt at a local level throughout
the country.
As a result, infrastructure investment
last year has contracted in some regions.
In theprovince of Hunan, one of the
worst hit in China, officials said infra-
structure spending fell 5 per cent year
on year in the first half. In contrast,
infrastructure investment in Guizhou
grew 12 per cent year on year in June —
butwas down 17 per cent from a year
before, according to government data.
In the face oftrade war, Beijing has
announcedfiscal support for the econ-
omy, increasing the quota for local gov-
ernments to issue “special” bonds for
infrastructure projects by Rmb800bn
($113.2bn)this year, while the central
government has vowed more invest-
ment inrail, road and water
projects. But the central government
has signalled there will be nofurther
quota increasesand has introduced tax
cutson local government revenues.
ANZ’s Ms Wang said there was a
shrinking number of projects with good
returns for officials to choose from,
while Beijing remained concerned
about local government debt. “These
factors provide little incentive to local
governments to actively promote infra-
structure projects as officials fear they
could be putting their political careers
at risk,” she said.

Infrastructure investment

downturn hits China regions

Move by the authorities to restrain debt issuance has slowed spending


Hong Kong police used water cannon
for the first time and fired tear gas at
protesters as the political crisis afflict-
ing the Asian financial hub for months
turned violent for a second consecu-
tive day.

Protestersyesterday afternoon blocked
roads and hurled petrol bombs at police
hours after family members of the
police held a separate rally elsewhere in
the city. They called on Carrie Lam, the
city’s chief executive, to formulate a
political solution rather than relying on
the police to quell the movement, as the
force has become a target of anger for its
handling of the crisis.
Ms Lam’s push to pass an extradition
billto allow criminal suspects to be sent
to mainland China for the first time
sparked the protests in June.
The proposed law has been sus-
pended but the demonstrators’ griev-
ances have expanded to encompass a
range of demands, including an
investigation into the police’s handling
of the protests and greater democratic
freedoms in the Chinese territory.
A rally on Saturday also ended in vio-
lent clashes with police saying they had
arrested 29 people after alleging that
protesters had thrown projectiles and
started fires. Ms Lam had attempted to

take advantage of the lull in violence
over the previous week to consult with
power brokersat her official residence
on Saturday to determine how to set up
a dialogue with the protesters.
“The past week was a little calmer
and we’d like to take this opportunity to
start the conversation,” she said.
But the meeting came after a long
periodwhen she has refused to grant
anyconcessions or present any substan-
tive plan in public to deal with the crisis.
Theunrest has raised questions about
the“one country, two systems”model
established after the handover of Hong
Kong from British to Chinese sover-
eignty, which granted the territory a
high degree of autonomy from Beijing.
A seminar held at the weekend in
Shenzhen of officials from Hong Kong,
mainland China and academics
from official think-tanks saw a further
ratcheting up of rhetoric from Beijing.
Maria Tam, a Hong Kong official and
member of the National People’s
Congress,said: “The soldiers stationed
in Hong Kong are not strawmen meant
to just stay in the garrison, they are an
important part of the ‘one country,
two systems’.”
Xu Ze, president of the Chinese Asso-
ciation of Hong Kong & Macau Studies,
an official think-tank, said the “persist-
ent violent activities” in Hong Kong
threaten China’s national interests.


Two Israeli drones have crashed in Bei-
rut with one exploding next to an office
belonging to Hizbollah, according to
the Iran-backed Shia paramilitary
group as well as Lebanese officials.

Israel has not commented on the
drones, which fell in the Hizbollah-
dominated district of the Lebanese capi-
tal earlyyesterday morning. But the
crash came shortly after Israel con-
firmed it had bombed Iranian forces
insideSyria, foiling whatPrimeMinister
Benjamin Netanyahusaid would have
been “an attack against Israel”.
Israel’s military said on Saturday
night that it had prevented “multiple
killer drones” from attacking Israel “by
striking Iranian Quds Force operatives
and Shiamilitia targets in Syria”.
Iran, which Israel and the US accuse of
spreading its influence in the Middle
East through armed proxy groups such
as Hizbollah, has a military presence in
Syria, where it supports the ruling Assad
regime in Syria’s eight-year civil war.
The air strikes and drone activity are
the latest signs that the proxy war
between Israel and Iran is heating up.
Unconfirmed reports that Israel has also
attacked Iran-backed Shia militias in
Iraq in recent weeks have stoked fears
that Lebanon and Iraq could be drawn
into the conflict.

Saad Hariri, the Lebanese prime min-
ister, saidyesterday that the Israeli air-
craft had violated Lebanon’s sover-
eignty. Israel has frequently targeted
Hizbollah inside Lebanon, which shares
a border with Israel.
The first Israeli drone fell in Beirut’s
southern Dahiyeh suburb without caus-
ing damage, while the second exploded
nearby in mid-air, according tothe Leb-
anese army. The explosion damaged a
building housing Hizbollah’s media
operations. “Hizbollah did not bring
down any aircraft,” said Mohammad
Afif, Hizbollah’s spokesperson.
Three people suffered minor injuries,
the Lebanese National News Agency
The Israeli bombing in Syria on Satur-
day night south-east of Damascus came
just days after unnamed US officials told
the Associated Press that Israel was
behind a series of strikes against Iranian
proxy groups in Iraq.
Syrian state media said air defences
intercepted incoming missiles. There
were no confirmed casualty reports.
Mr Netanyahu said: “Iran has no
immunity anywhere. Our forces oper-
ate in every sector against the Iranian
Yoav Galant, a former general and
member of Mr Netanyahu’s cabinet,
said yesterday Israel “will not allow”
Iran to use Syria to “transfer balance-
changing weapons to Lebanon”.


Globalisation has stalled over the past
decade, so it should not be blamed for
the rise in inequality seen since the
financial crisis, new research by the
OECD’s former chief economist said.

Catherine Mann, now global chief econ-
omist at Citi, said her research, pub-
lished by the investment bank yester-
day, showed that global integrationhad
peakedaccording to many measures
some time ago.
With public opinion becoming
increasingly hostile to globalisation,
even its proponents have started to pay
more attention to its illeffects. World
leaders including US president Donald
Trump and some economists have
blamed globalisation and international
trade for rising inequality and job losses
in many industries.
But Ms Mann’s research supports the
argument that globalisation makes
countries richer in aggregate, and prob-
lems arise because governments fail to
share the gains fairly or to compensate
those who lose out.
Technology and the shift in consump-
tion from goods to services have played
a bigger part in the loss of manufactur-
ing jobs in advanced economies than
globalisation has, the report found.
“People do not realise that we have
been in a decade of treading water with

regard to globalisation,” said Ms Mann.
“Global growth has returned to its pre-
financial crisis rate, yet inequality has
increased and productivity is still mori-
bund... We need to look at a different
story for why.”
Trade’s share of global output rose at
an increasing pace from the 1980s
onwards, but stalled towards the end of
the past decade and has since fallen
back, the research showed, mirroring
the breakdown of multilateral trade
agreements and theprotectionist meas-
ures that countries are putting in place.
Global supply chains have also begun
to unravel, according to an OECD meas-
ure of cross-border independence that
has fallen since 2011. This may be due to
concerns that supply chains had
become too vulnerable to disruption
and to reputational risk when workers
in poor countries are exploited.
The world’s retreat from globalisation
will lead to “a smaller [economic] pie,
more poorly distributed”, Ms Mann’s
report concluded.Governments should
aim to boost trade in services and open
up fast-growing emerging markets,
rather than closing markets in
advanced economies, shesaid.
The retreat from globalisation is not
confined to trade in goods and services.
Financial integration also peaked in
2007 on several other measures,
according to Ms Mann.

Political crisis

HK police use water cannon

for first time on protesters

Middle East tensions

Drones crash in Beirut district

dominated by Hizbollah


Globalisation not to blame for

rise in inequality, says report

The drop is
part of the

reason GDP
growth is

slowing —
6.2% year on

year in the

quarter, the
slowest in

nearly three

Bridge in
Sichuan under
spending is
funded by
issuance of local
bonds that are
mostly bought
by state banks
STR/AFP/Getty Images


The last time Jennetgul Tursun spoketo
her sister Zinnetgul, an ethnic Uighur
held in a Turkish detention centre, Zin-
netgul voiced fears she would be
deported to China along with her two
young daughters.
Within two weeks, the familywas
handed over toChinese authorities,Ms
Tursun said, a case that has stoked
alarm among the sizeable Uighur
diaspora in Turkey thatit is no longer
the haven it has been for decades.
Outside China, Turkey hosts one of
the largest populationsof Uighurs, a
Muslim ethnic group who have faced a
severesecurity clampdownin their
native Xinjiang province.
An estimated 1.5m Uighurs and other
mostly Muslim minorities have been
confined to Chinese internment camps,
where human rights groups say they are
forced to renounce their faith, and
scores have disappeared. Beijing
defends themove as necessary to fight
Unlike most Muslim countries, which
have been silent or supportive of Bei-
jing’s policy, Turks have rallied around

the Uighurs, with whom they share a
related language.Ankara in February
urged China to close the camps, describ-
ing them as a “shame for humanity”.
Yet there are mounting fears among
Turkey’s 30,000-strong Uighur com-
munity that this commitment is weak-
ening, and that Ankara is willing to put
aside its differences with China to
expand economic ties.
Activists say Beijing is exporting its
Xinjiang campaign by pushing other
nations to return Uighurs who have fled.
“We know China is pressuring Tur-
key,” said Seyit Tumturk, head of the
East Turkestan National Assembly, a
Uighur rights group. “Uighurs in Turkey
are on a knife’s edge.”
Turkey has turned to China for cash
as its economy has slowed over the past
year, including a $3.6bn loan from a
state-run Chinese bank in 2018.
Bloomberg reported that China’s central
bank transferred $1bn in June to boost
Turkey’s foreign exchange reserves.
During a visitin July to Beijing, Turk-
ishpresident Recep Tayyip Erdogan was
quoted by Chinesemedia as backing his
host’s policies in Xinjiang,but his office
reportedly refuted the translation.
The meeting withXi Jinping took
place as Turkey’s western allies fretit is
aligning itself more closely with Beijing,
and Moscow, amid a widening rift with
the US.
Sean Roberts, a director atGeorge
Washington University’s Elliott School

of International Affairs, said: “Turkey is
less confident of its relationship with the
US, and the Chinese are providing an
Hundreds of Uighurs are being held
in Turkish refoulement centres, and
40 others have lost their residency in
recent months,say activists. Turkish
authorities have not released figures.
“We do not send anyone back to China
if they face [persecution],” said Turkish
interior minister Suleyman Soylu,who
oversees immigration policy. He said
Turkey had given long-term residency
to about 11,000 Uighurs since 2018, part
of a liberal asylum policy that has made
it thebiggest recipient of refugees.
In the case of Zinnetgul Tursun, she
was accused of terrorism anddeported
to Tajikistan after its authorities
claimed she was a citizen, Mr Soylu said,
promising an investigation into her case

and noting that one incident does not
reflect a change in Turkish policy.
Deportees who wereon her plane to
the capital Dushanbesaw her and at
least six other Uighurs handed over to
Chinese officials at the airport, accord-
ing to Jennetgul Tursun. International
law forbids sending people to countries
where they risk being persecuted.
Abuduani Abulaiti, 42, aUighur who
arrived in Turkey in 2013, was ordered
to leavelast month after his residency
application was rejected.Officials have
assuredhim he will not be deported to
China, but hefeared Beijing’s “power
and money” would sway Turkey. Two of
his brothers are being held incamps;
a third has been missing for two years.
Most western nations have said they
will not deport Uighurs, but a handful
have still ended up in China.
A diplomaticdivide emerged at the
UN last month, when 22 western coun-
tries signed a letter criticising Beijing’s
campaign. That was answered by a note
from 50 nations, including Saudi Arabia
and Pakistan, backing China. Turkey
did not sign either letter.
China’s effort to line up countries to
support it in the face of western criti-
cism over human rights abuses in Xin-
jiang has become a “bellwether for a
shifting global order”, saidMr Roberts.
“If Turkey was to recognise that
what’s happening in China is not a mass
human rights violation, that would be a
huge win for China,” he said.

Xinjiang conflict.Diaspora impact

Deportation stokes fears for Turkey’s ethnic Uighurs

Concerns grow that Ankara

will prioritise deepening of

economic ties with Beijing

Uighurs in the Turkish capital mark
10th anniversary of Urumqi uprising

Why the US has
a lot to lose in a
tech war with

              

RELEASED BY "What's News"

confined to Chinese internment camps,

RELEASED BY "What's News"

confined to Chinese internment camps,
where human rights groups say they are

RELEASED BY "What's News"

where human rights groups say they are
forced to renounce their faith, and

RELEASED BY "What's News"

forced to renounce their faith, and
scores have disappeared. Beijing

RELEASED BY "What's News"

scores have disappeared. Beijing
defends the

RELEASED BY "What's News"

defends the

RELEASED BY "What's News"

Unlike most Muslim countries, which

RELEASED BY "What's News"

Unlike most Muslim countries, which
have been silent or supportive of Bei-

RELEASED BY "What's News"

have been silent or supportive of Bei-vk.

Unlike most Muslim countries, which

Unlike most Muslim countries, which
have been silent or supportive of Bei-have been silent or supportive of Bei-vk.


defends the


defends the

Unlike most Muslim countries, whichUnlike most Muslim countries, whichcom/w
have been silent or supportive of Bei-

have been silent or supportive of Bei-


scores have disappeared. Beijing

scores have disappeared. Beijing
defends thedefends thesnwssnwsmove as necessary to fightmove as necessary to fight


where human rights groups say they are


where human rights groups say they are
forced to renounce their faith, and


forced to renounce their faith, and
scores have disappeared. Beijing


scores have disappeared. Beijing
move as necessary to fight


move as necessary to fight


Unlike most Muslim countries, which


Unlike most Muslim countries, which
have been silent or supportive of Bei-


have been silent or supportive of Bei-
jing’s policy, Turks have rallied around


jing’s policy, Turks have rallied around
Free download pdf