Balloon blowup; PRC-Russia; Hong Kong trial; Real estate
Now that the balloon is down here are some of the things I think are worth considering going forward:
1. After Secretary of State Blinken cancelled his trip to Beijing he had a call with Wang Yi. Per the readout of the call Blinken said “he would be prepared to visit Beijing as soon as conditions allow”. What has to happen for “conditions to allow” a rescheduled visit? This is not just going to blow over here in DC so I think it will be hard for the US to simply reschedule without something viewed as concessionary from the PRC side. There is going to be excruciating political pressure on the Biden Administration to not reschedule the trip in the absence of some give from the PRC side.
2. The continuing claims from the PRC side that it was a “civilian airship used for research, mainly meteorological, purposes” do not seem credible, and if the salvage of the debris turns up even stronger evidence of a non-civilian nature and the PRC side continues to try to mislead about the nature of the balloon then I think that make it even harder for the US claim that conditions would allow a visit. If the US does find strong evidence of the non-civilian nature of the balloon it should share as much of the evidence as it can publicly, for reason I discuss in more detail in point 4.
3. If the PRC wants Blinken to reschedule his visit any time soon the statement from MoFA vice minister and likely soon to be ambassador to US Xie Feng is not at all constructive. I have pasted it in full because every word matters - China lodges representations with U.S. after unmanned airship shot down-Xinhua
Chinese Vice Foreign Minister Xie Feng on Sunday lodged solemn representations with the U.S. embassy in China over the U.S. use of force to attack China's civilian unmanned airship.
According to a statement issued by the Foreign Ministry on Monday, Xie stressed that the entry of the Chinese airship into U.S. airspace due to force majeure was totally unexpected and accidental, and that the ins and outs of what happened are crystal clear and clearly do not allow room for distortion or smearing.
However, the U.S. side has turned a deaf ear to all of this and overreacted by insisting on the abusive use of force towards the civilian airship that was on route to leave U.S. airspace, Xie said. This act has seriously violated the spirit of international law and international practice, he said.
"What the United States has done severely impacted and undermined the efforts and progress made by the two sides to stabilize China-U.S. relations since the two countries' leaders met in Bali, Indonesia," Xie said.
He said China firmly opposes and strongly protests against this, urging the U.S. side not to take further actions to harm China's interests and not to upgrade or expand tensions between the countries.
"The Chinese government is closely following the development of the situation, and will resolutely safeguard the legitimate rights and interests of the Chinese company concerned and safeguard China's interests and dignity, and reserves the right to further react in response to this matter, if necessary," Xie said.
4. I hope this is just bluster, and now that Xie has officially vented the PRC will try to back away from any further threats of action over the balloon. The PRC side is very sensitive to any idea that this balloon violated international law, as part of its global campaign to delegitimize the US involves pushing the idea that the US tramples international law while the PRC respects and upholds it. Yes I know the US does lots of spying around the world, and has overflown other countries without permission, the point is the PRC holds itself up as everything the US is not and this balloon incident, especially if it can be proven it is not a civilian airship, and in fact part of a global surveillance campaign, undercuts those claims. They of course also have to manage domestic views of this mess, and so in no circumstances can they admit fault; instead the balloon’s violation of US sovereignty was “force majeure” and then the US acted aggressively and victimized a wandering civilian airship.
5. Xie’s statement “resolutely safeguard the legitimate rights and interests of the Chinese company concerned” seems to hold out the possibility of requesting compensation for the blown up balloon. I find it hard to believe they would seriously pursue that, as naming the civilian firm, which would not enjoy sovereign immunity in the US, could open it up all to all sorts of lawsuits from people and companies affected by delays caused by the balloon’s overflight. Perhaps the US government might even send a bill to the company for the operation to track the balloon and for the missile that executed the strike. That all seems counterproductive, so I will assume Xie is blowing off some hot air.
6. Even if conditions allow a rescheduled Blinken trip, the calendar is problematic. The “Two Meetings” start in Beijing in 24 days. There is the possibility of a trip to Taiwan by the Speaker of the US House, perhaps before the summer; if that happens before any new Blinken trip then the rescheduled trip may also get blown up.
7. Expectations were low for the Blinken trip but even the hope of trying set yet another '“floor” in US-China relations seems significantly deflated, so investors should probably be updating their scenarios for how increasingly fraught US-China relations may inflate risk.
Today’s Essential Eight:
PRC-Russia - Vice Minister Ma Zhaoxu traveled to Moscow and the Wall Street reports on new data that show “Chinese state-owned defense companies shipping navigation equipment, jamming technology and jet-fighter parts to sanctioned Russian government-owned defense companies”. As much as the balloon incident has increased tensions, evidence of PRC firms helping the Russian war in Ukraine, and that rumored visit by Xi to Moscow sometime this year, would likely only increase tensions even more.
Real estate - Wuhan is pulling back slightly on housing purchase restrictions, in another policy attempt to stimulate demand. In previous real estate cycles the relaxation of purchase restrictions and cuts in mortgage rates would stimulate housing sales. I am not sure the old rules of these cycles apply now.
Corruption and food security - There have been an interesting series of cases and announcements about corruption in the grain procurement and sale system. This kind of grain-related corruption long predates the PRC, but in the Xi Era with the heightened focus on food security there will likely be a lot more scrutiny of this sector.
PRC-Australia trade talks - The Australia trade minister held a video talk with the Minister of Commerce, and it went well enough that he will be traveling to Beijing for more talks in the “near future”.
Optimizing the Covid response - The official death toll continues to drop, with the number for the last week 3278. There is a lot of skepticism about the official numbers, but I do not think there is much question that the exit wave crested earlier than most expected and that the Covid situation is much better than it was a few weeks ago.