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China’s wolf warriors refuse to back down

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Late last month the EU, acting in concert with the US, UK and Canada, imposed sanctions on four obscure Chinese officials for alleged human rights violations in Xinjiang, where hundreds of thousands of Muslims have been systematically detained over recent years.

China retaliated immediately, imposing counter-sanctions on 10 European individuals, including five EU parliamentarians from five different political parties.

In doing so President Xi Jinping’s administration threatened a contentious trade deal provisionally agreed on last year between the EU and China, despite US opposition. The sanctioned parliamentarians’ parties are now reluctant to start reviewing the deal unless Xi’s counter-sanctions are lifted.

Before Beijing imposed sanctions on the EU MPs, it was expected that the European parliament would eventually ratify Xi’s geopolitical coup, which had strong backing from France’s Emmanuel Macron and Angela Merkel, the German chancellor.

But when Merkel and Xi spoke on Wednesday, China’s official account of the call did not mention the trade deal or Xinjiang.

“We had seven years of negotiations for the deal,” said Joerg Wuttke, head of the European Chamber of Commerce in China. “Now it looks like it will take another seven years.”

The Xinjiang sanctions exchange is just the latest diplomatic dispute that Xi’s pugnacious “wolf warrior” foreign ministry officials are embroiled in. Chinese diplomats are sparring with countries and organisations that Beijing enjoyed relatively good relations with during Donald Trump’s one-term presidency. But they are expressing no regrets.

Chinese vessels anchored at Whitsun Reef off the Philippines’ Palawan Island © Philippine Communications Operat/AFP

Yang Jiechi, China’s top diplomat, set the tone for Beijing’s clashes with a long lecture to his US counterpart on March 18 in Alaska, where he told Antony Blinken that no country would ever again “speak to China from a position of strength”.

Victor Gao, a former Chinese diplomat who worked for Yang, said his former boss’s diatribe was “groundbreaking”. “Chinese leaders believe they have momentum and time is on their side,” he added. “Nothing can stop their rise.”

Chinese state media contrasted Yang’s comments with paintings of foreign colonial powers lording it over late Qing dynasty officials, who were repeatedly humbled in a series of conflicts with European, Japanese and American enemies.

The country’s “century of humiliation”, according to the Chinese Communist party, ended only after its revolutionary victory in 1949.

“China today is not the China of 1840,” Xu Guixiang, a senior party official in Xinjiang, said last week. “The days of Chinese people being bullied by the west have passed. We are not an easy target any more . . . We will fight tooth for tooth until the end.”

Many Chinese officials viewed Trump’s years in office as an unprecedented “strategic opportunity” to build bridges with Washington’s frustrated allies. But analysts said that, like Trump, those officials also believed that the Chinese Communist party could benefit domestically from diplomatic confrontations.

“Heated nationalism is good for strengthening the legitimacy and authority of the central government and [Xi],” said Yun Sun, a Chinese foreign policy expert at the Stimson Center in Washington.

“It all comes back to [Xi’s] mentality and the course he has charted,” she added, especially as the CCP prepares to celebrate the centennial of its founding in July. “The party needs to demonstrate its strength and achievements. A soft approach is not going to work.”

Last week Beijing challenged comments by Tedros Adhanom Ghebreyesus, the World Health Organization director-general who had previously been criticised for his reluctance to confront Beijing. Tedros said that Chinese officials had withheld information from WHO experts investigating the origins of coronavirus.

“After coming under pressure from the Europeans, Canadians and Americans, Tedros didn’t want to give China a pass because that would have provoked a crisis with the west,” said a diplomat involved in the WHO’s deliberations.

“Meanwhile the Chinese had to stick to their rhetoric that ‘[Covid] is a bigger problem, we had it and we dealt with it, but now we have to look elsewhere [for its origin]. They have bats in Myanmar and Laos, too’,” the diplomat added.

“It also has to be seen in the context of what had just happened in Alaska where they said don’t lecture us and don’t talk down to us.”

Chinese diplomats have recently clashed with Manila, too, over an alleged incursion of Chinese fishing vessels in Philippine territorial waters, as well as Tokyo over Japan’s concerns about the Xi administration’s policies in Xinjiang and Hong Kong.

Wang Yi, China’s foreign minister, warned his Japanese counterpart on Monday not to join US efforts targeting China.

“A certain superpower’s will does not represent the international community,” Wang said. “As a neighbour Japan needs to show at least a modicum of respect towards China’s internal affairs.”

Steve Tsang, director of the Soas China Institute in London, sees no end to such disputes. “Xi has said multiple times that Chinese officials and diplomats must unsheathe swords to defend the dignity of China,” he said. “The wolf warriors are just acting on Xi’s call to arms.”

Additional reporting by Xinning Liu in Beijing



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Emerging Markets

Tech-heavy Taiwan stock index plunges on Covid outbreak

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Taiwan’s stock market, home to some of the world’s biggest tech companies, suffered one of the largest drops in its history as investors were rocked by a worsening Covid-19 outbreak.

The Taiex fell as much as 8.55 per cent on Wednesday, the index’s worst intraday fall since 1969, according to Bloomberg. It finished down 4.1 per cent.

Construction, rubber, automotive and financials — sectors retail investors had been shifting into from technology in recent months — were the worst hit in the sell-off.

The world’s largest contract chipmaker, Taiwan Semiconductor Manufacturing Company, which has a 30 per cent weighting in the index, fell as much as 9.3 before recovering ground to be down 1.9, while Apple supplier Hon Hai Precision Industry, also known as Foxconn, dropped 9.8 per cent before paring losses to be down 4.7 per cent.

While Taiwan’s sell-off was related to domestic Covid-19 problems, it followed recent declines in global markets as investors worried about possible inflationary pressures.

The falls came as Taiwan’s government was expected to partially close down public life to contain a worsening coronavirus outbreak — something the country had managed to avoid for more than a year.

“The reason that triggered the escalated sell-off during the trading session is the new [Covid-19] cases to be reported this afternoon, and probably the raising of the pandemic alert level,” said Patrick Chen, head of Taiwan research at CLSA. “On top of that, the market before today was already at a point where the index was at an inflection point.”

Taiwan’s strict border controls and quarantine system and meticulous contact tracing measures had helped it avoid community spread of Covid-19 until recently.

That success, which allowed Taipei to forego lockdowns, helped boost the local economy, which grew about 3 per cent last year and 8.2 per cent in the first quarter of 2021.

But health authorities announced 16 locally transmitted confirmed cases on Wednesday, for three of which the infection source was unclear — a sign of widening spread in the community. Authorities had confirmed seven untraced cases on Tuesday, and domestic media reported that the government might introduce partial lockdown measures.

President Tsai Ing-wen called on the public to be vigilant but avoid panicking.

Taiwan’s stock market rose almost 80 per cent over the past year, peaking at a historical high late last month. It is now down 8.5 per cent from that mark.

Retail investors have increasingly moved out of technology stocks in recent weeks, reducing the sector’s weight in trading volume from almost 80 per cent at its height to just over 50 per cent.

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China factory gate prices climb on global commodities boom

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The price of goods leaving factories in China rose at the fastest pace in more than three years, on the back of a rally in commodities supported by the country’s economic recovery.

The producer price index rose 6.8 per cent in April year-on-year, beating economists’ expectations and surpassing March’s increase of 4.4 per cent.

The rate was driven in part by comparison with a low base last year in the early stages of the pandemic. But it also reflects a global surge in the prices of raw materials that was first stoked by China and now incorporates expectations of recovering global demand.

While PPI prices in China have leapt, economists suggested there was limited spillover into consumer prices and that the central bank was unlikely to react. China’s consumer price index added just 0.9 per cent in April, the National Bureau of Statistics said on Tuesday, although it touched a seven-month high.

“It tells us that demand at this moment is super strong,” said Larry Hu, head of greater China economics at Macquarie, of the PPI data, although he suggested policymakers would see the increase as “transitory” and “look through it”.

“We’re going to see some reflation trends,” he added.

Signs of tightening in China’s credit conditions have drawn scrutiny from global investors eyeing the prospect of higher inflation as the global economy recovers from the pandemic, especially in the US, which releases consumer price data on Wednesday.

China’s PPI index remained mired in negative territory for most of 2020 following the outbreak of coronavirus, but has started to gather momentum this year. Gross domestic product growth in China returned to pre-pandemic levels in the final quarter of 2020.

An industrial frenzy in China has stoked demand for commodities such as oil, copper and iron ore that make up a significant portion of the index and have helped to push it higher. 

Policymakers in China have moved to tighten credit conditions, as well as attempted to rein in the steel sector. Ting Lu, chief China economist at Nomura, said the relevant question now was “whether the rapid rise of raw materials prices will dent real demand, given pre-determined credit growth”.

Retail sales in China have lagged behind the growth rate of industrial production, putting downward pressure on CPI, which has also been weakened by lower pork prices that rose sharply on the back of African swine fever. Core CPI, which strips out food and energy, rose 0.7 per cent in April 

Julian Pritchard-Evans, senior China economist at Capital Economics, said that producer prices were feeding through into the rebound in consumer prices, but also suggested that pressures on the former were “likely to be mostly transient”.

He added that output prices for durable consumer goods were rising at their fastest level on record.

China’s rapid recovery has been driven by its industrial sector, which has churned out record quantities of steel and fed into a construction boom that policymakers are now trying to constrain. On Monday, iron ore prices hit their highest level on record, while copper prices also surged.



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Iron ore hits record high as commodities continue to boom

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The price of iron ore hit a record high on Monday in the latest sign of booming commodity markets, which have gone into overdrive in recent weeks as large economies recover from the pandemic.

The steelmaking ingredient, an important source of income for the mining industry, rose 8.5 per cent to a record high of almost $230 a tonne fuelled by strong demand from China where mills have cranked up production.

Other commodities also rose sharply, including copper, which hit a record high of $10,747 a tonne before paring gains. The increases are part of a broad surge in the cost of raw materials that has lasted more than a year and which is fanning talk of another supercycle — a prolonged period where prices remain significantly above their long term trend.

The price of timber has also hit a record high as US sawmills struggle to keep pace with demand in the run-up to peak homebuilding season in the summer.

“Commodity demand signals are firing on all cylinders amid a synchronised recovery across the world’s economic powerhouses,” said Bart Melek, head of commodity strategy at TD Securities.

Strong demand from China, the world’s biggest consumer of commodities, international spending on post-pandemic recovery programmes, supply disruptions and big bets on the green energy transition explain the surge in commodity prices.

Commodities have also been boosted by a weaker US dollar and moves by investors to stock up on assets that can act as a hedge against inflation.

The S&P GSCI spot index, which tracks price movements for 24 raw materials, is up 26 per cent this year.

Strong investor demand pushed commodity assets held by fund managers to a new record of $648bn in April, according to Citigroup. All sectors saw monthly gains with agriculture and precious metals leading the way, the bank said.

Agricultural commodities have had an especially strong run owing to rising Chinese demand and concerns of a drought in Brazil. Dryness in the US, where planting for this year is under way, is also adding to the upward rise in prices. Corn, which is trading at $7.60 a bushel and soyabeans at $16.22, are at levels not seen since 2013.

“From a macro economic environment to strong demand and production concerns, the ingredients are all there for the supercycle,” said Dave Whitcomb of commodity specialist Peak Trading Research.

Rising copper and iron ore prices are a boon for big miners, which are on course to record earnings that will surpass records set during the China-driven commodity boom of the early 2000s.

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JPMorgan reckons Rio Tinto and BHP will be the largest corporate dividend payers in Europe this year, paying out almost $40bn to shareholders. Shares in Rio, the world’s biggest iron ore producer, hit a record high above £67 on Monday.

Brent crude, the international oil benchmark, has crept back up
towards $70 a barrel, which it surpassed in March for the first time in
more than a year, recovering ground lost as the pandemic
slashed demand for crude and roiled markets.

Supply cuts by leading oil producers have helped to bolster the market
as consumption has begun to recover around the world.

While some Wall Street banks have hailed the start of a new supercycle, with some traders talking of a return to $100 a barrel oil, others are less convinced. The International Energy Agency said oil supplies still remain plentiful meaning any talk of a supercycle is premature.



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