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Daily Memo: Bought Time in China, Lost Leverage in the US, Hard Times in Iran

All the news worth knowing today.

GPF Staff |August 3, 2018

Chinese leaders are buying time to fix the economy. Earlier this week, the Politburo issued its midyear guidance on Chinese economic policy. Since then, the central bank and the all-important Financial Stability and Development Commission have given the plan a bit more detail. The upshot: The sweeping reform drive should continue, but modest stimulus and other measures will be taken to ease the pain inflicted by reforms and trade wars. China is fighting a two-front war – against U.S. trade policy and against its own internal economic dysfunction – and it doesn’t want to halt reform unless it absolutely must, lest it lose on the latter front. But the U.S. tariffs are making it hard to win the former front. With no clear counterattack, this week’s policy guidance can best be described as treading water – at least until Beijing can understand how far the U.S. will push the issue and devise a more decisive plan to either find a way out of the trade war or see the fight through to the end. Notably, there’s speculation that the Chinese leadership’s annual summer retreat to the coastal resort town of Beidaihe has begun. It doesn’t sound like this year’s conclave will feature much fun in the sun.

The United States is scrambling to hold onto its leverage over North Korea. Two months after the Singapore summit, U.S. Secretary of State Mike Pompeo has returned to pressing ministers of the Association of Southeast Asian Nations to maintain sanctions pressure on Pyongyang. North Korean Foreign Minister Ri Yong Ho is also in Singapore, reportedly to make the case against U.N. sanctions. Regardless, it’s clear that the pressure caused by sanctions is easing. Allegedly, some countries, most notably China, continue ship-to-ship transfers of refined oil products. Moscow has reportedly issued thousands of work permits for North Korean laborers. A report by the Asan Institute for Policy Studies claims that oil shipments from Russia are 10 times higher than declared. And cross-border tourism from China is reportedly surging. South Korea’s government-run land development agency is exploring opportunities for new jointly run special economic zones with the North, according to NK News, while South Korean auto giant Hyundai Group will send a delegation north of the demilitarized zone on Friday. All this despite the fact that there is scant evidence the North is denuclearizing – Pompeo himself confirmed that the North continues to produce fissile material, and U.S. intelligence officials recently leaked an assessment that Pyongyang is also building two new ICBMs.

Pressure is intensifying on Iranian President Hassan Rouhani, from above and below. Major demonstrations were reported in 10 cities on Thursday, making them the most pervasive protests the country has seen since January. In Isfahan, skirmishes between protesters and security forces have taken place for three days now. According to Voice of America, chants and signs calling for an end to the clerical regime have become more widespread and more explicit than at the beginning of the year. According to Tabnak news, several top hard-line clerics have harshly criticized Rouhani’s handling of the economy, noting in particular his inaction on the economic policy front and his failure to tackle corruption among government officials. One cleric went so far as to say outright that renewed U.S. sanctions are not solely to blame for Iran’s economic woes.

Honorable Mentions

  • After eight years in exile, a top Hamas leader has returned to Gaza following discussions in Cairo, fueling speculation that there may be room for progress in talks with Israel. Israeli Prime Minister Benjamin Netanyahu’s abrupt cancellation of a trip to South America may be related to this.
  • China may allow army personnel stationed in Hong Kong to wear uniforms in public, something they have not been allowed to do. It’s a small but symbolic move emblematic of Beijing’s creeping control over the city-state.
  • Sweden is buying new U.S. Patriot air defense systems.
  • Pompeo also met with his Turkish counterpart in Singapore amid rising bilateral tensions.
  • Bank of England chief Mark Carney said the likelihood of a “no deal” Brexit has become uncomfortably high, leading to a sharp drop in the value of the pound.
  • Poland’s supreme court has suspended the forced early retirement of judges over the age of 65 until the European Court of Justice rules on the issue. This is a setback for Poland in its confrontation with Brussels over legal reform.