Get Full Access:
Save 44% Now
Trusted by over 50,000 readers

Daily Memo: Debates in China, Alliances in Asia, Crises in Turkey

All the news worth knowing today.

GPF Staff |August 10, 2018

Are the Chinese Communist Party’s (very public) differences reconcilable? On Thursday, a top official at the People’s Bank of China published an article saying that the Finance Ministry has not done enough to improve the Chinese economy. On Friday, Beijing’s biggest mouthpiece, the People’s Daily, published an op-ed touting the success of Chinese President Xi Jinping’s sweeping deleveraging campaign – a critical reform for China, but one that some believe will be too painful to pursue once the trade war takes its toll. Most interesting, the People’s Daily published another piece taking aim at critics at home who argue that Beijing’s increasing assertiveness on several fronts – from the South China Sea to the economic realm – is at least partly to blame for the growing international backlash against China.

The threshold for what counts as political unrest in China can seem unreasonably low. In just about any other country, an uptick in public sniping would be expected. It may even be seen as a healthy debate. But China isn’t any other country. The scale of its ambition, and the chaos that comes if it fails to achieve its goals, magnifies the importance of even the smallest traces of dissent. The system is so rigid that it is utterly intolerant of dissidence.

But ignore, for a moment, the palace intrigue and speculation about what all this says about Xi’s grip on power. The debate that’s spilling out into the open illustrates just how much China may be nearing a pivotal juncture on the path Deng Xiaoping set the country on 40 years ago, with or without Xi at the helm. The debate between the PBOC and the Finance Ministry is not just about how to manage the converging fallout of Xi’s reform agenda and the trade war; it’s about how to bring about painful structural changes that China has no choice but to tackle. The debate about whether China needs to blame itself for the international backlash is a referendum on whether Xi has been too quick to abandon Deng’s strategy – that China should “hide [its] capacities and bide [its] time, be good at maintaining a low profile, and never claim leadership.”

Will a China-Russia alliance ever truly materialize? Chinese State Councilor Yang Jiechi, a member of China’s Communist Party Politburo and one of Xi’s top foreign policy fixers, is headed to Moscow next week for a new round of strategic security consultations. On Friday, Beijing came to Moscow’s defense at the United Nations, blocking an attempt by the U.S. to slap new sanctions on a Russian bank, a Moscow-based North Korean banker and two other companies over their support for the regime in Pyongyang. This comes as Russian Prime Minister Dmitry Medvedev warned that any attempts by the U.S. to curb the operations of Russian banks or their foreign currency dealings would amount to a declaration of economic war. With China and Russia under increased pressure from the U.S., it makes sense that the age-old warnings of a united Russia-China alliance are once again en vogue. The two sides have plenty of shared interests and are uniquely able to help each other out as the situation warrants. Yet the same things that always prevented a Russia-China alliance remain in place. Moscow and Beijing still don’t trust each other, and they don’t trust each other because they have fundamentally divergent interests and a long history of failed attempts to paper over these differences. A common enemy isn’t the basis for a stable, enduring partnership.

Exactly how much trouble is Turkey in? President Recep Tayyip Erdogan has called on Turkish citizens to convert their foreign exchange savings into liras. This comes as the currency dropped to yet another record low on Friday, capping a week in which the lira lost more than 15 percent of its value against the dollar. Efforts by Ankara to strengthen the lira by selling foreign reserves and other monetary policy tools Turkey has at its disposal are failing. What is happening in Turkey is of importance to the world and thus to our model. Turkey’s economy has been one of the global miracles since 2002, when the Justice and Development Party came to power. Vast amounts of foreign investment and loans poured in, inflating Turkey’s total external debt to more than 50 percent of GDP. But Turkish growth hit a wall as all rapidly developing economies do. And its stagnation is as much a consequence of its politics as its economy. It’s currently unclear whether this is a temporary phase of Turkish development or if it is the beginning of a long-term breakdown in Turkish political cohesion.

Honorable Mentions

  • The White House has reportedly suspended the U.S. government’s International Military Education and Training program with Pakistan, blocking dozens of Pakistani officers from the program.
  • After two decades of negotiations, the five Caspian littoral states – Iran, Russia, Kazakhstan, Azerbaijan and Turkmenistan – have reportedly reached an agreement on the sea’s legal status.
  • Commercial satellite imagery obtained by 38 North suggests that the government continues to work on the 5 MWe reactor at North Korea’s Yongbyon Nuclear Scientific Research Center, though it also showed no evidence that the experimental light water reactor at the site is operational.
  • The Times of London reports that European leaders are preparing to negotiate a deal centered around the so-called “Jersey model,” which would let Britain remain in the single market for goods while opting out of free movement of people in exchange for a slew of other concessions from London.
  • Unemployment in Greece dropped below 20 percent for the first time in seven years. Break out the tsipouro.