Keeping an eye on Communist, Totalitarian China, and its influence both globally, and we as Canadians. I have come to the opinion that we are rarely privy to truth regarding the real goal, the agenda of Red China, and it's implications for Canada [and North America as a whole]. No more can we rely on our media as more and more information on China is actively being swept under the carpet - not for consumption.
A senior Chinese official has censured the United States for a series of “wrong” activities vis-à-vis China, particularly in the Western Pacific region, saying Sino-American ties have been adversely affected as a result of those actions.
China’s Vice Chairman of the Central Military Commission Fan Changlong made the remarks in a meeting with US Chairman of the Joint Chiefs of Staff Marine Corps General Joe Dunford in the capital, Beijing, on Thursday.
Fan expressed concern about the “negative” impacts of the presence of US military aircraft in the South China Sea and its reconnaissance activities near China.
“Wrong actions on the Taiwan issue, the United States deploying the THAAD system around China, US ships and aircraft’s activities in the South China Sea, the United States close-in surveillance in the sea and air near China have had a large, negative influence on bilateral military ties and mutual trust,” Fan said.
The Chinese official reiterated Beijing’s call for all parties to exercise restraint and avoid any action or rhetoric that could escalate the situation on the Korean Peninsula, also noting that dialog was the only effective way to resolve tensions.
Fan also said that Beijing was willing to work with Washington for handling disputes and to ensure that military cooperation will become a positive force in Sino-American relations.
Dunford visited China on Monday as part of an Asian tour and is expected to travel to Japan afterwards.
The two top officials had signed an agreement a day earlier to improve communication between their countries’ militaries and reduce the chances of “miscalculations” and accidental military confrontations at a time when “the region and the world are facing the dangers of a nuclear-armed North Korea.”
Issues involving North Korea are among the many points of contention between China and the US. While the two countries share concerns about the North Korean missile and military nuclear programs, they sometimes differ on how to tackle the matter.
Chinese claims of sovereignty in territories in the South and East China Seas, the US military ties with Taiwan, and the deployment of the American THAAD missile system in South Korea are some of the other issues on which Beijing and Washington spar from time to time.
Liu Fei, China’s consul general in Vancouver, is slated to return to China after six years on the job | Albert Van Santvoort
Six years can be an eternity for a diplomat, whose term at a posting can be as short as a year and usually lasts no more than three or four. That makes Liu Fei – China’s consul general and top official representative in Vancouver since 2011 – a rarity among diplomatic circles.
But the long term also means that she has been witness to (and, at times, at the helm of) some important moments during the evolution of B.C.’s trade relationship with China under ChristyClark’s Liberal government, which also started in 2011. Now, just as a new BC NDP-BC Green Party minority government led by John Horgan is set to take the reins in B.C., Liu is ending her time in Vancouver and returning to Beijing at the end of August.
During her term, B.C.’s commodity exports to China grew to $6.2 billion – 18.4% of the provincial total.
Before her departure, Liu sat down with Business in Vancouver to discuss the future of B.C.-China trade, as well as some controversial topics such as human-rights concerns and China’s acquisition of defence-industry companies (such as Vancouver’s Norsat International Inc.) overseas.
Q: The provincial government was headed by Christy Clark’s Liberals during almost your entire tenure here. Now, it’s an NDP minority government. How does that change the outlook for future relations with China?
A: In 2016 B.C.’s GDP grew by 3.7%, and I really believe China played a key role in that figure. Many countries around the world have suffered economic stagnation during the past five years so, if B.C. was able to gain some economic momentum, it would make sense that China would be a big factor.
We’ve had a good relationship with the Liberal government. Now, with the NDP in charge, Premier John Horgan has also said the relationship with China is an important one for him. We met on the day he became premier and he told me that he would like to talk to me before I leave to discuss ways that he can further widen and deepen B.C.’s trade relations with us. He was very clear about that, so I believe the new government will continue to work with us.
Q: There has been a lot of attention focused on controversial issues with China, such as the country’s human-rights situation and the acquisition of defence-related technology firms in countries like Canada. How do you deal with those criticisms?
A: I think it stems from a lack of understanding of China. In the case of acquisition of companies in certain sectors, why is it that it’s OK for an American company to buy, but it’s not OK for a Chinese company to do the same? There’s no real difference; the rules of global commerce are the same.
So I really think we need to boost the level of mutual trust between our people. It’s about understanding each other; that’s of paramount importance.
Q: What’s your take on this new level of attention?
A: Thirty years ago, China had not yet truly reached out beyond its own borders. Our understanding of the outside world was limited, and when you have one westerner come to China, we would all be staring at him or her, because we haven’t seen things like that before.
The same applies in the reverse. Canadians traditionally are more used to dealing with people of European descent than they are with people from Asia, so the understanding of Asian culture here in Canada is more limited. So it’s normal they would have different perspectives and opinions in the Canada-China relationship.
I will give you an example. People here love the new-car smell when they buy a car, but Chinese people in general don’t like the heavy smell of leather in a new vehicle. It doesn’t mean a car is good or bad based on the smell, and you can’t say either side is wrong. It means that we have different customs and perspectives. … It shows a difference of interpretation, not who’s right or wrong.
So I think the key is more people-to-people interaction, so that Canadians would understand Asian culture better, especially with things like Chinese medicine. That’s a practice that’s very popular here, but it’s having a hard time making it into the official health-care system. … On these fronts, I hope that Canadians can use the same affinity they have with those with European roots toward people from Asia.
Q: What’s the impact of the large Chinese-Canadian community here? Is it a challenge or a boon?
A: It’s been a big help. This year is Canada’s 150th anniversary but, even before 1867, many Chinese people came during the Gold Rush. Chinese people have been here every step of the way in the growth and development of Canada, so having such a large group of them here is so important. I consider every one of them as ambassadors to Canada-China relations, and they support our work here.
It’s also great because we can easily reach every industry here in B.C. through Chinese-Canadians, because the Chinese community is so large and so widespread. To be able to have them work with us to promote business on both sides, it’s an immense asset for B.C. and China. We are proud of them, and we are truly grateful for their support over the years •
Corporate investigator Violet Ho never put a lot of faith in the bad loan numbers reported by China’s banks: crisscrossing provinces from Shandong to Xinjiang, she’s seen too much - from the shell game of moving assets between affiliated companies to disguise the true state of their finances to cover-ups by bankers loath to admit that loans they made won’t be recovered. The amount of bad debt piling up in China is at the center of a debate about whether the country will continue as a locomotive of global growth or sink into decades of stagnation like Japan after its credit bubble burst. Bank of China Ltd. reported on Thursday its biggest quarterly bad-loan provisions since going public in 2006.
Charlene Chu, who made her name at Fitch Ratings making bearish assessments of the risks from China’s credit explosion since 2008, is among those crunching the numbers. While corporate investigator Ho relies on her observations from hitting the road, Chu and her colleagues at Autonomous Research in Hong Kong take a top-down approach. They estimate how much money is being wasted after the nation began getting smaller and smaller economic returns on its credit from 2008. Their assessment is informed by data from economies such as Japan that have gone though similar debt explosions.
While traditional bank loans are not Chu’s prime focus -- she looks at the wider picture, including shadow banking -- she says her work suggests that nonperforming loans may be at 20 percent to 21 percent, or even higher.
The chart below shows just how much of an outlier Chu's stark forecast was in comparison to her peers, and especially the grotesquely low and completely fabricated official number released by the banks and the government.
To be sure, it has always been in Beijing's best interest to keep true NPL data well-hidden by everyone from the lowliest bank teller to the Politburo, who all know that merely the recognition of the problem would be sufficient to spark if not a full-blown panic then certainly accelerate capital outflows form the nation to an unstoppable degree.
Another problem with making estimates of adequate collateral protection in China, one which makes such a venture more complicated than solving the proverbial riddle, wrapped in a mystery, inside an enigma, is that the very premise of collateralization in the world's most populous nation is nebulous. Recall that one of the biggest scandals in China in 2014 was the realization (as many had warned previously) that millions of tons of commodities were rehypothecated countless times, and thus "pledged" as collateral to numerous counterparties, and that as a result these same counterparties were unable to make sense of who owns what at one of China's largest ports, Qingdao. In this context, it is safe to assume that loss given default rates in China are if not 100% (or more, which is impossible in theoretical terms but in practice is quite possible, as another curious side effect of unlimited collateral rehypothecation), then as close to it as possible. In early June, Reuters published an expose on China's "Ghost Collateral" reminding China watchers that this most insidious phenomenon is anything but gone.
Since then, fears about both China total debt load and the size of its NPLs have only grown, and most recently came under the spotlight of the IMF itself, which two days ago issued a warning about Beijing’s reluctance to rein in “dangerous” levels of debt, blaming Beijing’s tolerance of high debt levels on its goal of doubling the size of the economy between 2010 and 2020.
“International experience suggests that China’s credit growth is on a dangerous trajectory, with increasing risks of a disruptive adjustment and/or a marked growth slowdown,” the IMF said. This statement is spot on, because as the IIF recently showed, total Chinese debt/GDP has now crossed above 300%, a level that in every historical instance, led to a financial crisis.
What was left unsaid is that it is only because China doubled its total debt load following the financial crisis that the world managed to avoid succumbing to an unprecedented depression in the years following the financial crisis. However, by engaging on this unprecedented debt rampage, China only delayed the inevitable.
The IMF tried to sound mutedly optimistic, adding that “the [Chinese] authorities will do what it takes to attain the 2020 GDP target,” however one look at the exponential rise in China's various credit product prompts substantial doubt how much longer Beijing can delay the inevitable.
And then there is, of course, the biggest wildcard: how much of China's debt is already impaired, i.e., bad.
* * *
Fast forward to today, when Charlene Chu, described by the FT as "one of the most influential analysts of China’s financial system" is back with a revised estimate that the bad debt in China has now reached a stunning $6.8 trillion above official figures and warns that the government’s ability to enforce stability has allowed underlying problems to go unchecked.
Charlene Chu built her reputation as China banking analyst at credit rating agency Fitch, where she was among the earliest to warn of risks from rising debt, especially in the country’s shadow banking system. Today many of her original views — such as concern about Chinese banks concealing risky credit in off balance sheet vehicles — have become consensus among analysts.
The story repeated with grim determination by Charlene Chu, who left Fitch in 2014 to launch the Asia operation for Autonomous Research, is a familiar one: "everyone knows there’s a credit problem in China, but I find that people often forget about the scale. It’s important in global terms,” Chu told the FT in an interview.
So if Chu held the wildly outlier view nearly two years ago that China's NPLs amount to 21% of total, what is her latest estimate? The number is a doozy: in her latest report, Chu estimates that bad debt in China’s financial system will reach as much as Rmb51 trillion , or $7.6 trillion, by the end of this year, more than five times the value of bank loans officially classified as either non-performing or one notch above." That estimate implies a bad-debt ratio of 34%, orders of magnitude above the official 5.3% ratio for those two categories at the end of June.
Needless to say, there is a solid pushback against Chu's conclusion, and especially those who are currently invested in Chinese financial assets are doing everything in their power to prevent her opinion from becoming gospel.
Chu is among the most bearish observers of China, and some analysts question her methodology. In particular, her estimate of Rmb51tn in bad debt is based on average credit losses across other 11 other economies that previously experienced rapid debt increases comparable to China, including Japan in 1985-97 and the US in 2000-07.
But Chen Long, China economist at Gavekal Dragonomics in Beijing, said this methodology implicitly assumes that an economic crash will eventually occur in China.
Mr Chen argues that credit losses are highly correlated with economic performance: bad loans rise when growth slows. If China can prevent a sharp downturn, credit losses will be much smaller, despite the extraordinary increase in leverage.
Chen's conclusion is delightfully and perversely reflexive: as long as China can avoid a crash, it will avoid a crash: “If there’s an economic collapse, of course there will be massive credit losses. No one disagrees about that. But the issue is whether the collapse will actually happen. She takes that as a given,” he said, adding that Chu failed to consider examples such as Korea in the 2000s or Japan after 1997, when debt rose strongly without harming growth. Which is true, but what Chen forgot to note is that globalsince both of those examples has risen to never before seen levels, in the process making the recurrence of such one-time "success stories" impossible.
Clearly Chen sees a far happier, non "crash landing" ending for the country with the 300% debt/GDP.
As for Chu, she acknowledges that an acute crisis does not appear imminent as the government suffocating influence over both borrowers and lenders has allowed Beijing to delay problems much longer than would be possible in a more market-driven system. One factor that has foiled countless shorts over the years is that Beijing can simply order state-owned banks to keep lending to a lossmaking zombie company or to a smaller lender that relies on short-term interbank funding to stay liquid, and that's precisely what has been happening, when looking at the various non-conventional credit pathways in China in recent years, which include Wealth Management Products, Bank Loans to Non-Bank Institutions, Shadow Banking, Repos and Certificates of Deposit.
But Chu said the ability to avoid recognizing losses only delays the inevitable day of reckoning as problems fester for longer, and grow larger than in an economy where actors respond purely to market incentives. That said, the recent spike in corporate bankruptcies indicates that even Beijing is slowly shifting to a more "market" driven stance.
“What I’ve gotten a greater appreciation for is how everything is so orchestrated by the authorities,” she said. “The upside is that it creates stability. The downside is that it can create a problem of proportions that people would think is never possible. We’re moving into that territory.”
Finally, putting it all in context is the following chart showing the total size of China's financial sector, which as of the latest quarter has grown to $35 trillion, double the size of the US.
If Chu is right, and local savers and investors certainly know best, it would explain why when looking at SAFE data showing "onshore FX settlement" and "cross-border RMB flows”, and which reveals that net flow of RMB from onshore to offshore was another $13.8billion in July , contrary to PBOC reports Chinese outflows have not ceasued since the summer of 2015...
... as a third of Chinese bank assets being "bad" would be nothing short of a "doomsday" scenario for China's financial system and also explains the relentless attempts by local to park their money offshore before the system one day "unexpectedly" crashes.
The level and sources of funding from China-linked tycoons and institutions for Harvard University is opaque and prodigious, and calls into question just how the dons at the US’s most prestigious educational institution handle the influence and remain unfettered academically and intellectually.
How to make friends and influencepeople
Harvard is not unique in being a soft but influential voice on China that has a conflict of interest because of China-linked money. The Confucius Institute program, which began in 2004 and is overseen by the Office of Chinese Language Council International, or Hanban, has been accused of buying influence in secondary schools, colleges and universities across the world, but particularly in the United States. Other organizations that are at least partially funded by China-linked money include Yale Law School’s China Center, Oxford University’s China Center, King’s College London School of Law, the Center for Strategic and International and Studies (CSIS), the Asia Society, the East-West Center, the National Committee on U.S.-China Relations, the Committee of 100, and the Institute for China-American Studies (ICAS).
The way in which China-linked money percolates through elite-level US policy discussions on China on both sides of the aisle, and in supposedly impartial think tanks and universities, should be a concern to all US citizens who depend on places like Harvard for unbiased political analysis and leadership. Whether or not China-linked money buys influence, the appearance of impropriety is damaging to US institutions, no more so than Harvard.
On August 10, the New York Times revealed that a company called JT Capital gave US$10 million in 2014 to Harvard. JT Capital is linked to one of China’s top defense contractors. This donation apparently funded academic fellowships for Chinese government officials, and was announced in Harvard’s Ash Center newsletter with a call for the US and other western governments to accommodate China’s rise and “legitimate strategic interests” while asking China to detail its vision for global governance. The US$10 million donation occurred the same year that the Ronnie Chan family (Chan is a dual US-Hong Kong citizen property developer with extensive business in mainland China) donated US$350 million to Harvard.
Harvard is not alone, by a long shot. This year, China’s $150 billion HNA Group reportedly had $18-billion of its shares donated by an anonymous Chinese citizen to a New York foundation, making that foundation the world’s second biggest after the Bill Gates Foundation. The donation could be a form of capital flight for some future use by corrupt leaders at the highest level of China’s government, including Xi Jinping and Wang Qishan. But in the meantime, it can also buy influence in the US from other foundations who may be eager to double or triple their own operations.
Other smaller, but still substantial donations by academic standards, have paved the way. Maurice Greenberg, a former CEO of AIG who does extensive business in China, gave $50 million to the “Greenberg-Yale China Initiative for collaboration with China”, as reported by the Committee of 100 Newsletter, itself funded by donations from China-linked sources. In 2012, Hong Kong luxury magnate Dickson Poon gave £20 million to Kings College London School of Law, which promptly renamed itself the Dickson Poon School of Law. It was the largest donation to King’s College London in its history.
Also in 2012, Poon gave £10 million to Oxford University for its China Center. According to one source, collaboration between Chinese and Oxford libraries around that time came with pressure from the Chinese side to hire Chinese librarians to manage the ancient collections of Chinese materials. I met graduate student sources at Oxford who said that teaching is biased in favor of China. Oxford students are reportedly subtly rewarded for taking positions in the middle on issues between China and the west, rather than staking out their own independent positions that could be seen as too ideological for supporting simple ideas like democracy and human rights. They feel pressed, instead, to ‘deconstruct’ a democracy that does not really exist or leads to low growth, or argue a ‘more sophisticated’ and ‘unbiased’ exploration of the ‘relativity of human rights regimes.’
“That would get you a good grade,” said one source. “You feel pressured to answer in a certain way.” This bias was a surprise to China expert and emeritus Professor Stein Ringen at Oxford, so it could be a relatively new phenomenon.
In 2014, Ronnie Chan gave US$20 million to the University of Southern California, to which he had donated extensively and been a trustee since 1995. In 2006, USC created the U.S.-China Institute.
“In May,” according to the memo announcing the institute, “the USC Board of Trustees visited China, making stops in Beijing, Shanghai, and Hong Kong. During that trip, [USC] President Sample announced the creation of this institute on May 23, along with trustees Herb Klein and Ronnie Chan, both of whom will serve as advisers to the institute.”
China-linked donations to universities can be relatively opaque, including the sources of those funds. The donation of US$350 million to Harvard in 2014 by Ronnie Chan’s family foundation, the Morningside Foundation, appears from an analysis of its Form 990s to be staggered over six years. This was not announced when the donation was made public. Approximately US$60 million was paid by the foundation to Harvard in both 2014 and 2015. To reach US$350 million, the annual payments to Harvard would have to continue through 2019, which is future expected revenue that can prove a particularly strong form of influence.
In addition to donations from Morningside, donations to Morningside are listed on the forms 990. Donations to Morningside are being transferred at up to US$60 million a year, but sometimes in multiple US$8.5 million transfers, from what appears to be multiple shell companies associated with the British Virgin Islands, Monaco, and Bettendorf, Iowa. The donations to the Chan-controlled Morningside Foundation are mostly not being transferred from the Hang Lung Group in Hong Kong, which is the primary public face of the Chan family businesses. Hang Lung does extensive business not only in Hong Kong, but in mainland China.
US professors who are experts on US-China politics at Harvard know very well about the $350 million donation and the Chan family. They can and do give paid speeches in China, republish their works for additional royalties in China, and have all-expenses paid travel to China. These outside revenues for professors can be in the tens of thousands of dollars every year. But other China-linked sources of individual income can be even greater. Academics and senior fellows at Harvard can network into well-paid leadership positions in think tanks and onto the boards of directors of corporations that do extensive business in China.
These are all potential avenues of influence upon academics who do not usually broadcast actual or potential pecuniary benefits. The fact that professors seek these benefits from China-linked sources could soften their public stance on China, or at least lead them to take a middling rather than principled position so as not to offend any past or potential revenue sources. Few relish biting the hand that feeds them. Broadcasting these benefits and influences could diminish the perception of their impartiality, so it is no wonder that they deemphasize such payments, and deny that the payments have any influence.
Harvard is particularly important for its outsized influence among the public, in part because of its sterling reputation for impartiality and excellence in research. While much good work is done at Harvard, the attention that Harvard gets for this research is perhaps unwarranted given the excellent research that is also done elsewhere. An analysis some years ago found that Harvard was mentioned in the New York Times, for example, more than all other universities combined. The amount of Harvard’s China-linked donations, relative to the amount of donations to other universities mentioned here, matches that influence.
Looking at the Harvard example, it appears that China could be seeking to use relatively small sums when considering the magnitude of US support to the university over the years, to introduce biases among professors that could leverage US policy or public opinion in China’s favor. I once observed a discussion at Harvard in which an eminent personage made a shockingly pro-China statement. I challenged him immediately afterwards on the sidelines of the event. He reversed his position and later explained to me that he takes a much more sanguine position on China in public than in private. I later confirmed with another source who knows the individual well, that he takes a tough position on China in private, but a positive view of China in public.
I have heard similar stories in other academic settings. Professors and analysts fear getting blacklisted as a “China basher.” China bashers are frequently denied entry visas by the Chinese government. That may be seen as a badge of honor for some principled academics, but it can interfere with the research that leads to publications and tenure, and ultimately make the academic’s secondary-source research irrelevant.
Such a label can also lose academics valuable consulting, speaking and publishing opportunities. Sadly, it can lose them respect from other China experts who are oriented towards the middling lucre of climbing in the China policy community, with that persistent and politically stabilizing hope of somehow making it to the big leagues through tenuous links to a network of elite levels of academics, business, and politics.
I believe that bias is introduced into US-China policy discussions because of the way in which China, and China-linked corporations and wealthy individuals who do business in China, selectively reward, with both minor and massive donations and contracts, the programs and individuals who are soft on China. Allowing such donations therefore biases policy discussion and does not appear to be in US national security interests. In the case of Harvard, it does not even appear to be necessary for research and teaching (Harvard already has an endowment of US$35.7 billion – might not the marginal effect of another research or teaching dollar be greater elsewhere?). Given that acceptance of China-linked donations is highly likely to introduce bias, at least into the China policy discussions, such donations arguably have a negative, rather than positive, effect on a Harvard education related to Chinese politics.
Perhaps Harvard should refuse these donations. Perhaps there should be legislation against China-linked money in US politics, including political campaigns, think tanks and universities. Do these China-linked donations violate US Foreign Agent Registration Act laws? Did the Ash Center newsletter violate FARA laws when it reported the US$10 million donation along with several pro-China political opinions? In addition, does Harvard provide valuable technology to China, for example health-related technology in exchange for the US$350 million donation that was supposedly meant solely for the Harvard School of Public Health? Do these technology transfers assist a Chinese economy that is being used to fuel Chinese military spending that threatens the US and our allies in Asia? What is the totality of the agreement between Harvard and the Morningside Foundation, and other China-linked financial sources, related to this and other donations? Has this US$350 million donation been scrutinized by the Committee on Foreign Influence in the US, and if CFIUS does not have that mandate, should it?
As a regular citizen I cannot know the answers to the questions raised here. Many of those who are close to these issues (for example, Harvard President Drew Faust, former Secretary of the Treasury Timothy Geithner, and Ronnie Chan) have not been as forthcoming as I would have liked with answers to my questions, or deny any political influence when confronted with what appears to be a pattern of Chinese pecuniary support to soft-on-China political voices and organizations.
Given billions of dollars in US support for Harvard over the years, American taxpayers deserve more answers, increased transparency, and less bias. I hope we can get new legislation and better enforcement of existing legislation to increase such transparency at Harvard and beyond, where a regular citizen’s questions are not being answered. I hope that professors and universities forego receiving donations, fees and other valuable services or goods from foreign-linked sources that could lead to even the appearance of influence, impropriety, or the support of an undemocratic regime that has one of the world’s worst records of human rights abuse. Harvard’s motto is simply veritas, which is Latin for ‘truth.’ The most rigorous scholarship and the best values require sacrifice. We should expect more of that from our academics.
Anders Corr gained a PhD from Harvard’s Government Department in 2008, worked in military intelligence for five years, and founded a New York consultancy in 2013.