China Macro Reporter

<table class="nl_card"><tbody><tr><td class="nl-post"><p>William Barr's summary of the Mueller Report has strengthened the U.S. trade negotiation team.</p><p>Within a couple of weeks of the EU's agreeing to a tougher position toward China, Italy went bilateral and signed an MoU for participation in the Belt and Road Initiative.</p><p>And, Xi Jinping has just ended what appears to be a successful European trip, dispensing gratitude and contracts.</p><p>Confused about how to put these events and others like them into a coherent framework? Me too.</p></td></tr></tbody></table>

1. Mueller report give U.S. more clout in trade negotiations

<tr><td class="embed-responsive embed-responsive-16by9"><iframe src="" height="100%" ></iframe></td></tr><tr><td class="nl-post"><p class="caption"></p><p><strong>‘Beijing will see</strong> the Mueller report as a win for the president.’</p><ul><li><strong>‘And,</strong> it will strengthen the U.S. negotiating position in the trade talks,’ says Kevin Rudd, president of the Asia Society Policy Institute and former Australian prime minister, in a <a href="" target="_blank">7m 16s CNBC interview</a>.</li><li><strong>‘When Lightizer and Mnuchin</strong> head off to Beijing this week, I think they’ll have a bit of wind in their sails.’</li><li><strong>'This makes it</strong> more likely for a more substantive outcome from an American perspective.’</li></ul><p><strong>‘The Mueller report</strong> - actually the Barr report - has now increased the duration of the Trump administration,’ says John Rutledge, SAFANAD Chief Investment Officer in a <a href="" target="_blank">3m 35s CNBC interview</a>.</p><ul><li><strong>‘So, China knows</strong> that there’s more likelihood they will be dealing with the same guys for the next two years.’</li><li><strong>If this were</strong> a ‘normal administration, trade talks would be done between middle-level people.’</li><li><strong>'A switch</strong> from one normal president to another normal president question wouldn't matter.'</li><li><strong>But, ‘Trump</strong> is calling the shots on this himself.’</li><li><strong>Greater certainty</strong> that Trump will be in office at least until 2020 ‘opens up the possibility for more hardcore, real talks between China and the U.S.’</li><li><strong>In some ways,</strong> then ‘the trade talks should go easier.’</li></ul></td></tr>

2. 'The time of European naïveté towards China had ended': Macron

<table class="nl_card" id="19mar2702"><tbody><tr><td><table class="multi-block"><tbody><tr><td class="pdf-container"><iframe src="" style="width:100%; height:500px;border:none;"></iframe></td></tr></tbody></table><p class="caption"><a href="" target="_blank">open in a new window</a></p></td></tr><tr><td class="nl-post"><p><strong>Overshadowed</strong> by the trade war and Brexit, 'what went under-reported was that the EU took its most significant steps yet – though belated and insufficient – to address China’s increasingly assertive and state-subsidized push into Europe,' <a href="" target="_blank">writes Frederick Kempe</a>, president and chief executive officer of the Atlantic Council.</p><ul><li><strong>'The challenge</strong> is that China for some time has executed a clear plan that has put Europe increasingly at the heart of its global political and economic strategy while Europe has lacked any unified policy approach of its own.'</li><li><strong>'That has given China</strong> maximum leverage in negotiating with EU member countries, almost exclusively on a bilateral basis.'</li></ul><p><strong>On March 12,</strong> 'after months of study, the European Commission released its “<a href="" target="_blank">EU-China: Strategic Outlook</a>,” (read above) that included the clearest and toughest language yet toward China in an EU document,' says Kempe.</p><ul><li><strong>'After years</strong> of a more benign approach to Beijing, it branded China as “an economic competitor in the pursuit of technological leadership, and a systemic rival promoting alternative models of governance.'</li></ul><p><strong>'Some have said</strong> that the strong wording of the document reflects the US labelling of China as a "strategic competitor," but I think Europe’s position is independent from that,' says Lucrezia Poggetti, research associate at the Berlin-based Mercator Institute for China Studies, in the <a href="" target="_blank">South China Morning Post</a>.</p><ul><li><strong>'The definition of China</strong> is more sophisticated than that, and reflects debates that we have been having in Europe.'</li></ul><p><strong>'The EU’s position</strong> was rooted in its own position on China but the China-US trade war was a chance to drive its message home,' Poggetti says.</p><ul><li><strong>'Europe has been strategically using</strong> the window of opportunity presented by the US-China trade war to push more for its economic interests more assertively.'</li></ul><p><strong>But, 'to some extent,</strong> the EU paper is also a wake-up for Beijing because it could upend the prevailing thinking among Chinese political elites who have pinned their hopes on close ties with Europe to offset the pressure from deteriorating relations with the United States amid the trade war,' says Pang Zhongying, a Beijing-based international affairs specialist, in the <a href="" target="_blank">South China Morning Post.</a></p><p><strong>So, perhaps with this in mind,</strong> Xi Jinping made his recent European 'trip – which included stops in Italy, France and Monaco – to try to ease fears that Beijing has become a threat to the EU, a mission that took on greater importance with China mired in a trade war with the United States,' says the <a href="" target="_blank">South China Morning Post</a>.</p><p><strong>If that is so</strong>, Xi faced a tough audience in France.</p><ul><li><strong>Last 'Friday French president</strong> Emmanuel Macron, who met with Mr Xi in Paris on Tuesday, declared that the “time of European naïveté” towards China had ended, and called for a robust and co-ordinated response by the EU towards Beijing,' reports the <a href="" target="_blank">Financial Times.</a></li></ul></td></tr></tbody></table>

3. Xi in Europe: How China is outmaneuvering Trump on trade

<table class="nl_card" id="19mar2703"><tbody><tr><td><table class="multi-block"><tbody><tr><td class="bg-holder"><img src="" alt="CHINADebate"></td></tr></tbody></table><p class="caption"></p></td></tr><tr><td class="nl-post"><p><strong>'As Chinese President Xi Jinping</strong> concludes his first foreign trip of 2019, he can congratulate himself on at least one thing: masterfully making use of the daylight between Brussels and Washington when it comes to China policy,' writes Sam Bresnick in <a href="" target="_blank">The New Republic</a>.</p><p><strong>'The Italian portion</strong> of the visit focused on the BRI, Rome’s endorsement being Xi’s greatest win so far in 2019.'</p><ul><li><strong>'Italy, a founding member of the EU</strong>, is the first G7 country to formally sign on to China’s grand infrastructure project, breathing new life into the much-maligned initiative.'</li><li><strong>'Over the past year,</strong> Malaysia, Myanmar, Pakistan, and Bangladesh, among others, canceled or cut back BRI projects.'</li><li><strong>'The seizure of the Sri Lankan port</strong> of Hambantota and fears of so-called “debt-trap diplomacy” further eroded faith in the project, with many countries questioning Beijing’s promises of “win-win” cooperation.'</li><li><strong>'But Italy</strong> is the wealthiest country to join the BRI, and Xi will be able to signal to his constituents that the project is still held in high international regard despite the aforementioned setbacks.'</li></ul><p><strong>'Though many EU countries</strong>, particularly Germany and France, have been highly skeptical of the BRI, the Five Star Movement wing of Italy’s populist coalition government has observed the success of Greece’s Piraeus Port (more on that below), a majority share of which is held by COSCO, a Chinese state-owned enterprise.'</p><ul><li><strong>'Prime Minister Giuseppe Conte</strong> hopes to make Italy’s own ports, notably those in Trieste and Genoa, similar entry points for Chinese trade with Europe.'</li><li><strong>And while another group</strong> in the governing coalition—the far-right League—takes a dim view of engagement with China, during Xi’s visit, Rome signed 29 deals worth $2.8 billion, wagering on Chinese investments to help pull it out of a grinding recession.'</li></ul><p><strong>'Xi’s visit to Monaco</strong> had much do with the country’s endorsement of Huawei.'</p><ul><li><strong>Despite U.S. pressure,</strong> 'on February 27, Monaco Telecom and Huawei signed a memorandum of understanding to develop and deploy “smart city” technology for the principality.'</li></ul><p><strong>'France</strong>, the current chair of the G7 and a strong U.S. ally, was supposed to be Xi’s toughest stop on his Mediterranean swing.'</p><ul><li><strong>'In a bid</strong> to emphasize European unity, French President Emmanuel Macron invited German Chancellor Angela Merkel and European Commission President Jean-Claude Juncker to join his meeting with Xi on Tuesday.'</li><li><strong>'Macron</strong>, who has been supportive of the BRI in the past, has recently coarsened his rhetoric, noting that the initiative should not be “one-way.”</li><li><strong>'He has been</strong> invited to the upcoming BRI forum in April but is unlikely to attend.'</li></ul><p><strong>'While in France,</strong> however, Xi cemented a new phase of economic cooperation with Europe, signing an almost $34 billion deal with Airbus for 300 airplanes.'</p><ul><li><strong>'China has historically</strong> been one of U.S.-based Boeing’s best customers, accounting for almost 20 percent of the company’s sales as of 2017.'</li><li><strong>'But given Boeing’s recent disasters</strong> and the contentious U.S.-China relationship, Xi has deftly shifted the trajectory of China’s aviation sector, simultaneously shoring up economic ties with the EU and dealing a blow to Washington.'</li></ul><p><strong>'Beijing</strong> is offering deals countries want.'</p><ul><li><strong>'And while China will undoubtedly</strong> still have difficulties with both the EU and the United States, on this trip,at least, Xi seems to have thoroughly outmaneuvered those set against him in Washington.'</li></ul></td></tr></tbody></table>

4. 'The Belt and Road Initiative Impact on Europe: An Italian Perspective'

<table class="nl_card" id="19mar2704"><tbody><tr><td><table class="multi-block"><tbody><tr><td class="pdf-container"><iframe src="" style="width:100%; height:500px;border:none;"></iframe></td></tr></tbody></table><p class="caption"><a href="" target="_blank">open in a new window</a></p></td></tr><tr><td class="nl-post"><p><strong>Why did Italy</strong> recently become the first G7 country to sign an MoU to participate in the BRI?</p><ul><li><p><strong>One thing</strong> that influenced the decision is <a href="" target="_blank">'The Belt and Road Initiative Impact on Europe: An Italian Perspective,'</a> written in 2017.</p></li><li><p><strong>Here is just</strong> the section on COSCO’s investment in the Port of Piraeus and how it’s taking business from Italian ports, especially the already troubled Trieste.</p></li><li><strong>But</strong>, the whole 14-page paper is worth a read. Fascinating!</li></ul><p><strong>'This paper analyzes</strong> the impact of the Belt and Road Initiative (BRI) on Europe with a specific focus on Italy.'</p><ul><li><p><strong>'We concentrate</strong> on the impact of new railways and port infrastructures on bilateral trade.'</p></li><li><p><strong>'Our analysis</strong> suggests that the development of new railway connections will benefit most of the Northern and Central European countries.'</p></li><li><p><strong>'Investment in new port facilities</strong>, although less “new” compared with railways, may be a bigger game changer'.</p></li></ul><p><strong>'China’s largest state-owned shipping company</strong>, COSCO, is investing massively in port infrastructure in the Mediterranean segment of the BRI.'</p><ul><li><strong>‘The most noteworthy</strong> of COSCO’s investments here is the Port of Piraeus’</li><li><strong>'Thanks to Chinese investments</strong>, Piraeus has experienced rapid growth, increasing from facilitating 2 percent of total Mediterranean traffic in 2008 to 13 percent in 2015.'</li><li><strong>'COSCO</strong> plans to increase the port’s potential of 35 percent by 2018.'</li><li><strong>'The development</strong> of the Port of Piraeus has already increased the importance of the Mediterranean Sea as an import/export hub for China.'</li></ul><p><strong>'The Port of Piraeus</strong> is not simply growing in size but is also changing in nature.'</p><ul><li><strong>'If China’s plan to connect</strong> it to Budapest via high-speed train succeeds, the port will be transformed from a transshipment station into China’s main gateway for Central and Eastern Europe.'</li></ul><p><strong>‘The expansion of Piraeus</strong> as COSCO’s main shipping hub will allow the port to attract and absorb greater volumes not only from other ports in the Mediterranean but also from the ports in Northern Europe, boosting competition in this sector.’</p><ul><li><p><strong>‘With the full development</strong> of the port and its related railway network, the most dynamic shipping companies will likely prefer to use this area as a distribution network not only for the Balkans and Eastern Europe but also for North African and Western European countries.’</p><li><p><strong>'The Italian port of Trieste</strong> in the high Adriatic Sea could be displaced by Piraeus capacity, especially if this port is linked through railways with the center of Europe.'</p></li></ul></td></tr></tbody></table>