China

The Coronavirus Economy

Published

6 years ago

April 9, 2020

Perhaps the only thing we know for sure now is that nobody knows what is coming.

Never before have we seen the wheels of the economy grind so comprehensively to a halt. The first working day after the lockdown in Sindh saw an announcement of a Rs1.25 trillion stimulus package for the economy, which makes it the largest such package ever announced in the country’s history.

The day before, the army spokesman — Lt. Gen Iftikhar Babar — described the virus as “the most serious threat we have faced in living memory.” The same day as the stimulus was unveiled, the State Bank announced a 1.5 percentage point cut in interest rates in an extraordinary monetary policy statement that was hastily organised out of schedule.

As the fear of Covid-19 shuts down the world on a scale unprecedented in modern times, Pakistan’s economy — already reeling from a crippling recession — faces a near-existential threat. What could be the contours of the even more difficult days ahead?

Nobody in the business and industrial community can remember a time like this. Not the sanctions following the nuclear detonations of 1998, or the earthquake of 2005 or the Great Financial Crisis of 2008 or the floods of 2010 carry many lessons to help us see and prepare for what might be coming. Key centres of decision-making in the federal and provincial government have an idea of what is coming — a tsunami of critically ill people landing up in public hospitals — but there are few models or projections to help us understand how far this will go.

The public health emergency that is brewing around the country is one thing. The lockdowns and the enormous cost that they will exact is another. Of course, there is no trade-off here, in the sense that we are not choosing between protecting lives or livelihoods. The two are linked and a pandemic is harder to control once it has crossed a certain threshold. Whatever their cost, the lockdowns are necessary to ensure that this public health emergency does not turn into an outright catastrophe.

Table of Contents

THE COMING STORM

Between the lockdowns and the pandemic, where is the economy — already reeling from a recession — headed? At the epicentre of the coming storm will be the sheer number of critically ill people who will need varying levels of care, from quarantine to hospitalisation to intensive care. Though they are not making these numbers public, according to some sources within the decision-making centres, the provincial governments in Sindh and Punjab seem to be preparing to meet the needs of up to 80,000 such patients between four to eight weeks on. Whether they see this as the peak is not yet known.

A stockbroker wearing a mask speaks on his cellphone as he watches share prices on a screen at the Pakistan Stock Exchange in Karachi | Asif Hassan, AFP

Further out there will be the needs of the poor, or those who live just at or below the subsistence line in Pakistan. There are close to five million people identified in this group, whose particulars are available in the so-called National Socioeconomic Registry (NSER), which is the database that was the centre of the Benazir Income Support Programme.

After them there is the class of daily wagers. These are the mass of largely unskilled or low-skilled people who work in industry, services and agriculture, and rely on daily wages to meet their needs. Karachi industry circles estimate that up to four million daily wagers work in Karachi alone, whereas the government of Punjab is working with estimates of up to four million in the whole province. These people are most likely not part of the NSER database and do not show up in any formal sector employee or payrolls data either. These are some of the neediest people in times of lockdowns, yet they pose a big challenge when building a social protection programme for their income support needs because they are very difficult to locate.

In the stimulus package Rs50bn has been included specifically for this purpose, which is expenditure on top of what the provincial governments are already spending for the fight. Then comes the cost of income support and ration packs that have to be provided to the vulnerable sections, from the poor to the daily wagers and the unemployed. Even assuming Rs500 per day as the basic requirement for a household of 7, with 10 million deserving households, this means Rs5bn per day, or Rs150bn per month.

After them come the unemployed. These will include skilled workers, even lower management who might look like they live well (they will have an apartment and own a car), but have very little capacity to weather a few months without a paycheque.

These are some of the class of people who will also need help, to varying degrees, if the lockdowns are to persist for two months or more. If one looks only at the bottom two quintiles of our income population, there are close to 84 million people, living in 11 million households, according to some estimates. How many of these should the state have to look out for in the event of a prolonged lockdown?

Daily wagers are already feeling the impact of the lockdowns | M Arif, White Star — Daily wagers are already feeling the impact of the lockdowns

Nobody knows how this ends. Will we succeed in defeating the virus, or will it simply work its way through the population and die or mutate into some less lethal form of its own accord? Will the summer temperatures impair its ability to transmit itself from one person to the next, to the point where it can no longer survive? Will a vaccine or a cure be found sooner than we think? Will cheap testing kits be developed soon enough that significantly boost our ability to fight this menace? Will there be a second, possibly third wave of infections like there was with the Spanish flu of 1918?

Nobody knows yet. But this analysis is based on the assumption that we are entering an intense and prolonged fight.

AN UNPRECEDENTED BLOW TO THE ECONOMY

If we are now in a prolonged fight, with no clear idea of how far we may have to lockdown the population to deny the virus any avenues for transmission, while we treat each infected person back to health, then the economy could end up taking a hit the likes of which it has never been called upon to take in the past. How might that work out?

Consider the question step by step.

First up is the direct cost of the treatment of the sick and protection of the frontline caregivers. In the stimulus package Rs50bn has been included specifically for this purpose, which is expenditure on top of what the provincial governments are already spending for the fight. Then comes the cost of income support and ration packs that have to be provided to the vulnerable sections, from the poor to the daily wagers and the unemployed. Even assuming Rs500 per day as the basic requirement for a household of 7, with 10 million deserving households, this means Rs5bn per day, or Rs150bn per month.

This is a lot of money, but it is still manageable for the state considering this is an emergency. The bigger challenge is developing the targeting technology to ensure that the right people are receiving these funds. At least three provinces have a team working on finding a way to do precisely this.

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This may be the most urgent task before the state but it is far from the most expensive. If the total size of the stimulus package at Rs1.25 trillion is an indication, the government is gearing up for a very costly battle indeed. Costly enough to put an end altogether to the macroeconomic stabilisation that has been underway since July. The fight, it seems, will require us to spend all the fiscal buffers that have been built with so much pain and sacrifice over the past year.

Beyond the people, the state is now fielding increasingly restive voices from industry. Already reeling under crippling interest rates and collapsing demand, business enterprises that had seen their profits disappear since the adjustment began, now face the prospect of a mortal blow.

‘ESSENTIAL’ SERVICES

The biggest and most immediate impact of the lockdown is the halt in business operations. Out of 2,700 factories in Karachi SITE area — Pakistan’s largest industrial zone which accounts for almost 30 percent of the country’s exports according to the zone’s leadership — less than 50 were still operating on the first working day after the lockdown was announced. Those 50 were among the few that were considered essential services, primarily food and pharmaceuticals. All the rest were shut, with the workers sent home.

The port was still running but movement of cargo into and out of the gate was impaired because goods transporters could not be on the roads. Ships were berthed and dredging activity went on as normal. Containers were loaded and off-loaded, and customs processed Goods Declaration forms through the online system without requiring any physical presence, much to the relief of clearing agents. But labour was thin because many of them were stopped on their way to work and had a hard time explaining to the authorities that they were employees in an “essential services” industry. Trucks entering the province from upcountry were stopped at the provincial border, where a growing line waited for clearance to move, but nobody knew how to get this clearance and from whom.

How could law enforcement personnel determine which truck was carrying goods belonging to an “essential service” and which one is not? Is packaging material an “essential item”? What if it is necessary to package a food item in, such as ghee or edible oil?

The biggest and most immediate impact of the lockdown is the halt in business operations. Out of 2,700 factories in Karachi SITE area, less than 50 were still operating on the first working day after the lockdown was announced.

If the lockdowns are prolonged, the state will come under increasing pressure as more and more industries seek to have themselves declared as “essential services”. If food and pharmaceuticals are essential, then so are their vendors and suppliers of critical components and transporters. If a pharmaceutical firm needs to replace a spare part in a machine, then is transporting that spare part from one part of the country to another through a lockdown to be considered an “essential service” or not? How about manufacture or supply of that spare part?

Others will step forward saying that they may not be in the food or medicine business, but their products are essential in other ways.

All this happened on the first working day after the lockdown was announced. Soap manufacturers, for instance, demanded they should be counted under essential services since washing of hands on a regular basis was an essential part of the fight against the virus. What will people wash their hands with once the supplies of soap in the market run out?

Edible oil manufacturers found that, though they had permission to continue their operation, there was one vendor who supplied packaging material to them all, whose product was essential to their operation. Sure enough, that vendor also applied to the provincial government for permission to continue operations.

Textile exporters said they had orders in the pipeline which would be cancelled if delivery were not made, and valuable foreign exchange would be foregone for the country, so the federal government weighed in on the provincial chief minister to allow these exporters to complete their orders. Permission was granted.

But where does this loop end? Some argued that producing sheets for hospitals was an essential service. Others said supplying yarn and sizing services to a hospital bedsheet provider is an essential service. The fact is that, in a modern economy, even if it is as rudimentary as Pakistan’s, carving out some sectors for continuity of operations while shutting down others is simply not possible for a long period of time. Food can be described as an essential service and agriculture will be allowed to continue. But what about fertiliser distribution or pesticides?

DEALING WITH THE LOSSES

Another faultline will open once the question of absorbing the losses arising from the lockdowns has to be faced. Industry is already demanding support in return for their compliance with the lockdown terms, which include a provision that no lay-offs will be effected during this period. With the passage of time massive losses will accumulate in the form of deficits with the state, cash flows drying up with private business, and mounting requests for deferred payments and perhaps a moratorium on debt servicing on the banks.

These losses will trigger a contest where the three main constituents of our political economy — the state, big business and the citizenry — will vie to push the cost on to each other. Each will mobilise their narratives. The state will say “we are fighting the virus.” Industry will say “we are running our payrolls even though our plants are shut.” The exporters will add “we are bringing in valuable foreign exchange” — an argument that will ring all the louder because other inflows would have suffered and foreign debt servicing will remain in place.

There is one group that will come to this contest without a story, without a narrative of their own, and for this reason they will be vulnerable. That group is the banks. There is little to no public service function that creditors can claim they are performing, while their borrowers will loudly remind everyone that the banks made money all last year as the economy sank and manufacturers were weighed down by crippling interest payments as the State Bank hiked rates. They will point out that the banks made windfall profits even as the state and private manufacturers found their interest expenditure skyrocketing.

“You have made your money,” they will tell the banks, “even as we bled. Now it is time to give back because the country faces an emergency.” The banks will see mounting calls for deferments of debt service payments, some of which have already begun.

In the stimulus package announced by the Prime Minister on Tuesday, one of the promises was to arrange deferred debt service payments for manufacturers. It is not clear how the state intends to arrange for this, but in some measure, the contest has begun already.

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CONTESTING NARRATIVES

In the months to come, this contest will escalate and the frenzied search for the resources with which to pay for the fight, as well as the expenses of carrying the people through it, will fuel a political economy that will consume increasing amounts of the state’s energy. With industry in lockdown, power consumption will fall dramatically, and as power capacity sits idle, some will wonder why the state should continue to pay capacity charges.

“Yes, it is in their contracts,” they will acknowledge. “But don’t these private power producers know that the country is faced with an emergency and needs every penny of its resources for the fight?” The stock market will continue its fall and brokers might try to mount an effort for another bailout, like they did last summer. It would be catastrophic if in the midst of this fight, the government were to acquiesce to their demand. Last summer, they acquiesced even though the state had begun its journey on a gruelling stabilisation effort that required massive sacrifice from the citizenry.

As the fight intensifies and the demand for resources rises, this contest might start to loosen some of the moorings of our financial system that have been held in place with iron bolts for decades. No government has asked for a moratorium on its domestic debt service obligations thus far, for example. But this time the government might ask for exactly that, for example, on the penalty interest charges on the circular debt or some other. The option to print money to pay its bills is always available for a government when dealing with local currency debt, but there are reasons why they might seek to shake down their creditors first before resorting to printing of money, if the need for resources intensifies.

This loosening has also already begun, with the extraordinary monetary policy statement announcing a rate cut of 1.5 percent on the first working day of the lockdown. I cannot remember the last time such an event occurred. The fact that it happened only days after the State Bank had already announced its monetary policy — in which steadfastly it refused to deviate from the orthodoxy of the textbook and did not lower interest rates even though inflation was falling, and the virus threat had already landed on Pakistan’s soil — only shows that serious arm twisting has already begun. More arms stand to be twisted because creditors’ interests are usually the first to be tossed overboard when the ship of state hits an iceberg or is attacked by pirates.

FEDERATION FAULTLINES

There is another faultline that may also get activated as this contest gets underway. This is the faultline within the state. The centre has already asked the provinces to bear some of the burden for the enhancements in the spending on BISP, whose beneficiaries will now receive an additional Rs1000 for the next four months as part of their entitlement. But the provinces are building their own social protection programmes and will seek a burden sharing with the centre themselves. Most likely they will arrive at an arrangement, since there is very little appetite for a fight among the elites who run the federal and provincial governments.

But provincial governments, that are also likely to feel the thirst for resources to wage the fight, cannot print money or seek any renegotiation with their creditors. They might seek an adjustment in the surpluses they are obliged to run under the National Finance Commission award. If so, this could end up meaning a significant renegotiation of the Fund programme, which is coming up for review in the next International Monetary Fund (IMF) board meeting in early April.

The timing is also critical in all this. If the fight peaks around mid- to late April, as the provincial governments expect, then the budget will be made in its aftermath. The aftermath is also likely to bring a severe recession, a scarred populace with no further appetite for absorbing economic pain for stabilisation, and continued requirements to spend in order to jump-start a traumatised economy.

Somewhere along this timeline, the government is likely to ask the IMF for a renegotiation of many of the terms of the programme. It will need to print money in massive quantities, break its budget deficit ceiling, slash interest rates and taxes.

It is unlikely that the Fund will simply refuse, since it will be clear from the beginning that Pakistan has no choice but to undertake these severe actions. But it is equally unlikely that Pakistan will find the resources from abroad to stabilise its economy without pain. That is unless ‘friendly countries’ like China and Saudi Arabia once again come to the rescue. Such a rescue will be required at that point, but who has the appetite, and how far they are willing to underwrite Pakistan’s return to normalcy, will remain to be discovered. A lot will hang in the balance as that question is explored.

THE DAYS AHEAD

Unless the economy sees massive supply disruptions, enough to hit food shipments, it is likely that March and April will see price deflation much faster than expected. Inflation was already on a downward and accelerating trajectory but, with industry closed and private consumption focused primarily on essential items and healthcare expenditures, prices are likely to see a sharp fall. This will create the space for sharp interest rate cuts, as well as large printing of money if necessary to pay for the continuously rising bill that the fight will present.

The IMF will need to be persuaded that these steps are necessary, and if printing of money is going to destabilise prices once again, the leadership could make the decision that they will worry about retiring that overhang once the fight is over.

Nobody in the business and industrial community can remember a time like this. Not the sanctions following the nuclear detonations of 1998, or the earthquake of 2005 or the Great Financial Crisis of 2008 or the floods of 2010 carry many lessons to help us see and prepare for what might be coming.

An extraordinary moment has now opened up. Business as usual will not work. It will take every ounce of creative energy and close coordination to wage this fight. The government has missed its chance to contain the pathogen at an early stage, when it was pouring into the country through travellers arriving from foreign lands. It failed to wage a campaign of awareness about the dangers posed by the virus and how best the citizenry could protect itself. It then failed to take decisive steps to order social distancing and lockdowns when they were most called for.

The result was the second and third tiers of the state’s leadership had to take up the fight. The provincial chief ministers, chief justices of the Sindh and Islamabad High Courts, individual MNAs, the Special Assistant to the Prime Minister on Health and others worked in their respective domains to build some sort of a bulwark against the entry and spread of the virus. But now it is here, and it has spread, and a battle on a wide front has become inevitable. This battle will take resources, and the search for these resources will define a lot of the state’s behavior through it all.

Via_Dawn.com

Post Views: 457

AI

The Return of the Dragon’s Allure

Published

1 week ago

November 16, 2025

Abdul Rahman

For much of the past four years, China’s equity markets have been a graveyard of foreign enthusiasm. International investors, once captivated by the promise of the world’s second-largest economy, retreated amid a property crisis, regulatory crackdowns, and geopolitical tensions. The narrative was one of caution, even resignation: China, many argued, had lost its luster. Yet markets are creatures of sentiment, and sentiment can pivot with startling speed. The recent surge of foreign inflows — the largest since 2021 — marks a turning point. The catalyst is not a stimulus package or a central bank maneuver, but a technological breakthrough that has jolted investors awake.

Table of Contents

A Market Long in the Shadows

China’s stock market has endured a bruising half-decade. The collapse of property developers, most notably Evergrande, cast a long shadow over the economy. Regulatory interventions in tech — from e-commerce giants to private tutoring firms — rattled confidence. Foreign ownership of Chinese equities fell to multi-year lows, with MSCI China underperforming global peers by double digits. The Shanghai Composite stagnated, while capital fled to safer havens in the U.S. and Europe. For many, China became synonymous with risk rather than opportunity.

DeepSeek AI: A Shock to the System

Enter DeepSeek, a little-known Chinese AI lab that stunned the world with a breakthrough in generative intelligence. Its model, hailed as a leap beyond existing architectures, demonstrated capabilities that rivaled — and in some cases surpassed — Western counterparts. The symbolism was profound: Beijing was no longer playing catch-up in the AI race. Investors, fatigued by narratives of Chinese decline, suddenly saw evidence of innovation at scale. DeepSeek became shorthand for a broader truth — that China’s technological ecosystem remains formidable, underestimated, and capable of reshaping global competition.

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The breakthrough did more than impress engineers. It shifted investor psychology. AI is the defining growth story of this decade, and China now has a flagship to rival Silicon Valley. For foreign funds, the logic was simple: ignore China at your peril.

The Surge of Capital

The numbers tell the story. In October and November 2025, foreign investors poured over $25 billion into Chinese equities, the largest two-month inflow since 2021. The CSI 300 index rallied nearly 12% in the same period, while the MSCI China index outperformed emerging market peers for the first time in years. Tech and semiconductor stocks led the charge, with AI-linked firms posting double-digit gains. Even beleaguered consumer discretionary names saw renewed interest, buoyed by expectations that AI-driven productivity could lift broader growth.

The inflows were not indiscriminate. Capital targeted sectors aligned with innovation: cloud computing, chip design, robotics, and biotech. Foreign ownership of Chinese technology firms rose from 3.8% to 5.1% in just weeks, reversing years of decline. Hedge funds, sovereign wealth funds, and pension managers — long absent — returned with conviction.

Policy Signals and the State’s Hand

The surge was amplified by policy signals from Beijing. Regulators, chastened by the backlash to earlier crackdowns, have softened their tone. The government has rolled out tax incentives for AI firms, streamlined approval processes for foreign investors, and emphasized “predictability” in regulatory frameworks. The People’s Bank of China has kept liquidity ample, while fiscal authorities have hinted at targeted support for innovation hubs.

Macroeconomic indicators, though mixed, have offered reassurance. Industrial output rose 5.2% year-on-year in Q3, while exports stabilized after months of decline. Inflation remains subdued, giving policymakers room to maneuver. For investors, the message is clear: Beijing wants capital, and it is willing to accommodate.

Global Reverberations

The implications stretch far beyond China. Global capital allocation is being recalibrated. For years, emerging market flows were dominated by India, Brazil, and Southeast Asia, while China languished. The DeepSeek moment has reinserted China into the conversation. Asset managers are rebalancing portfolios, shifting weight back to Chinese equities at the expense of other emerging markets.

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The tech sector, too, feels the tremors. U.S. markets, long buoyed by AI enthusiasm, now face competition for investor dollars. DeepSeek’s breakthrough has rattled assumptions about American dominance in innovation. Europe, struggling to carve its own AI niche, watches uneasily as capital gravitates eastward. The geopolitical chessboard of technology is being redrawn, with investors as the pawns and beneficiaries alike.

Risks and Skepticism

Yet caution remains warranted. Transparency in Chinese firms is uneven, and corporate governance standards lag global norms. Geopolitical tensions — from U.S.-China trade disputes to Taiwan — could flare at any moment, disrupting flows. The AI sector itself is prone to hype; breakthroughs can dazzle but fail to commercialize. Investors must ask whether DeepSeek represents a sustainable trend or a singular anomaly.

Moreover, the property sector’s malaise has not vanished. Household debt remains high, and consumer confidence fragile. Foreign inflows, while impressive, are concentrated in a narrow band of sectors. A broader recovery in China’s equity market will require more than AI enthusiasm.

A Forward-Looking Thesis

Still, the return of foreign capital is significant. It challenges the prevailing wisdom that China is uninvestable, that its markets are permanently tainted by risk. DeepSeek has reminded the world that innovation is not the monopoly of Silicon Valley. For investors, the lesson is provocative: to bet against China is to bet against the possibility of surprise.

The surge of inflows may not herald a straight-line recovery. Volatility will persist, and skepticism will endure. But the turning point is undeniable. China has reasserted itself as a locus of technological ambition, and global capital has responded. The dragon, long subdued, has roared again — not through stimulus or decree, but through invention.

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China

The New Great Game: US Retreat vs. China Peace Diplomacy 🕊️

Published

3 weeks ago

November 7, 2025

Abdul Rahman

In an era of shifting global influence, the foreign policy approaches of the world’s two largest powers—the United States (US) and China—present a stark geopolitical contrast. While the US, particularly under the previous administration, pursued a high-profile, rhetorical strategy centered on “ending wars” through large-scale troop withdrawals, China has quietly but effectively intensified its pragmatic regional diplomacy. This difference in style is more than just optics; it reflects fundamentally different calculations for projecting power and securing long-term interests, with China’s less-publicized mediation efforts increasingly challenging the established international order.

The central thesis here is that overt, maximalist actions, like those characterized by the US rhetoric of disengagement, often yield instability, while China’s “quiet diplomacy,” focused on localized conflict resolution, offers a more sustainable, high-effectiveness mechanism for projecting global influence. This article will critically analyze these two divergent paths.

Table of Contents

The Rhetoric of Retreat: The US “Ending Wars” Approach 🇺🇸

The foreign policy under the Trump administration was defined by a popular but politically charged rhetoric of disengagement from costly, protracted conflicts, primarily in the Middle East. The promise to bring troops home and “end the forever wars” was a cornerstone of an “America First” agenda, appealing to a domestic audience weary of foreign entanglements.

Analysis of Effects and Motivations

While the intent—to reduce the military and financial burden of overseas operations—was clear, the execution was often abrupt, unilateral, and lacked coordination with allies or local partners. This approach, centered on large-scale troop withdrawals, frequently created immediate power vacuums and signaled a reduction in US commitment to regional stability.

Critical Conclusion: The high-profile US action of “retreat” often produced a strategic instability. By prioritizing the rhetoric of withdrawal over a meticulously managed, diplomatically cushioned exit, the US approach inadvertently created space for adversaries and regional competitors to fill the void, ultimately complicating future diplomatic or military interventions. This transactional, withdrawal-first policy represented a fundamental shift away from decades of sustained liberal internationalism.

The resulting instability, rather than achieving peace, undermined the US’s long-term goal of a secure global order, ceding influence without securing a decisive and stabilising diplomatic end state.

Quiet Power: China’s Pragmatic Regional Diplomacy 🇨🇳

In contrast to the US’s overt strategic withdrawals, China’s recent foreign policy in its immediate periphery has been marked by a strategy of quiet diplomacy and pragmatic, behind-the-scenes mediation. The core motivation is explicitly tied to stability—specifically, securing its borders, ensuring the safety of its massive Belt and Road Initiative (BRI) investments, and projecting influence as a constructive regional power rather than a belligerent one.

By adopting a non-confrontational, economically incentivized approach, China seeks to embed itself as an indispensable arbiter of regional peace, a crucial element of its overall China Peace Diplomacy.

China’s Mediation Drivers

BRI Security: Instability in neighboring states directly threatens key BRI infrastructure, such as pipelines, railways, and ports, vital for China’s economic future.
Border Management: Maintaining a peaceful periphery is paramount to securing China’s own internal stability and economic development in border provinces.
Geopolitical Influence: By successfully brokering de-escalation where the US and other global powers have been absent or ineffective, China subtly builds a reputation as a reliable, results-oriented alternative, strengthening its soft power across Asia.

Case Study 1: The Myanmar Border De-escalation 🏞️

The conflict between the Myanmar military (Tatmadaw) and various ethnic armed organizations (EAOs), particularly the escalation of clashes near the shared border, posed a direct threat to China. Stray artillery fire, like incidents near Yunnan Province, and the influx of tens of thousands of refugees, risked dragging China into a protracted instability.

Instead of a high-profile military intervention or public condemnation, China employed a calculated, multi-pronged approach:

Pressure and Mediation: Beijing leveraged its unique position as the primary economic partner and arms supplier to both the Myanmar government and, in some cases, certain EAOs. It applied direct diplomatic pressure on all parties to de-escalate, often hosting peace talks on Chinese soil (e.g., in Kunming) to achieve a ceasefire.
Border Management: At the same time, the People’s Liberation Army (PLA) visibly reinforced its border security with air patrols and warnings to the Tatmadaw, demonstrating a resolve to protect its territory and nationals without full-scale intervention.

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This Myanmar Border Mediation was highly effective because it was interest-driven and pragmatic. It wasn’t about imposing a democratic or moral order, but about achieving a quick, localized stability essential for the China-Myanmar Economic Corridor (CMEC).

Case Study 2: Facilitating the Cambodia-Thai Ceasefire 🤝

A less-publicized but equally significant example of China’s “quiet diplomacy” is its role in fostering stability between Cambodia and Thailand following flare-ups in their long-standing border disputes, notably around the Preah Vihear temple.

While ASEAN officially leads the efforts, China has played a constructive and supportive role in facilitating or supporting peace efforts:

Neutral Diplomatic Support: China engaged in diplomatic outreach to both Bangkok and Phnom Penh, utilizing its deep ties with both nations to urge restraint and encourage a return to bilateral mechanisms.
Economic Leverage: China is a massive economic partner to both countries. Its tacit support for de-escalation carries significant weight, as neither capital wishes to jeopardize crucial trade, investment, or military cooperation with Beijing.
Subtle Signaling: China’s provision of military and financial aid to Cambodia, while not a direct tool of the ceasefire itself, subtly signals its influence and ability to shape regional defense dynamics, making compliance with de-escalation a prudent choice for both parties. The result was a restoration of the Cambodia-Thai Ceasefire momentum without China ever taking the central, public stage.

The Geopolitical Contrast: High-Profile vs. High-Effectiveness ⚖️

The comparison between the US rhetoric of “ending wars” through overt troop withdrawals and China’s method of “peace diplomacy” through quiet, interest-aligned mediation is instructive:

Feature	US Approach (“Ending Wars” Rhetoric)	China’s Approach (China Peace Diplomacy)
Visibility	High-profile, maximalist, and public	Quiet, behind-the-scenes, and pragmatic
Primary Goal	Domestic political appeal; reducing direct cost	Regional stability; safeguarding economic interests (BRI)
Mechanism	Military withdrawal; transactional alliances	Diplomatic leverage; economic inducement/pressure
Immediate Outcome	Strategic instability; creation of power vacuums	Localized de-escalation; reinforcement of influence
Influence Type	Hard power/Military presence (diminishing)	Economic/Political/Soft Power (increasing)

Critical Conclusion: The US strategy risks achieving only the rhetoric of peace while creating the conditions for future conflict. China’s strategy, by contrast, seeks high-effectiveness stability, not for abstract moral reasons, but for tangible economic and security gains. China’s model of conflict resolution—being a subtle, self-interested, yet seemingly neutral partner—may be more appealing to developing nations wary of the political conditionalities often attached to Western intervention.

Conclusion: Future Global Leadership and US vs China Foreign Policy

The divergent foreign policy paths—the US focused on dramatic withdrawal and the defense of a liberal order, and China focused on quiet, pragmatic stability in its sphere of influence—will shape the future of global leadership.

China’s increasing engagement in regional conflict resolution is a crucial component of its broader strategic narrative, positioning itself as a responsible, development-focused great power. Its success in Myanmar Border Mediation and supporting the Cambodia-Thai Ceasefire demonstrates that global influence is increasingly projected not only through overt military strength but also through the effective, quiet application of economic and diplomatic leverage. For the non-partisan think tank community, the key takeaway is that the new challenge to Western-led stability is not solely military; it is a direct competition in the realm of effective statecraft. As the US struggles to find a consistent global posture, China’s model of Quiet Diplomacy provides a powerful counter-narrative, suggesting that localized, pragmatic peace is a more sustainable, if self-interested, basis for global influence than the costly, high-profile rhetoric of retreat.

Would you like a comparative analysis of their respective strategies in a different region, such as Africa or Latin America?

The Rhetoric of Retreat: The US “Ending Wars” Approach 🇺🇸

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Analysis of Effects and Motivations

Critical Conclusion: The high-profile US action of “retreat” often produced a strategic instability. By prioritizing the rhetoric of withdrawal over a meticulously managed, diplomatically cushioned exit, the US approach inadvertently created space for adversaries and regional competitors to fill the void, ultimately complicating future diplomatic or military interventions. This transactional, withdrawal-first policy represented a fundamental shift away from decades of sustained liberal internationalism.

The resulting instability, rather than peace, undermined the US’s long-term goal of a secure global order, ceding influence without achieving a decisive, stabilizing diplomatic end state.

Quiet Power: China’s Pragmatic Regional Diplomacy 🇨🇳

By adopting a non-confrontational, economically incentivised approach, China seeks to embed itself as an indispensable arbiter of regional peace, a crucial element of its overall China Peace Diplomacy.

China’s Mediation Drivers

BRI Security: Instability in neighboring states directly threatens key BRI infrastructure, such as pipelines, railways, and ports, vital for China’s economic future.
Border Management: Maintaining a peaceful periphery is paramount to securing China’s own internal stability and economic development in border provinces.
Geopolitical Influence: By successfully brokering de-escalation where the US and other global powers have been absent or ineffective, China subtly builds a reputation as a reliable, results-oriented alternative, strengthening its soft power across Asia.

Case Study 1: The Myanmar Border De-escalation 🏞️

The conflict between the Myanmar military (Tatmadaw) and various ethnic armed organisations (EAOs), particularly the escalation of clashes near the shared border, posed a direct threat to China. Stray artillery fire, like incidents near Yunnan Province, and the influx of tens of thousands of refugees, risked dragging China into a protracted instability.

Instead of a high-profile military intervention or public condemnation, China employed a calculated, multi-pronged approach:

Pressure and Mediation: Beijing leveraged its unique position as the primary economic partner and arms supplier to both the Myanmar government and, in some cases, certain EAOs. It applied direct diplomatic pressure on all parties to de-escalate, often hosting peace talks on Chinese soil (e.g., in Kunming) to achieve a ceasefire.
Border Management: At the same time, the People’s Liberation Army (PLA) visibly reinforced its border security with air patrols and warnings to the Tatmadaw, demonstrating a resolve to protect its territory and nationals without full-scale intervention.

Case Study 2: Facilitating the Cambodia-Thai Ceasefire 🤝

While ASEAN officially leads the efforts, China has played a constructive and supportive role in facilitating or supporting peace efforts:

Neutral Diplomatic Support: China engaged in diplomatic outreach to both Bangkok and Phnom Penh, utilizing its deep ties with both nations to urge restraint and encourage a return to bilateral mechanisms.
Economic Leverage: China is a massive economic partner to both countries. Its tacit support for de-escalation carries significant weight, as neither capital wishes to jeopardize crucial trade, investment, or military cooperation with Beijing.
Subtle Signaling: China’s provision of military and financial aid to Cambodia, while not a direct tool of the ceasefire itself, subtly signals its influence and ability to shape regional defense dynamics, making compliance with de-escalation a prudent choice for both parties. The result was a restoration of the Cambodia-Thai Ceasefire momentum without China ever taking the central, public stage.

The Geopolitical Contrast: High-Profile vs. High-Effectiveness ⚖️

Feature	US Approach (“Ending Wars” Rhetoric)	China’s Approach (China Peace Diplomacy)
Visibility	High-profile, maximalist, and public	Quiet, behind-the-scenes, and pragmatic
Primary Goal	Domestic political appeal; reducing direct cost	Regional stability; safeguarding economic interests (BRI)
Mechanism	Military withdrawal; transactional alliances	Diplomatic leverage; economic inducement/pressure
Immediate Outcome	Strategic instability; creation of power vacuums	Localized de-escalation; reinforcement of influence
Influence Type	Hard power/Military presence (diminishing)	Economic/Political/Soft Power (increasing)

Critical Conclusion: The US strategy risks achieving only the rhetoric of peace while creating the conditions for future conflict. China’s strategy, by contrast, seeks high-effectiveness stability, not for abstract moral reasons, but for tangible economic and security gains. China’s model of conflict resolution—being a subtle, self-interested, yet seemingly neutral partner—may be more appealing to developing nations wary of the political conditionalities often attached to Western intervention.

Conclusion: Future Global Leadership and US vs China Foreign Policy

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China

The Battle Over TikTok: Can the Company Fight Back?

Published

2 years ago

March 16, 2024

Abdul Rahman

The battle over TikTok has raged for months as the United States government has grown increasingly concerned about the potential security risks posed by the popular social media app’s Chinese ownership. In August 2020, President Trump signed an executive order that would have banned TikTok in the US unless its ownership was transferred to an American company. A federal judge later blocked the order, but the threat of a ban has loomed over the app ever since.

A tense standoff in Congress as lawmakers debate the fate of TikTok, with the app's Chinese owner at the center of the controversy

Recently, the US Congress took a first step towards forcing TikTok’s Chinese owner, ByteDance, to sell the app. The move came in the form of the Holding Foreign Companies Accountable Act, which was signed into law in December 2020. The law requires foreign companies listed on US stock exchanges to comply with US auditing regulations or face delisting. ByteDance is currently in the process of exploring options to comply with the law, including a possible sale of TikTok to a US buyer.

Table of Contents

Key Takeaways

The US government has been concerned about the security risks posed by TikTok’s Chinese ownership, and the threat of a ban has loomed over the app for months.
The Holding Foreign Companies Accountable Act requires foreign companies listed on US stock exchanges to comply with US auditing regulations or face delisting, which could force ByteDance to sell TikTok to a US buyer.
The battle over TikTok highlights the economic and political stakes of technology ownership and raises important questions about legislative actions and corporate responses to national security concerns.

Legislative Actions

US Congress passed a bill targeting TikTok's Chinese owner. The scene shows lawmakers debating and voting on the legislation

The battle over TikTok has led to a series of legislative actions by the US Congress. In August 2020, Congress took the first step towards forcing the app’s Chinese owner, ByteDance, to divest TikTok’s US operations to a US-based company. This was in response to concerns over national security and the potential for user data to be accessed by the Chinese government.

Congressional Steps Toward Divestment

The divestment order was issued by the Committee on Foreign Investment in the United States (CFIUS), a government agency responsible for reviewing foreign investment in US companies. This order required ByteDance to sell TikTok’s US operations within 90 days, or face a ban on the app in the US.

In response, ByteDance filed a lawsuit challenging the divestment order, arguing that it was not given due process and that the order was politically motivated. However, the lawsuit was dismissed by a federal judge in December 2020.

Legal Implications

The battle over TikTok has raised important legal questions about the relationship between national security and foreign investment in the US. The divestment order issued by CFIUS was based on concerns over national security, but it is unclear whether such concerns can be used to justify forcing a foreign company to sell its US operations.

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Moreover, the battle over TikTok has highlighted the challenges of regulating social media platforms that are owned by foreign companies. TikTok’s Chinese ownership has raised concerns over the potential for user data to be accessed by the Chinese government, leading to calls for greater regulation of social media platforms.

Overall, the battle over TikTok has demonstrated the complex legal and regulatory challenges posed by foreign investment in the US, particularly in the technology sector. While Congress has taken steps towards divesting TikTok’s US operations, the legal implications of such actions remain unclear.

Corporate Response

US Congress confronts TikTok's Chinese owner in a corporate showdown

Company’s Defense Strategy

TikTok’s Chinese owner, ByteDance, has vowed to fight back against the US Congress’s decision to force it to sell off the app’s US operations. The company is reportedly considering several options to defend itself, including legal action, lobbying efforts, and potential partnerships with US companies.

ByteDance has argued that the move by Congress is politically motivated and violates the company’s rights. The company has also emphasized that TikTok’s US user data is stored in the US and is not subject to Chinese government control.

To bolster its defence, ByteDance has hired a team of high-profile lawyers, including former US Solicitor General Theodore Olson. The company is also reportedly exploring potential partnerships with US companies, such as Microsoft, to help address concerns about data security.

Public Relations Efforts

In addition to its legal and lobbying efforts, ByteDance has launched a public relations campaign to defend the app and its Chinese ownership. The company has emphasized TikTok’s popularity and cultural impact, highlighting its role in promoting diversity and creativity.

ByteDance has also sought to distance itself from the Chinese government, emphasizing that it operates independently and is not subject to Chinese censorship laws. The company has also emphasized its commitment to data privacy and security, noting that it stores user data in the US and other countries outside of China.

Despite these efforts, ByteDance faces an uphill battle to defend TikTok’s US operations. The company will need to address concerns about data security and potential Chinese government influence, while also convincing US lawmakers and regulators that it can operate independently and in the best interests of US users.

Economic and Political Stakes

The battle over TikTok has major economic and political implications for both the United States and China. With more than 91 million users in the US alone, TikTok has become a significant player in the social media landscape, and its popularity has made it a target of concern for US lawmakers. The recent moves by the US Congress to force the app’s Chinese owner to sell it off have raised questions about the future of the app and its impact on US-China relations.

Impact on US-China Relations

The battle over TikTok has the potential to further strain already tense relations between the US and China. The Trump administration has been vocal in its criticism of China, and the move to force the sale of TikTok is just the latest in a series of actions taken against Chinese companies. The Chinese government has responded with its own set of measures, including new restrictions on US tech companies operating in China.

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The ongoing battle over TikTok has also highlighted concerns about data privacy and security. US lawmakers have raised concerns about the app’s data collection practices and the potential for the Chinese government to access user data. China has denied any wrongdoing and has accused the US of using national security concerns as a pretext for protectionism.

Consequences for Global Markets

The battle over TikTok has wider implications for global markets. The app’s popularity has made it a significant player in the social media landscape, and its forced sale could have ripple effects on the tech industry as a whole. The move could also have implications for other Chinese companies operating in the US, and could lead to a wider crackdown on Chinese investment in the US.

The battle over TikTok is likely to continue for some time, and the outcome is far from certain. However, the economic and political stakes are high, and the impact of the battle could be felt for years to come.

Frequently Asked Questions

US Congress confronts TikTok's Chinese owner in a battle

What is the rationale behind the US Congress’s move to force a sale of TikTok?

The US Congress has expressed concerns about the potential national security risks posed by TikTok’s ownership by Chinese company ByteDance. Lawmakers have cited fears that TikTok’s data collection practices may be used by the Chinese government to gather sensitive information on US citizens. The move to force a sale of TikTok is seen as a way to mitigate these risks.

What is the status of the legislation aimed at banning TikTok?

As of the current date, no legislation has been passed to ban TikTok in the US. However, the US Department of Commerce has taken steps to restrict the app’s use in the country. In September 2020, the Department announced that it would ban TikTok from US app stores, though this decision was later temporarily blocked by a federal judge.

How might TikTok’s ownership respond to the US legislative actions?

TikTok’s ownership has previously pushed back against US legislative actions aimed at restricting the app’s use. The company has argued that it operates independently of the Chinese government and has taken steps to distance itself from its Chinese roots, including hiring US-based executives and establishing a US-based subsidiary. However, it remains to be seen how the company will respond to the latest legislative actions aimed at forcing a sale of the app.

What are the potential consequences for users if TikTok is banned in the US?

If TikTok is banned in the US, users may lose access to the app’s social media features, including the ability to create and share short-form videos. However, it is worth noting that TikTok’s popularity has led to the emergence of several alternative social media apps that offer similar features, such as Instagram’s Reels and Byte, which was created by the co-founder of Vine.

Has any legislation been passed to date regarding the prohibition of TikTok?

As of the current date, no legislation has been passed to prohibit the use of TikTok in the US. However, the US government has taken steps to restrict the app’s use, including the aforementioned ban on TikTok in US app stores.

Which other countries have taken steps to ban or restrict TikTok?

Several other countries, including India and Pakistan, have taken steps to ban or restrict TikTok over concerns about national security and user privacy. In India, TikTok was banned in June 2020, along with several other Chinese-owned apps. In Pakistan, the government has announced plans to ban TikTok unless the app takes steps to address concerns about “obscenity and immorality.”

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