Saturday, October 22, 2022

G20 to showcase China’s high-speed rail - Jakarta and Beijing plan to demonstrate their partnership in making transportation more efficient

First posted in Asia Times. More than 1,300 journalists have already registered to cover the Group of Twenty summit to be held on November 15 and 16 in Bali. The pre-summit buzz seems to be focusing on such questions as: Will US President Joe Biden attend? If he does, will he meet with Russian President Vladimir Putin? If they meet, will Ukrainian President Volodymyr Zelensky be invited to sit in? If so, will there be any substantive outcome? So on and so forth. The Western media missed mentioning an unprecedented event that will take place at the G20. Indonesian President Joko Widodo, widely known as Jokowi, will be taking his Chinese counterpart Xi Jinping for a ride on Indonesia’s first bullet train. Taking Xi for a ride The short ride around Bandung in West Java will be a test run at a more leisurely pace than the train’s designed speed of 350km/h. Full commercial operation after the shakedown of the high-speed railway (HSR) is expected to begin in June 2023. By then, the travel time from Jakarta, the national capital, to Bandung, the capital of West Java, will shorten from more than three hours to 40 minutes. The 142.5-kilometer linkage is the first phase. The second phase at a distance of 520km will extend the HSR from Bandung to Surabaya and will begin later in 2023. When completed, the HSR will in essence run the length of Java, the most populated island of Indonesia. Kereta Cepat Indonesia China will own and operate the HSR. KCIC is a joint venture, 60% owned by Indonesia and 40% by China. In 2008, Japan first proposed the high-speed rail project connecting Jakarta to Surabaya. After a lot of back-and-forth wrestling over the required financial investment, Indonesia finally decided to take a serious look at the project in 2015. To Japan’s surprise, out of the blue, China submitted the winning bid. Since the global financial crisis of 2008, China had been busy investing in infrastructure. By 2015, China had become the owner of the world’s largest network of high-speed railways. China used its experience and, ahem, track record to qualify for the Indonesia bid. Widodo went to Japan and China to compare the two HSR systems for himself. Not only has China’s system exceeded Japan’s Shinkansen in performance, but China’s proposal included technology transfer and willingness to assume of cost overruns. Japan would not commit to either. China ready to build HSR anywhere Taiwan-based commentator Lai Yueqian (赖岳谦) has explained why this G20 showcasing is a highly significant development. The test ride is Beijing’s way of announcing to the world that China is ready to market and build HSR anywhere in the world and Indonesia is China’s partner in this venture. Lai has advanced degrees in international relations from France. He foresees that the KCIC-owned HSR could extend north from Jakarta to Singapore, through Malaysia and Thailand into China and link up with China’s own HSR to become part of the Belt and Road Initiative (BRI) to Central Asia and beyond. G20 members account for 85% of the world’s gross domestic product, 75% of international trade and two-thirds of the world’s population. There is no more ideal venue than the leaders’ summit for the host country, Indonesia, and China to unveil their intentions to contribute to global trade by building transportation infrastructure around the world. When China first began to consider building an HSR network to cover its vast territory, it approached Japan and France and proposed a 50/50 joint venture that would include their technical assistance. Those two countries had been up to then the only sources of HSR technology. Both refused the deal that would include technology transfer and both assumed that China could not go it alone. Instead, China has since built HSR through mountains, deserts, over open waters, high altitudes and permafrost and proves that it can go anywhere. The railcars are being supplied by China Railway Rolling Stock Corporation (CRRC) in adherence to their specifications for the Fuxing railcars; Fuxing represents China’s highest level of HSR technology. China to share HSR technology These cars feature advanced smart technology, safety protocols, and strong environmental adaptability. Called electric multiple units (EMUs), the cars are equipped with 2,500 monitoring points for timely detection, early warning and diagnoses of all key systems. As reported by Straits Times, “The Jakarta-Bandung high-speed railway will enrich the development of infrastructure facilities and generate fresh growth points in both the services sector and trade in services in Indonesia and Southeast Asia.” The Biden administration and cohorts in Washington favoring confrontation with China are likely to be oblivious to the implications of China’s success in HSR. Earlier this month, I suggested that sanctions on sales of semiconductor devices and equipment to China is rule-based disorder. Since then, Biden has doubled down and imposed virtually a total ban on semiconductor trade with China. Speculations are rife in Taiwan that should China decide to invade the island in response to the American chokehold, the US military has contingency plans to hustle key technical and management staff of Taiwan Semiconductor Manufacturing Company (TSMC) on to a plane and fly them out to Arizona. Mind you, this is based on American assumptions, not on any evidence of China’s actual intentions. In effect, Biden’s chip ban will disrupt and damage a safe, secure and booming global semiconductor industry and turn it into tatters and pieces. American producers from process equipment to design software systems to advanced devices will all suffer drastic reduction in revenue and potentially fatal loss of funds to develop the next generation of advances. As with HSR, China will eventually succeed in circumventing America’s ban on semiconductor trade. Then Washington will experience a “see I told you so,” self-fulfilling confirmation that China poses a threat to America’s security. In the meantime, Saudi Arabia has told Biden to “get lost” by cutting oil production instead of increasing output as he requested. Biden’s diplomatic response is to decide which cudgel to use on the Saudis. Talk about how to lose friends and piss off people. The United Arab Emirates has also followed Saudi Arabia’s footsteps by becoming China’s second-largest (after Saudi) economic partner in the Middle East. China’s COSCO Shipping has chosen Khalifa Port in Abu Dhabi as the base of its Middle East operations. Everybody in the world, except the Americans, seems to understand that bilateral trade builds and strengthens bilateral relations. Disrupt trade and those relations start to drift. Missed opportunity CRRC is the company, I reported more than three years ago, that set up assembly facilities outside of Chicago and Boston to replace outdated subway cars with new, state-of-the-art cars at a cost 20% lower than competitive bids and containing more than 60% made-in-America content. The first delivery was met with rave reviews and praise as an outstanding case of win-win success. Thus encouraged, the Chinese company started to make plans to study the feasibility of replacing the subway cars in New York and Washington, DC. That was when the wise old folks in Congress, such as the Senate majority leader, Chuck Schumer, put a kibosh on the process. Senator Schumer raised the alarm that subway cars are perfect for Beijing to use for spying on the American commuters. Thus, today New Yorkers continue to ride on the noisy, dilapidated, rocking and rolling, more than century-old subway cars, secure in knowing that no one is going to spy on them. By golly. At this point, all Washington seems to know is to take cheap shots at China, denigrate beneficial projects around the world, and obstruct China’s progress wherever possible. The rest of the world is increasingly skeptical and unsure that following the US is in their best interest.

Sunday, October 9, 2022

US pushes ‘rule-based disorder’ Latest set of sanctions targeting the chip industry will do no one any good, certainly not the US itself

First posted in Asia Times. Upon becoming president of the United States, Joe Biden immediately set forth to promote “rule-based international order,” ostensibly for the world community, but the message was really intended for China. The “world order,” according to Biden, was for Beijing to conduct its foreign affairs in line with Washington’s expectations. Now into the second year of his regime, it has become increasingly clear that Biden’s idea of order is actually disorder and is causing chaos not only in the world but especially to the American economy. The latest example is the most recent series of sanctions and embargoes forbidding sales of semiconductor chips and manufacturing equipment to China. Up to now, China has been far and away the largest buyer for semiconductor processing equipment and is the major market for advanced chips designed by such Silicon Valley companies as Nvidia and made by such foundries as Taiwan Semiconductor Manufacturing Company (TSMC). The ban seeks all the members of the semiconductor industry, foreign and domestic, to go cold turkey and stop doing business with China. Heretofore, the industry has been a prime example of a virtuous circle created by globalization. In simplified terms, we can say that innovations in chip designs for new uses are created in Silicon Valley, fabricated by foundries in Taiwan and South Korea, and then shipped to China to assemble into devices and final products, which are then sold around the world. Companies engaged in making fabrication and processing equipment kept pushing the boundaries of their technology and collaborated with the foundries to produce the next generation of advanced chips. The equipment companies were not just in the US but also in Japan and the Netherlands. Everyone wins in a virtuous circle In a virtuous circle, everybody does what he does best and contributes to a supply chain at the most cost-effective efficiency. Everybody wins in such a circle. By breaking up the circle, everybody loses. South Korean foundries such as Samsung sell 40% of their output to China, including foundries they operate inside China. China represents around 30% of sales for semiconductor fabrication equipment from American companies such as Applied Materials and Lam Research. China is also the most important market for ASML, the Netherlands-based company that is in essence the only maker of advanced lithographic machines. Despite the just-imposed ban, the company has continued to increase its local hire in China to support its sales and technical services. Every member of the circle now faces a perplexing dilemma: Do they obey the Washington edict at the expense of their financial interests and companies’ futures? Or do they pay a lot of money to lawyers and lobbyists to plead on their behalf and secure certain dispensations that would allow their continuing to do business with China, perhaps at a more subdued level? Or do they find questionable routes and intermediaries to continue their sales to China? Or can they flat out defy Washington? In theory, their lost sales to China would be replaced by the expansion of a new and growing US market, as foreign companies such as TSMC and Samsung are enticed or coerced into building new fabs in the US. The challenge is whether other members of the circle can survive long enough while waiting for the new capacities in America to make up the immediate shortfall around the world. Furthermore, there are serious concerns and doubts as to whether new fabs could actually happen in the US. The cost of defying Washington’s order will be high, but the industry can already see that the cost of yielding to Biden’s sanctions makes no sense given the devastating consequences. TSMC obediently gave up on serving Huawei, its most important customer, under orders from Donald Trump’s White House more than two years ago. Now it apparently has given up on the rest of the China market in exchange for locating fabs in the US. Since then, the market capitalization of the company has declined by half from its peak. Washington offers losing propositions Washington doesn’t offer any incentives or rewards, just threats and intimidation if they are not obeyed. This is what a hegemon does, but increasingly the world is disenchanted and not convinced South Korea is the latest to feel the sting that goes with being a loyal American ally. Washington expected the Koreans to give up their huge markets in China, and the reward was for their president to face a rude and very public brushoff when he greeted Biden at the UN General Assembly (UNGA) in New York recently. According to K J Noh, who understands the Korean language, South Korean President Yoon Suk-yeol cursed in the foulest terms at the way he was treated. Hard to blame him though. Biden is asking his country commit economic seppuku but acted like Yoon was some Asian scumbag – another gaffe that the White House staff will have to repair. The European Union has also learned that there is no upside in being a groupie of American foreign policy. By joining the US in supporting the Ukrainians and sanctioning Russia in the Ukrainian war, the EU is facing a bleak cold winter with a shortfall of fuel to heat homes and fire the boilers that the German industries will need to keep operating. Facing record-breaking inflation, the people in the EU are becoming restless and beginning to agitate and question the reasons for antagonizing Russia and bringing economic misery on to themselves. Shortly before the UNGA, the Shanghai Cooperation Organization concluded its annual conference, held in Samarkand, Uzbekistan. Under China’s leadership, the SCO welcomed Iran and Belarus as new members, with a long list of other nations applying to join, including Turkey, Saudi Arabia, Egypt and others. The SCO now accounts for half of the world’s population and more than 25% of global GDP. Non-aligned countries find the SCO increasingly attractive as an antidote to American unilateralism. Geopolitical rivals such as India and Pakistan or Saudi Arabia and Iran can leave their contentions outside and join the organization to work on trade and economic cooperation, and collaborate on combating terrorism. Unlike the American led groups of nations, political or military alliances are specifically excluded within the SCO. There are, by the way, no nations waiting to join the US alliance to contain China. As I observed in June, the US approach to recruiting others to join in an alliance to contain China is a faltering strategy that will lead to America’s self-destruction. Biden’s insistence on decoupling China from the semiconductor supply chain is another step in that direction. Another step to self-destruction Washington seems not to have anticipated China’s likely response to the latest sanctions. Its semiconductor industry is redoubling its efforts and investments to develop technical advances that would replace the chips and fab equipment that have been cut off by the American sanctions. China has the raw technical manpower graduating from their colleges and universities every year and has recruited senior engineers and fabrication technologists – Asia Times called them godfathers – from Taiwan, Japan and South Korea to advise on the technical and management direction. News from China already indicates that they are making breakthroughs getting around the American embargoes. Even American analysts say that the trade barriers are doomed to fail. In the long run, the Biden sanctions will help China create its own independent semiconductor industry and leave the currently established providers out in the cold. When and if China decides to retaliate in full, it has the wherewithal to inflict pain in kind. China’s CATL is the world’s largest producer of lithium batteries for electric vehicles. The company has announced plans to build a US$7 billion plant in Hungary to serve European automakers. Its plans for North America are on hold since Nancy Pelosi’s jaunt to Taipei. China also has a virtual stranglehold on the world supply of rare earth minerals, some crucial in strategic military applications, and can elect to restrict sales to the US. Most recently, the Pentagon was aghast to find that the engine of the F-35 fighter depends on rare-earth magnets made in China. This latest “discovery” shows the deep integration of the two major economies and the difficulty of disentangling and decoupling the two. It also can show the destructive power of paranoia in Washington. The wise old gnomes in the bowels of the Pentagon probably wouldn’t suggest tearing apart all the existing F-35s to remove the magnets from China, but could certainly see this matter as another “urgent” reason to increase the defense budget greatly in order to develop a domestic replacement. The hostile drumbeats from Washington reverberate within the echo chamber for the benefit of the handful of allies sitting inside, seemingly unaware of the ongoing peaceful cooperation between China and the rest of the world. It’s hard to know when the American people will say enough is enough and vote for a thorough reform of how Washington makes friends instead of enemies.