Pissing at Yasukuni, Big Fund 3, Middle East, Power of Siberia 2 in doubt - Week in Review #20

Hi folks, welcome to China Translated (previously known as “Lost in Translation迷失南京”), where I provide you with a practical reading of the events that I think have a lasting impact beyond news cycles in China.

#1 Piss and graffiti at Yasukuni by an old “friend” of us

An old “friend” of this newsletter whom some of you may remember from my previous review, a populist KOL named “铁头哥Ironhead Brother”.

So, Ironhead Brother is this influencer famous for his rant about the perceived wrongdoings of private businesses, who once got Oriental Education, China’s largest education company, in huge trouble. Authorities must have paid attention to this guy for a long time but never had a chance, until earlier this year when he was immediately censored after he openingly chatted about his prostitution experience.

You would think such a person would disappear forever from public view. But no, he made another bold (and smart) gambit to extend his shelf-life, and this time of international proportions.

He went to the controversial Yasukuni Shrine in Japan and did some dirty work about it, claiming it as a revenge for Japan’s dumping of nuclear wastewater. You can watch the video below for details:

This may not be such a big event overseas, but domestically, he has created widespread discussions, even though his own social media accounts are still censored.

And, how are people talking about this? The great majority of the discussion that I can see is praising this guy’s “heroic” act. “What a courageous thing to do!” “So great!” “You did something I wanted to do but never dared!”.

To be sure, there are also criticisms of such an indecent act. But so far those dissenting voices are far lower compared with the cheering crowd. The relative proportion between the two camps is roughly in line with predictions based on my “Traditionalist-Liberalist” duo-China model.

For this review, I will not comment on whether there is a fundamental problem with Japanese people to include the Japanese equivalents of Hitler, Göring, Himmler, and Heydrich in the nation’s sacred worshipping place, nor will I comment on whether Chinese people’s nationalistic anger stirred by this type of worship is legitimate, nor will I comment on whether it is appropriate for Japan to dump nuclear wastewater (however treated) into open ocean without other APAC nations’ approval.

I will only talk about what this type of act reflects about the complex dynamics between censorship and public opinions in China.

I just said such an act was a “smart” one, because it is smart for Ironhead Brother himself. He really knows what type of content can put the government in a very difficult position, because nationalism, especially the one that’s related to Japan, touches on the biggest “political correctness” in China, and is hard to negate.

Just read this statement from Spokeswoman Mao Ning of the Ministry of Foreign Affairs in response to this event to see how painful they feel:

“我注意到有关报道，我想强调的是靖国神社是日本军国主义对外发动侵略战争的精神工具和象征，日方应当切实信守正视并反省侵略历史的表态和承诺，以实际行动取信于亚洲邻国和国际社会。同时我也希望再次提醒在外国的中国公民遵守当地的法律法规理性表达诉求。”

“I have noted the relevant reports. I want to emphasize that the Yasukuni Shrine is a spiritual tool and symbol of Japanese militarism's aggressive wars. Japan should genuinely adhere to its statements and commitments to face and reflect on its history of aggression, and take concrete actions to gain the trust of its Asian neighbors and the international community. At the same time, I would like to once again remind Chinese citizens abroad to comply with local laws and regulations and express their demands rationally.”

So basically, in this particular case, a single, unscrupulous man leads the narrative for the entire state apparatus, and there is really nothing the censors can do about it.

Power can really be a curious thing in China. You would think the state has absolute power to control narratives, but the state can also fall victim to the narrative that itself helps to foster.

It’s also a reminder that there is a boiling nationalistic sentiment in China. The Communist Party that you hate is barely keeping a lid over it for you. Within this context, will some of you continue to be as naive as to wish for a regime change as people like Pottinger and Gallagher eagerly called for?

(For those of you who don’t know, this thread by

Jordan Schneider

of

ChinaTalk

is a good run-down of P&G’s position)

[For the rest of this article, I will comment on 1) the newly launched “Big Fund Phase 3” for chip investment, 2) the deepening financial ties between China and the Middle East, and 3) China’s rumored rejection of Russia’s gas proposal. They will be behind the paywall for 5 days. Please consider to be my patron and join my community if you wish to read it sooner. If you are a paid subscriber of Baiguan, please DM me for complimentary access]

#2 The “Big Fund” Phase 3

The Big Fund Phase 3 was launched, with a committed capital of ~$48bn, larger than the previous 2 funds combined. Reuters:

China has set up its third planned state-backed investment fund to boost its semiconductor industry, with a registered capital of 344 billion yuan ($47.5 billion), according to a filing with a government-run companies registry.

The hundreds of billions of yuan invested in the sector puts into perspective President Xi Jinping's drive to achieve self-sufficiency for China in semiconductors. That commitment has taken on renewed urgency after the U.S. imposed a series of export control measures over the last couple of years, citing fears Beijing could use advanced chips to boost its military capabilities.

This fund is huge. The same dry powder could have been used to buy back stocks, or to finance the housing buy-back plan, or to give some consumption vouchers to citizens. To the contrary, the leadership firmly believes that investing in so-called “New Productive Forces” and thereby increasing China’s total factor productivity, provides a better return on investment.

Besides its huge size, the most notable detail is who has invested in those funds:

• Ministry of Finance (~17.5%)

• China Development Bank (~10.5%, China’s main policy bank)

• 6 of China’s largest state-owned commercial banks (~33%, the single largest shareholding block)

• Local government investment vehicles of Beijing, Shanghai, Shenzhen & Guangzhou (~27%)

• Other SOEs such as China Tobacco, Chengtong, SDIC, China Resources, and China Mobile (12%)

This is list of who is who that still got some big money in China vs. who may not have as much money as before. The one who got the money are: the central government (as represented by MoF and CDB), the big banks (who invested in the “Big Fund” for the very first time), some cash-cow SOEs (especially China Tobacco and China Mobile, who invested in every phase of the Big Fund).

Unlike Phase 2, when many provinces such as Zhejiang, Anhui, Fujian etc. also contributed a lot, this time only the local investment vehicles of the 4 first-tier cities joined, showing the hard strain on local government finances since then.

We have talked a lot about “patient capital”. This lineup is also a good reminder of where “patient capital” may come from in today’s China.

Will this be effective? Only time will tell.

#3 Deepening capital ties with the Middle East

I have long commented on the increasing amount of Middle East investment in China, in real estate, software and electric vehicles, etc.

I see this trend as part of a major re-alignment of capital flow relationship - from the old US-China capital flow to the intra-Eurasia capital flows. The vanguard of this new re-alignment has come from the Middle East.

This past 2 weeks, we have witnessed such re-alignment entering deeper and more sensitive areas, including generative AI:

Saudi Arabia’s Prosperity7 Ventures, LLC joined the latest financing round for up-and-coming startup Zhipu AI, becoming the first known foreign firm to back a major Chinese player in generative artificial intelligence.

computers and servers:

Lenovo Group said on Wednesday that it had entered into an agreement with a unit of Saudi Arabia's sovereign wealth fund to issue $2 billion worth of bonds, and will set up a new manufacturing facility in the Middle East to further expand its global presence.

and asset management:

Qatar's sovereign wealth fund has agreed to buy a 10% stake in China's second-largest mutual fund company, two sources said, underscoring Beijing's increasing ties with the Middle East amid rising tensions with the West.

Qatar's proposed investment in China Asset Management Co (ChinaAMC) comes amid a flurry of activities between China and Gulf countries to deepen political, economic and financial ties, as geopolitical tensions heighten around the Gaza War and the Russia-Ukraine conflict.

At the higher level, Mohammed Al-Jadaan, the Minister of Finance of Saudi Arabia met with China’s Finance Minister 蓝佛安Lan Fo’an and top securities regulator 吴清Wu Qing on May 20.

Saudi Finance Minister met China’s securities regulator

According to readout from the China side, Mr. Al-Jadaan and Mr. Wu talked about

加强中沙资本市场合作、共同推动经济绿色转型等议题

Strengthening Saudi-China capital market cooperation, and joint efforts to drive forward green economy transition

It’s obvious such re-alignment will continue to deepen. Will more European money follow suit? Will US capital just sit back and watch this from the sidelines forever?

#4 Rejecting Russian gas

Some ties in Eurasia are deepened, but some are weakened.

Power of Siberia 2 gas pipeline between Russia and China seems to have stalled again according to a Financial Times report:

Russia’s attempts to conclude a major gas pipeline deal with China have run aground over what Moscow sees as Beijing’s unreasonable demands on price and supply levels, according to three people familiar with the matter.

…

While Russia has insisted it is confident of agreement on Power of Siberia 2 “in the near future”, two of the people said the impasse was the reason Alexei Miller, Gazprom’s chief executive, had not joined Putin on the Russian leader’s state visit to Beijing last month.

You would imagine that China and Russia, ever closer to each other geopolitically, would happily agree on a major gas pipeline deal to help each other ease dependence on the West. But on the contrary, this project has been stalled time and time again.

If Russia and China are indeed friends of each other, then this is a pair of “friends” who like to drive hard bargains at each other.

I believe the West, ever “moralistic”, tends to over-estimate the ideological aspect of Sino-Russia relationship (of which there is almost none), but far under-estimate the exact nature of it: that it is a transaction-based relationship between a cunning polar bear and an equally cunning panda, that it is a natural alignment based on common interests at this particular point in time, given the circumstances.

Therefor, for a shrewd chess player looking to tear up this pair, s/he will try to the best moment to find the party willing to sell itself to the highest bidder.

But as long as the West remains ideologically-minded, the Power of Siberia 2 will still come. It’s just a matter of time. And any sanctions, or threat of sanctions will only serve to harden this interest-based “alliance”.