Taiwan elections | National (financial) Security | US-France-China

Dear All,

The past week has been a rocky one for China’s ruling elite with anti-lockdown/zero-covid protests erupting in multiple cities across the country. This week’s edition of Sinification will not be covering this major issue for one simple reason: Chinese think-tank analysts and scholars on the mainland have remained largely silent on this particularly sensitive topic. Indeed, censors in China have been going to great lengths to prevent Chinese citizens from sending and receiving information relating to these incidents (not always successfully). On Sunday, for instance, at the height of the protests, news outlets in China remained silent about them. Tellingly, the top news item on Baidu (supposedly ranked by popularity…) was a story about good policemen taking the side of citizens who were refusing to go into lockdown.

This week’s topics are:

1. Elections in Taiwan: Respected CICIR analyst Xie Yu provides her assessment of the election results.

2. China’s financial security: Peking University economist He Xiaobei warns of the dangers of Western sanctions for China and stresses the importance of enhancing China’s financial security.

3. Macron in the US: Chinese scholars analyse French foreign policy under Emmanuel Macron and, more specifically, France’s approach to its relations with the US and China.

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Elections in Taiwan: CICIR analyst Xie Yu provides her assessment of the election results.

Some context: Taiwan’s local elections, which came to an end over the weekend, saw Taiwan's President Tsai Ing-wen resign as head of the governing Democratic Progressive Party (DPP) after her party suffered a harsh defeat at the hands of Taiwan’s Kuomintang (KMT), which is considered to be more China-friendly than its DPP rivals.

The author: The passages below are from an article that is currently being circulated by several Chinese think tanks. Its author, Xie Yu (谢郁), a respected Taiwan specialist in China, is currently the director of the Centre for Taiwan-related Affairs at China Institutes of Contemporary International Relations (CICIR) – an influential think tank linked to China’s Ministry of State Security. She has also worked for the Chinese Academy of Social Sciences’s Institute of Taiwan Studies and the Centre for Cross-Strait Relations, Taiwan Affairs Office of the State Council.

Charts: In order to help provide some extra context for both the election results and Xie’s comments, I have included three key public opinion charts provided by the Election Study Center at Taiwan’s National Chengchi University’s since the early 1990s.

Election results:

“Taiwan's ‘9-in-1’ [local] elections were held on November 26. With a total of 19.3 million [eligible] voters of which around 768,000 were new and young ‘first-time voters’. The turnout in the closely watched mayoral and county magistrate contests in these elections was about 61%, lower than in previous elections. In the 21 counties and cities, the KMT won a landslide victory with 13 seats, the DPP suffered a crushing defeat with only 5 seats, the People's Party won 1 seat and those with no party affiliation [took] 2 seats. The DPP's ‘18-Year-Old Civil Rights Constitutional Amendment Proposal’ referendum, which was held at the same time [as the elections], failed to pass. These elections were a major test of both the strength of the island's political parties and of public sentiment.”

Why the DPP was defeated, according to Xie:

“The election results saw the DPP suffer a crushing defeat … The root of the problem is that while the DPP has been dominating Taiwan and its resources, its arbitrariness [独断专行], wilfulness [为所欲为], cronyism, failures during the epidemic, vaccine scandals, [Tsai’s] fabricated [PhD] thesis and endless scandals … Public discontent has accumulated over time and eventually resulted in a tsunami of ‘DPP loathing’, which has swept away the DPP's local governing base.”

“[Taiwan’s] ‘9-in-1’ are grassroot-level elections in which voters pay more attention to the personal characteristics of candidates as well as local livelihood issues. However, due to the DPP’s governance failings, its campaign remained in the doldrums. Thus, in order to galvanise the green camp’s political base, Tsai Ing-wen had personally led the troops in a campaign to ‘resist China and protect Taiwan’ and to ‘support Team Taiwan’ … However, The [DPP’s] ‘resist China, protect Taiwan’ card ultimately failed as the same old tunes were being played and the [political] rhetoric was vacuous and stereotyped.”

“More importantly, following the [outbreak of the] Ukraine crisis, Tsai Ing-wen's administration has stepped up its reliance on the US to resist China, thereby increasing tensions in the Taiwan Strait. In particular, after Pelosi's visit to Taiwan in August and the US's promotion of the ‘Taiwan Policy Act’ in September and after a series of ‘anti-interference and anti-secession’ actions taken by the mainland, people's fears in Taiwan of a war breaking out in the Taiwan Strait have been growing day by day … The results of the ‘9-in-1’ elections prove that cross-strait confrontation is absolutely not what the people want and that ‘seeking peace, stability and a happy life’ is the predominant sentiment in Taiwan.”

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Despite its defeat, polls carried out just before the election showed the DPP as still the most popular party in Taiwan. For the most recent figures, see the My-Formosa October survey.

Polls show that the vast majority of Taiwanese people express being in favour of maintaining the current status quo and that while those hoping for unification with the mainland have dropped to just over 6%, those hoping for Taiwan’s independence at some point in the future have risen to 30%. I should point out, however, that there is an ongoing debate as to how representative of the true aspirations of Taiwan’s citizens these figures really are. See here and here for more on this.

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Xie warns that a return to power of the KMT in 2024 remains highly uncertain:

“This victory has given a great boost to the KMT’s morale. However, this does not mean that the KMT is on a straight path to return to power in 2024. The road ahead is still full of thorns:”

1. “First of all, the ‘9-in-1’ is a local election, while the 2024 election is about the overall situation [in Taiwan and abroad]. The impact of cross-strait relations, Sino-US rivalry, the situation in the Taiwan Strait and other such factors on the [2024] election will be much greater than that of the ‘9-in-1’. Moreover, it comes with more complexities and uncertainties. In particular, the impact of the US’s involvement in Taiwan's [2024] election cannot be underestimated.”

2. “Second, the result of these ‘9-in-1 elections’ is to a certain extent a ‘no confidence vote’ against the DPP. It should not be fully equated with a ‘vote of confidence’ in the KMT. Rather, it is [the result of] the DPP doing a lousy job. The KMT needs to work hard to govern well [励精图治]. If it doesn't, and given the electorate’s propensity towards counterbalancing outcomes [选民的制衡心理], the results of these elections could either have a pendulum effect or a domino effect on the 2024 election. It is difficult to tell.”

3. “Third, the experience of this electoral defeat has increased the DPP's sense of crisis. It will put a lot more energy into the 2024 election in order to defend its current governing powers and will become even more aggressive in playing the ‘resist China, protect Taiwan’ card in an attempt to pull chestnuts out of the fire. The challenge of how to respond to this will be a major one for the KMT.”

4. “Fourth, whether the KMT can reorganise and consolidate itself internally, put forward combative candidates, develop a sense of the bigger picture and have the ability to rally people together, unity and solidarity within the party will be the key to moving forward towards 2024.”

“In conclusion, there is no way forward for ‘Taiwan independence’. Peace and stability are the common aspirations of the people. Irrespective of future elections, only cross-Strait reunification can ensure the fundamental and long-term well-being of the people.”

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Recent surveys nevertheless indicate that people in Taiwan identify less and less with being either fully or partly “Chinese” (中国人) and increasingly describe themselves as solely “Taiwanese” (台湾人):

Source of the above charts: Core Political Attitudes Trend Chart, Election Study Center, National Cheng Chi University.

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China’s financial security: Peking University economist He Xiaobei warns of the dangers of Western sanctions for China and stresses the importance of enhancing China’s financial security.

Earlier this year, I wrote a short column for my former employer MERICS entitled “Western sanctions on Russia: challenges and opportunities for China”. In it I discussed the reaction of political and economic analysts in China to Western sanctions against Russia. Although Chinese experts seemed taken aback by the sheer scale of these sanctions, many argued that similar measures could not be imposed on China because the cost for the West would simply be too high. Similar arguments continue to be made today. Nevertheless, anxiety over such a doomsday prospect has not disappeared as evidenced by a recent piece by He Xiaobei (何晓贝) published last week entitled “China's financial security in the face of geopolitical risks needs to be given high priority”. In it, He (何) deliberately imagines the worst-case scenario for China, assesses the impact that such sanctions might have on her country and concludes by providing several policy recommendations. He (何) is the deputy director of the Macro and Green Finance Lab at Peking University’s National School of Development:

1. Financial security as an important part of China’s national security:

“China's 20th Party Congress Report placed ‘national security’ in a very important position. This is closely related to the complex international political environment that China is currently facing. Sino-US relations have deteriorated in recent years. The US has frequently imposed export controls on China on national security grounds, jeopardising the security of China's supply chains. For example, [the US’s] constantly increasing chip export controls are a serious threat to the development of China's AI and supercomputing industries.”

“In addition to industrial security, financial security is also an important constituent of national security and an essential building block for economic development. If geopolitical threats were to intensify, our financial security would also be at great risk.”

“In the face of the US's potential weaponisation of the dollar and its financial system, China needs to use bottom-line thinking [底线思维 = ‘a thinking skill in which the thinker carefully weighs up the risks and anticipates the worst-case scenario’] when making preparations to safeguard its financial security and defend itself against a variety of risks. Since the [outbreak of the] Russo-Ukrainian conflict, the all-round escalation of financial sanctions against Russia by a US-led coalition of 38 countries provides important lessons for China.”

2. The potential impact of financial sanctions on China:

“The economic impact of financial sanctions (combined with trade sanctions) on a country subject to sanctions is huge. As a result of Russia's importance in the EU's energy supply, Western countries have in fact provided Russia with considerable leeway in the current round of financial sanctions (especially the SWIFT sanctions) in order to avoid the consequences of a [full blown] energy crisis themselves.”

“In the wake of the sanctions, Russia issued a ‘ruble settlement decree’, which requires companies from non-Russia-friendly countries to open ruble accounts in Russian banks and pay for their purchases of Russian gas in rubles. This strategy has been effective in easing Russia's balance-of-payments crisis due to the heavy dependence of EU countries on Russian gas imports.”

“However, China is not in a position to implement a similar response.”

“China does not have [Russia’s] unique characteristics. If, therefore, the US and its allies were to impose sanctions on China, the Chinese financial system could be fully decoupled from the international financial system.”

“If the US were to sanction the People's Bank of China, the US Treasuries and a significant portion of other US dollar-denominated assets in our foreign exchange reserves would be frozen and would not be able to be traded. If the EU, Japan, Switzerland and other countries were to join the US in imposing sanctions [on China], all of our foreign exchange reserves would be frozen and our ability to make external payments would then be seriously impaired: with businesses and citizens not being able to exchange foreign currencies, not being able to import most products and services, and with [Chinese] entities possibly defaulting on their foreign debts. The renminbi would also be under considerable depreciative pressure.”

“In the event that the US and its allies were to impose SWIFT sanctions on China, it is entirely possible that Chinese financial institutions would be targeted more comprehensively [than Russian ones], as was the case with Iran. Should this ever happen, not only would foreign currency operations (whether cross-border or domestic) be impossible, but some cross-border RMB payments and receipts would also be disrupted. This is because China's RMB cross-border interbank payment system, CIPS, also uses the SWIFT messaging function. If this were to happen, the impact on China's economy and financial sector would be even more severe than that on Russia’s, and could be similar to that suffered by Iran’s … whose GDP shrank by 20% between 2011-2016 (in local currency terms; 36% in US dollar terms), unemployment rose to 20% and inflation at one point reached 60% as a result of Western financial and trade sanctions.”

3. The impact of financial sanctions on the international monetary system (and on China’s future strategy):

“As a result of the financial sanctions imposed by the US for over a decade, a number of countries have begun to examine and adjust their financial layouts, thereby affecting to some extent the current structure of the international monetary system. These new trends offer us important insights [which will be useful] when formulating China’s medium to long-term response strategy.”

“The first is the establishment of a new cross-border payment system … According to reports, both India and China are interested in linking up with SPFS [Russia’s alternative to SWIFT] with China considering linking its RMB cross-border payment system CIPS with SPFS.”

“The second is the growing emphasis on the use of local currencies for the settlement of cross-border trade, particularly of bulk commodities such as energy.”

“The third is the diversification of reserve assets.”

4. Looking to the future:

“First, … If the US and its allies were to remove Chinese banks from SWIFT and ban Chinese entities from using the US dollar and the cross-border USD clearing system CHIPS, some cross-border RMB transactions could theoretically still be carried out through CIPS, but the volume of payments cleared would be very limited.”

“Second, although the traditional cross-border payment system relies on the financial architecture [largely] controlled by the US and Europe, the development of digital currencies, especially the central bank digital currencies, will play a major role in the future transformation of the cross-border payment system. China should be an active participant in the development of a global cross-border digital currency payment system and in international standard setting. China has already taken the lead in issuing its digital renminbi but developed countries (led by the G7) are currently leading the international standard-setting and [the construction of] a global governance framework for central bank digital currencies … As Eichengreen (2022) points out, cross-border payments using central bank digital currencies need to be built on a linkable and interoperable platform. But how can China and the US agree on a way of governance once these foundations have been laid? Such issues need to be addressed effectively, otherwise they will affect China’s financial security in the long run.”

“Finally, advancing the internationalisation of the RMB is the basis for safeguarding our financial and economic security. Irrespective of whether it is the traditional or a new payment system that is used, it is the expansion of the RMB's international use that is key to limiting the impact of financial sanctions … In fact, the internationalisation of the RMB is faced with a bottleneck due to its incomplete convertibility and lack of the ingredients necessary for it to serve as an international reserve currency. Although China has gradually eased restrictions on cross-border capital flows, increased the flexibility of the RMB’s exchange rate and further opened up China's bond market, there is still an urgent need for some fundamental reforms in order to increase the incentives and confidence of foreign investors [seeking] to hold RMB. This would help further promote the development of the RMB’s internationalisation and strengthen the resilience of China's financial system in the face of external risks.”

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Macron in the US: French foreign policy as viewed by Chinese scholars

French president Emmanuel Macron is currently on a three-day state visit to the United States during which relations with China are likely to be discussed. I am using this occasion to provide a brief overview of how Chinese scholars have been analysing French foreign policy under Macron and, more specifically, France’s approach to its relations with the US and China. The following quotes go back over the past year and have been ordered chronologically:

Wang Zhan (王战) – Wuhan University professor specialising in French studies. Co-authored with two of his students Tian Siyu (PhD) and Sun Xiaohan (MA). Published in October 2021:

“It is clear that Macron's diplomatic thinking has gone beyond France’s traditional dichotomy between ‘Atlanticism/Gaullism-Mitterrandism’. On the one hand, he has frequently interacted with Trump, followed the US in its development of ‘neoconservatism’ and worked hard to build a ‘Franco-American axis alliance’ [法美轴心盟友], which all tends to revert back to the dead end of ‘Atlanticism’. On the other hand, Macron has shown himself to be an ardent defender of "multilateralism", constantly challenging US hegemony and improving relations with major powers such as Russia, China, India and Japan. Macron has combined these two approaches in parallel without hindrance and has adjusted them by, for example, toning down France's traditional ‘human rights diplomacy’.”

“At first glance, there may well be a ‘honeymoon period’ in Franco-American relations, but Macron's goal of staunchly defending France's status as an independent and autonomous great power and strengthening the EU and its ‘strategic sovereignty’ in defence will never waver.”

“From Charles de Gaulle to Macron, despite the differences in their respective political orientations and diplomatic styles … the safeguarding of France's status as an independent and autonomous great power has always been the primary objective of French diplomacy. This line of thought has deeply influenced the formulation of French policy towards China.”

Wu Guoqing (吴国庆) – Researcher at the Institute of European Studies, Chinese Academy of Social Sciences (CASS). Published in December 2021:

“Macron's ‘new multilateralist diplomacy’ [新多边主义外交] is characterised by realism [现实主义] and pragmatism [务实主义], by being tactical and instrumental, innovative and efficient, and by combining multilateralist diplomacy with ‘minilateralist’ diplomacy.”

“Macron's ‘new multilateralist diplomacy’ consists of five aspects: opposing Trump's unilateralism and trade protectionism as well as resisting ‘Biden-style multilateralism’ [拜登式多边主义]; emphasising European sovereignty and strategic autonomy; promoting an international balance of powers and resolving disputes through consultation and negotiation; strengthening multilateral cooperation against terrorism; and taking an active part in, and promoting, global governance.”

“Although it has not been able to put a complete stop to the US’s unilateralist and protectionist behaviour, it has to a certain extent been able to curb some of these practices, thereby weakening their negative impact on the international community and providing momentum to Macron's ‘new multilateralist’ [approach to] diplomacy. This has set an example among Western countries.”

Zhang Jian (张健) – Deputy director of the China Institutes of Contemporary International Relations (CICIR). Published in February 2022:

“The policies promoted by France within the European Union, especially the construction of European sovereignty and strategic autonomy, not choosing sides between China and the United States (i.e. Europe will not follow the US in containing China) etc., run counter to the interests of the United States. The US will therefore spare no effort to prevent Europe from becoming a ‘French Europe’ [法国的欧洲] by exerting its influence on Germany, Northern Europe and the countries of Central and Eastern Europe. The prospect of a ‘frenchified’ Europe [欧洲的法国化] is arguably the least favoured by the US. This is the greatest hindrance to France being able to push forward its European agenda.”

Wang Shuo (王朔) and Wu Yiwen (武亦文) – Wang is a professor at the School of International Relations of Beijing Foreign Studies University (BFSU) and Wu is a lecturer at BFSU. Published in February 2022:

“Macron has continued de Gaulle's independent and autonomous style of diplomacy, emphasising France's status as a great power and its role in [helping] balance relations among major powers … [However,] China should not trust France's independence from the US blindly. France's overall approach to its Indo-Pacific strategy has always been on the same wavelength as the US’s and it relies on US influence to gain a foothold in the Indo-Pacific region. It is worth noting that France has, on several occasions, sent warships to support US operations in the South China Sea. Although France emphasises its strategic autonomy, it will not turn against the US as a result of its cooperation with China. Thus, China must not ignore France's inevitable closeness to the US [亲美性] and the pressure and risks this may bring.”

Zhang Ji (张骥) – Researcher at Fudan University’s School of International Relations and Public Affairs. Published in February and March 2022:

"The strategic relationship between France and China is relatively secondary. Neither country views it as its key bilateral relationship. Yet both countries rely on it to balance their most important strategic relationship, that with the United States." (paraphrased by Zhang Jinling, a researcher at the Chinese Academy of Social Sciences)

“The spirit of independence and autonomy embedded in Gaullism are still of great relevance and strategic value, both in the past and in the present … [However,] it would not be right to exaggerate the anti-American nature of [Macron’s] neo-Gaullism [新戴高乐主义] represented by [France’s] ‘strategic autonomy’. France's opposition to, and independence of, the United States has its limits. [Moreover,] independence from the United States does not mean a tilt towards China. In essence, France's "strategic autonomy" is inseparable from the Western alliance and inseparable from the identity and attributes of Western and so-called ‘democratic’ countries. Do not expect France's independence of the US to mean an endorsement of, and a preference for, China.”

“Besides, France is not strong enough to act independently and must rely on the EU. At the same time, France is also not strong enough to lead the EU towards a real and unified 'strategic autonomy', especially as its policy towards the US is increasingly challenged by small and medium-sized countries who tend to favour closeness with the US rather than independence from it. Thus, France's independence from the US is characterised by weakness [具有软弱性] and a tendency to compromise.  This is evident both in its approach to NATO and to AUKUS. It also reflects the flexibility [灵活性] of French diplomacy.”

Ding Yifan (丁一凡) – Former Deputy Director of the World Development Research Institute, Development Research Centre of the State Council. Published in March 2022:

"If Macron is re-elected and France's EU policy continues to develop in a direction conducive to greater EU integration and autonomy, China will certainly support him. If France's China policy is two-sided and occasionally seeks to cater to US plans to contain China in the Indo-Pacific, China will certainly hit back."

A group of seven scholars from Fudan University. Published in April 2022:

"Macron is expected to continue his relatively pragmatic and balanced policy towards China, a policy that has contributed to the overall stability of Sino-French relations during Macron's first term in office."

Xue Cheng (薛晟) and Zhang Ji (张骥) – Xue is an associate professor in the Department of French Studies at Shanghai International Studies University (SISU) and Zhang is a researcher at Fudan University (as previously mentioned). Published in May 2022:

“France's ‘strategic autonomy’ in diplomacy is increasingly reflected in its search for ‘independence’ amidst the strategic rivalry between the US and China and in its attempts to lead the EU into becoming a ‘third pole’ in global affairs. While its ‘competition’ with China is increasing, so is its ‘need’ for China. As things stand, after Macron's victory in the 2022 elections, France's two-sided approach to China will probably continue: in the areas of trade and economic matters, climate change, environmental protection, global governance as well as people-to-people and cultural exchanges, the prospects for future cooperation between France and China remain very promising. On issues such as ideology, France will probably continue to unite with the EU in maintaining a critical stance towards China.”

“At the bilateral level, France will probably continue to look forward to future bilateral cooperation with China. However, at the multilateral level, such as at the level of the EU, France may continue to intensify its criticism of China as a means of demonstrating its ‘political correctness’ [to other Western countries].”

Yang Chengyu (杨成玉) – Associate researcher at the Chinese Academy of Social Sciences (CASS). Published in June and July 2022:

“Macron's re-election will help China keep a hold on Europe and stabilise it as well as mobilise EU-China relations in order to counteract the US’s strategy against China … [We should] make use of Macron's de facto position as the EU’s leader and mobilise him into playing a constructive role in the development of China-EU relations.”

“Over the past five years, Macron and his government have pursued a steady and prudent policy towards China, valuing China's growing overall strength and international status, daring to promote cooperation with China, and working together with Beijing to maintain a healthy and stable development of Sino-French relations.”

“Since the outbreak of COVID-19, the two countries have stood by each other and have provided support for one another on issues such as the fight against climate change and biodiversity conservation. France was an active supporter of Beijing’s Winter Olympics and stated publicly that it would not follow the US’s ‘diplomatic boycott’ of the Games.”

Yao Lan (姚岚) – Researcher at the Centre for Francophone Regions of Tongji University. Published in August 2022:

“France's tradition of independent diplomacy and its support for multilateralism has always been clear. At the same time, for geopolitical reasons, France differs from the United States in its stance on China. On the other hand, however, France still puts the overall interests of the Western camp first. After the Madrid summit, France and Australia, who had been at odds over the nuclear submarine incident, renewed their friendship, agreed on a new cooperation agenda with defence and security as its main pillars and on setting up a presence in the Indo-Pacific region. This is a sign of France’s willingness to accommodate the new expansionist strategy of the US and NATO.”