A long way from Shanghai

Best pals Xi Jinping and Russian President Vladimir Putin met on July 3-4 at the 24th Summit of the Shanghai Cooperation Organisation (SCO), the Eurasian security and defence club designed to counter the influence of the US and its allies. In the Kazakh capital Astana, where Belarus became the 10^th member, Xi urged the SCO to resist external meddling (i.e. by the US), while Putin was due to speak about creating a new set of Eurasian collective security treaties.

The Russian leader said the SCO plays an important role in creating a new, fairer world order. He also hailed the increasing use of national currencies instead of the dollar in trade between SCO countries, and called for a new payment system within the group. Western sanctions have cut Moscow off from traditional payment systems such as SWIFT, and frozen hundreds of billions of dollars in Russian foreign reserves.

Behind the bonhomie, Moscow resents China’s growing influence in Central Asia. On arrival in Astana, Xi recalled his visit 11 years earlier when he first raised the Silk Road Economic Belt, which has swelled into the globe-girdling Belt and Road Initiative. As Beijing moves quickly to expand its sway in Central Asia, Russia is pushing back hard, reported The New York Times.

The friendship that Putin and Xi declared as having “no limits” is colliding with Beijing’s global ambitions, wrote The Wall Street Journal. Across the strategically situated region, Beijing is drawing local economies into its orbit. Chinese investments are diverting young workers away from Russia, a Chinese-funded railroad promises Russia-bypassing connections with Europe, and Chinese renewable energy projects reduce reliance on Russian gas.

Why It Matters

The summit theme, Strengthening Multilateral Dialogue – Striving for Sustainable Peace and Development, won’t convince Western critics frustrated by Xi Jinping’s ongoing, highly significant support for Putin. Their latest meeting came in the same week the World Bank upgraded Russia to a “high-income country”, as its war-driven economy continued to defy sanctions.

Moreover, Chinese and Russian companies are developing an attack drone similar to an Iranian model deployed in Ukraine, edging closer to Beijing providing lethal aid, reported Bloomberg. “China takes every effort…to argue that somehow it’s a neutral player in this war in Ukraine, but in reality the PRC is providing a long list of dual-use components…that are enabling Russia to pursue this war of aggression in Ukraine,” said the US Ambassador to NATO.

China’s Morgan Stanley gets the Xi makeover

Physical bank branches and ATMs have dwindled across China as the public embraces e-payment platforms and financial institutions cut costs, reported The South China Morning Post. The cashless shift has seen most people switch to using phones to conduct banking and monetary transactions, so closures have outpaced new installations.

Other shifts in the finance sector are more political. Founded three decades ago as China’s answer to American finance, China International Capital Corp. is deep in a counter-revolution, casting aside its dream of one day challenging the giants of global finance, reported Bloomberg. The new playbook demands the Party is paramount and vital to career success. One after another, CICC bankers must pledge their loyalty to and join the Party, which includes learning to live without Wall Street pay packages.

Beijing plans to cap the annual salaries of financial workers at around Rmb3m ($412,460), as the government doubles down on its campaign to eradicate extravagance and hedonism from the industry. The measure will be applied retroactively and to all state-backed brokerages, mutual fund firms and banks, except financial institutions backed by private investors, revealed the Post. China Construction Bank has already asked HQ employees to take a pay cut of at least 10%, while higher-ranking officials face a steeper cut.

Meanwhile, Western financial institutions in China have cut their investment banking workforce by the most in years after a market slowdown hit profits and halted years of expansion, reported The FT. The cuts in 2023 came as five of the seven Chinese securities units that are part of Wall Street and European banks either made a loss or reported tumbling profits.

Why It Matters

China remains a highly challenging place to do business. “There has been a political redefinition of finance,” Professor Zhiwu Chen told Bloomberg. Xi’s “Common Prosperity” drive has long worried top earners, with the nation’s top graft-busting watchdog vowing to eliminate ideas of a Western-style “financial elite”.

Many financial firms, state-owned and private, have taken measures such as cutting salaries and bonuses, and asking staff not to wear expensive clothes and watches to work, noted Reuters. Watch carefully to see how strongly Xi extends his campaign at the Party’s much-anticipated Third Plenum from July 15-18.

What goes up…

China’s first international commercial aerospace launch centre, built on the Hainan Island coastline, was declared operational on June 30. The location is touted as more convenient and safer than inland launch sites, as large rockets can be transported there by ship, with a purpose-built port being planned by the Hainan provincial government.

Safety remains a pressing concern, as demonstrated by the spectacular failure of a rocket engine test in central China on the same day. Space Pioneer’s Tianlong-3 reusable rocket was meant to remain fixed to the launchpad, but launched itself off the pad before exploding into a hilly area of the Henan city Gongyi about 1.5km away, with, thankfully, no casualties reported.

Many people in Gongyi watched the accidental launch, for which Space Pioneer has apologised. The testing facility is far from the city centre, the company argued, and all residents living nearby had been evacuated beforehand. Damage to people’s houses is being assessed, and compensation will be paid.

Debris danger remains common in China due to the location of its launch sites, CNN noted after villagers fled suspected debris from another Chinese rocket on June 22 near the Xichang Satellite Launch Centre in Sichuan province. Most rockets in China are blasted from Xichang and two other inland launch sites built during the Cold War far from the coast out of security concerns.

Why It Matters

The Hainan Island facility was built in record time, with further expansion planned, as experts predict a more cautious private aerospace sector after the latest incident, reported The South China Morning Post. Industry insiders believe the fiery failure will prompt private rocket companies to be more cautious, while regulators step up oversight of launch approvals. But the commercial space market is expected to continue its dizzying ascent: in 2023, commercial rocket launches accounted for 39% of China’s total launches.

A thawing Arctic gets reshaped

China is exploring the moon’s south pole – and ever busier in the earth’s polar regions. China’s increasing activities in the Arctic are reshaping the region’s geopolitical landscape, wrote Mathieu Landriault. As melting ice opens new shipping routes and resource opportunities, China’s heavy investments in research and infrastructure aim to secure strategic and economic advantages, raising concerns among Arctic nations.

Russia seeks China’s help in developing an Arctic sea route to (almost) halve the journey time between Europe and Asia, reported The South China Morning Post. Moscow hopes the Northern Sea Route (NSR) will become a year-round shipping lane as global warming allows ships through waters previously passable only in summer.

Russian agency Rosatom and Hainan Yangpu NewNew Shipping have agreed to operate a year-round container line on the NSR and will jointly design and build ice-class container ships. NewNew expects 12 NSR voyages this year, up from seven in 2023. China’s fourth polar research icebreaker, Jidi (“Polar region”), was delivered to the Ministry of Natural Resources in June, for dispatch on resupply missions later this year.

The Norwegian government called off a plan to sell the last privately owned piece of land on the Arctic archipelago of Svalbard, to prevent its acquisition by China. The crown jewel in the north, Svalbard makes Norway a polar superpower, granting access to the Arctic Ocean. But fear of China may be a dubious reason to stop the sale, and Oslo must be more transparent about its geopolitical concerns, argued Andreas Østhagen in The Barents Observer.

Why It Matters

The poles form the coldest front of the new cold war. China’s surging presence shows how Beijing has capitalised on the Ukraine invasion to chip away at traditional Russian spheres of influence both in Central Asia and the Arctic, where Moscow’s reliance on China to sustain its war machine forces acquiescence on Chinese “encroachments.”

Countries like China are conducting Arctic research without involving scientists from other countries, an ominous trend because science is supposed to be open, transparent and collaborative, not exactly hallmarks of the Chinese regime, warned Landriault. But Chinese investors may baulk at heavy investment in the NSR, given limited trade flows and the risk of triggering sanctions.

Labour gets cracking on new China policy for UK

The (very) likely next Foreign Secretary David Lammy has vowed to overhaul the UK’s relationship with its fiercest strategic rival, China, after 14 years of alleged Conservative misdirection. Now he just needs to work out how to do it, wrote Politico’s Graham Lanktree.

Lammy is rushing to deliver on a promise to launch a review of London’s relationship with Beijing within 100 days of the new government coming to office. He’s only just begun reading pitches for how to go about the revamp, who should lead it, and the long list of trade, investment and security issues the UK must tackle with China.

The Conservatives resolutely refused to produce a ‘China strategy’ throughout their time in government, wrote the Council on Geostrategy’s Charles Parton. “Let us hope that a new government is less daunted.” Whatever its contents, implementation is key, so the greatest good the new regime can do is to “stop playing ministerial musical chairs and to keep civil servants in their posts longer.”

For all their arguments about other issues, the UK’s two main parties have been largely aligned on their China policy over recent history, wrote Kerry Brown for The Wire China. Crafting a new policy towards relations with Beijing will not be easy after the election, but the incoming government has hundreds of years of experience to draw on.

Why It Matters

As over 50 countries go to the polls in 2024, the UK election could prove one of its most consequential since the end of World War II. Labour will want to appear tough on the many challenges China poses, but the party’s economic growth ambitions are at risk if trade measures such as investigating Chinese state subsidies for electric vehicles trigger punishment by Beijing.

The change of government may not greatly impact relations with China, but some business and brand leaders hope a new party in power can help Britain get its cool back, with policy moves to recognise the soft power of British industry and creativity, reported Women’s Wear Daily.

And Finally

It wasn’t me, it was Mr Bean. China’s silicone face mask makers offer impressively accurate celebrity look-alike masks, from Alibaba’s Jack Ma to Rowan Atkinson’s buffoon. But the masks have become so realistic and accessible that Chinese police have unmasked a worrying trend of criminals using masks to disguise themselves and commit crimes.

The hyper-realistic silicone masks can be used to fool facial recognition scanners. One vendor told Sixth Tone their products boast an over 90% resemblance to the real person, and can be used to impersonate them while clocking in and out of work via facial recognition systems. The more you spend, the higher your chances of success, with a full customized silicone hood with hair costing Rmb23,000, and taking a month to make.

“Using others’ pictures without agreements to make the masks infringes on portrait rights,” lawyer Zhao Zhanling told The Global Times. “However, despite their misuse for criminal activities, it is difficult to ban these products due to their legitimate uses, such as scar coverage and theatrical performances.”

Those Mission: Impossible masks are more possible than ever before, reported Polygon last year. As prosthetic material and technology has advanced along with the rise of deepfake AI, mask quality has never been better, and transforming into someone undetected has become much more accessible.