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China Currents Journal

Katherine Peavy

In Due Time: China’s business environment makes the case for due diligence

The South China Morning Post headline jumped out at me: Steel Princessstrading company in liquidation. I leaned a little closer to my neighbor on Hong Kong’s Star Ferry to read over his shoulder. The article claimed that liquidators were looking for about US$500 million that the company should have had in the bank. “Yes!”I mentally fist-pumped. Some people might view a missing half-a-billion as a failure, for me the headline meant success. I had investigated the CEO of Pioneer Iron and Steel, dubbed the “Steel Princess”by the press, on behalf of a client.

Fortunately, occasions when front-page headlines support the analysis in a due diligence report remain rare. On this occasion, the bankruptcy of Pioneer Iron and Steel leading to transfers of company assets from the trading company to other entities owned by the Pioneer Metals Group fulfilled the worst-case risk scenario in a due diligence report I’d given to a client a few years before. The largest risk, depending on what business the client planned to do with Pioneer, was that the corporate structure allowed for undocumented asset transfers. I never expected to see the exact risk we’d documented on the front page of a newspaper.

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Henry Yu

China’s Currency Reforms from a Banker’s Perspective

China’s Currency Reforms from a Banker’s Perspective: A Conversation with Henry Yu, Managing Director of Fifth Third Bank, Atlanta, Georgia.

Introduction

As China’s economy moves ever closer to surpassing the U.S. in terms of purchasing power GDP, China’s currency system seems incompatible with its global economic status. China’s new leadership led by President Xi Jinping is pushing to modernize and marketize the currency system along with necessary concurrent reforms. The 2008 financial crisis was a wake-up call for many countries, demonstrating the heavy dependence of the global economy on the U.S. dollar. The vulnerability of the U.S. economy became everyone’s challenge. Reform of the Renminbi (RMB) became a priority in order to establish the Chinese currency as a global player and lessen China’s reliance on the U.S. dollar. Aside from the fallout from the financial crisis, the sheer size of China’s cross-border trade is creating demand for far more depth and flexibility in the currency markets.

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China Ukraine Crisis

China and the Ukraine Crisis

China’s handling of the Putin-engineered annexation of Crimea from Ukraine into the Russian Federation reflects deeply competing Chinese interests. On the one hand, Beijing values its strategic partnership with Russia — a partnership tracing back to 1996 — especially now, when Sino-U.S. relations are tense over the intertwined issues of Washington’s “pivot” to Asia and Chinese cyber-espionage against U.S. advanced weapons research and development. In Washington there is a growing sense that the military gap between China and the U.S. is narrowing rapidly because of Chinese cyber-penetration of U.S. military-industrial firms and approaching a transition point between rising and incumbent paramount powers, which may be especially dangerous. Japan under Shinzo Abe’s second government (in office since December 2012) also has begun courting India with unprecedented vigor. Even more startling, New Delhi is responding with an unembarrassed embrace of Tokyo. Beijing’s trump card of “the history issue” does not play very well in New Delhi. Given these elemental shifts in the balance of power that are in play, Beijing has no interest in loosening its strategic partnership with Russia. In terms of energy supply, a falloff in European purchases of Soviet natural gas also would not be bad for China, perhaps prompting Moscow to offer China lower prices, easing one of the hurdles to expanded Russo-Chinese energy cooperation over the past decade or so.

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China Research Center

Editor’s Note

The enduring significance of history, culture, and perception in China’s contemporary scene is amplified by the articles in this issue of China Currents. David Blair writes about the role that historical memory plays in Chinese and U.S. strategic thinking. Arguing…

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Blair

The Clash of Historical Memory: The “Century of Humiliation” vs. the “Post-WWII Liberal World Order”

The U.S. and China share many fundamental interests. Their economies are so tightly inter-twined that any disruption would be extremely painful to both sides. There are no substantial, quantifiable disagreements between the two countries — meaning that there are no direct territorial disputes and neither country would gain by directly threatening the other’s vital interests. With so little to gain, and so much to lose, one might conclude that the probability of armed conflict between them would be negligible. But, it is not reassuring that the current disputes are not about “real” resources. Arguments about what are ultimately relatively small assets could be settled by economic agreements and compromise. The current disputes between the U.S. and China are more dangerous than they first appear because they are driven by each nation’s elite and public core beliefs, which were learned from key national historical experiences.

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Palit

China’s Cultural Diplomacy: Historical Origin, Modern Methods and Strategic Outcomes

PalitComprehending behaviors of nation-states has never been easy. Understanding China is particularly difficult given the great divide in terms of language (yu yan) and culture (wen hua). Beijing is conscious of this difficulty in communicating with the rest of the world. To tackle the “hegemony of discourse”— perceived in Beijing as a persistent effort by the West to project a negative image of China and promote “western values” for maximizing its own interests1 —and to overcome its own weakness of the “power of the word” (hua yu quan), China has embarked on vigorous cultural diplomacy (CD), a strategy used since ancient times for communicating with the rest of the world. China considers culture essential in correcting adverse impressions created by its rapid strategic rise. Consequently, culture has emerged as the third pillar of Chinese diplomacy after economics and politics, with the 18th Congress in 2012 endorsing its relevance and the more recent Third Plenary in 2013 reaffirming its importance. Cultural diplomacy and soft power are important strategies for the Chinese leadership in developing benign impressions about China and securing strategic dividends through “virtuous” policies of engagement.

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