DRIVING THE DAY: SCIENCE FRIDAY
1. China steals a march in the new space race
Chinese scientists just proved Einstein wrong. And they may have advanced their military technology while dong it.From Scientific American (link below):
- “In a landmark study, a team of Chinese scientists using an experimental satellite has tested quantum entanglement over unprecedented distances . . . The test verifies a mysterious and long-held tenet of quantum theory, and firmly establishes China as the front-runner in a burgeoning ‘quantum space race’ to create a secure, quantum-based global communications network—that is, a potentially unhackable ‘quantum internet’ that would be of immense geopolitical importance.”
Some context: China has been pouring tons of money into scientific research ever since its 2006 Medium to Long Term Plan for Scientific Development (2006-2020). Austrian scientists were also trying to develop the technology, but faced funding constraints:
- “[E]ach man lobbied his respective nation’s space agency to green-light a satellite that could be used to test the technique from space. But Zeilinger’s proposals perished in a bureaucratic swamp at the European Space Agency whereas Pan’s were quickly embraced by the China National Space Administration.”
Get smart: The American military has also been developing this technology. A while back they stopped publishing their findings, leading some to believe the job was done.
This really matters: The military implications are huge here. Given the stakes, it’s no wonder the Chinese are dumping money into this thing. More generally, advances like these will lead Chinese leaders to conclude that a more open information environment is unnecessary. The Great Firewall will get bigger.
: China Shatters “Spooky Action at a Distance” Record, Preps for Quantum Internet
DRIVING THE DAY CON’T
2. But that’s not all…
China has also launched an x-ray telescope (from Science, link below):
- “China’s first astronomical satellite, an x-ray telescope that will search the sky for black holes, neutron stars, and other extremely energetic phenomena, raced into orbit today after a morning launch from the Gobi Desert.”
The FT (link below) reminds us that it’s been a big year for China’s space program in general:
- “China has poured enormous resources into developing its ambitious space program, which has sought to emulate many of the achievements of its American and Russian counterparts such as putting a man on the moon. In April, China successfully launched its first cargo spacecraft, the Tianzhou-1, to support its fledgling space lab.”
Why it matters: There is a perennial debate about whether or not China can “innovate” given its controlled information environment. The advances above would imply that government support is equally important. And here China has a huge advantage — both in its wallet and its political will.
FINANCE AND ECONOMICS
3. China’s “slow bull market” in bonds
A “slow bull market”(慢牛行情) — that’s what traders are expecting for Chinese bonds in the second half of this year. In other words, rates will start to come down in July, but very gradually.
Technical indicators, like subdued one-year interest rate swaps, are suggesting that this sentiment is widespread.
Why it matters: Domestic traders and global markets have been nervous about recent financial tightening in China, which was caused by stricter financial supervision. The big questions have been: how far will the regulators go, and how long will tight supervision last?
What to watch for: A slow bull market is made up of two parts. “Slow” tells us that stricter financial regulations will not be relaxed. But “bull” tells us banks are adjusting to the new reality.
21st Cent Biz: 央行未跟进美联储加息利好债市 下半年慢牛可期
FINANCE AND ECONOMICS
4. What’s up with the CNY?
We are just putting this out there…
The daily fixing rate of the CNY has been remarkably stable over the past two weeks. In fact, it has essentially been pegged at — or very close to— 6.8/USD for the past twelve trading days.
This is a space to watch. When China pegs its currency, it never announces it. It’s only after a month or so of very stable fixings that the peg becomes evident. We might be at the beginning stages of a temporary peg.
Why it matters: The central bank often uses the currency as a monetary anchor when it wants stability. For example, during times of global economic uncertainty, or around important political events. We may be entering one of those periods as attention turns to the Party Congress. If that is the case, watch for any subsequent reaction from the Trump administration — it could be a point of tension.
POLITICS AND POLICY
5. Taiwan is only going to get more complicated
As we said earlier this week, the Taiwan issue is likely to be a big one in coming years.
Here’s the dynamic:
Republican Senators want a stronger commitment to Taiwan – as evidenced by yesterday’s hearing “Renewing Assurances: Strengthening U.S.-Taiwan Ties”.
But the US administration wants to maintain the status quo – as evidenced by Secretary of State Tillerson’s commitment to uphold the One China policy.
Meanwhile, China hates the status quo and plans for Taiwan to “come back” – as evidenced by MFA spokesperson Lu Kang’s recent statement.
Not sure how you square those circles. Especially when you add in the dynamics in Taiwan itself.
Get smart: This isn’t going to get any easier.
Taiwan could define Xi’s second term – and Trump’s first.
US Foreign Affairs Committee: Renewing Assurances: Strengthening U.S.-Taiwan Ties
FMPRC.gov: Foreign Ministry Spokesperson Lu Kang’s Regular Press Conference on June 15, 2017
POLITICS AND POLICY
6. Xi Jinping is a values politician
If you’ve been in China for the past four years you’ve probably noticed “Socialist Core Values” (SCVs) being promoted on banners, posters and even traffic circles. You also probably didn’t care.
But you know who does care? Xi Jinping. And he is stepping up his campaign to promote those values.
The context: Xi sees China in an ideological struggle with the West. And the SCVs are the key to keeping China from “falling into the trap of Western universal values” (see PD link below, citing the Henan propaganda chief).
The impact: We can’t speak for 1.3 billion people, but our sense is that the campaign has done little to inspire most Chinese. It’s not exactly catchy (see the clunky values below).
The future: But that doesn’t mean that the SCVs won’t eventually have an impact. They are being promoted in schools and all pupils are required to memorize them. China’s Patriotic Education campaign begun in the 90s has been a huge success. So the next generation of Chinese people may have the SCVs etched in their hearts.
- for the country: prosperity and strength, democracy, civilization, harmony,
- for the society: freedom, equality, justice, rule of law,
- for citizens: patriotism, love what you do, integrity, friendship.
POLITICS AND POLICY
7. When it comes to elections, the Party’s man always wins
2017 is all about the Party Congress. Provinces and other groups are in the process of selecting delegates, which will number around 2,300 in total.
There is a selection process with several rounds of elections (the CCDI link below outlines this). But in reality it’s a top down process.
Hunan Party secretary Du Jiahao explains that the Party always gets its man:
- “When I was a candidate for Shanghai vice mayor, it was clear to all who the Party wanted to get the position. We are all Party people and should listen to the Party, so I made up my mind that I should absolutely not let the Party’s plan fail. Even those who appreciated and supported me voted for the Party’s preferred candidate. I lost the election, but the Party got what it wanted.”
Our thoughts: Inner-Party democracy was big under Hu Jintao, much less so under Xi. The Party’s man always wins.