What Does China Borrowing At Negative Interest Rate Mean?

What Does China Borrowing At Negative Interest Rate Mean?

Recently, China raised ~€4 billion in total from Europe. As a part of the issue, China, for the first time issued bonds at a negative yield. In yesterday’s piece we had a look at what negative interest rates for banks and debt are. If you missed that you can read by clicking here. So what does it mean when we say China is borrowing at a negative interest rate and why is this bond issue in hot demand even if investors are getting less money in the future than they are investing today? Let’s quench your thirst.

Crux of the Matter

China Borrows At Negative Interest Rate
Recently, China raised ~€4 billion in total from Europe. As a part of the deal, it issued a bond with a negative yield (of –0.152% for a 5-year tenor) for the first time. It also issued 10-year and 15-year securities with positive yields of 0.318% and 0.664% respectively.

Bonds are ‘fixed-income’ securities issued by central banks, governments, or companies. The interest received per annum on bonds is fixed. Moreover, they are considered a safe investment option and thus there is always a demand for it among investors.

What Are Negative Yield Bond?
Yield is the return an investor receives for the investment in bonds. It includes both, interest payment and appreciation in bond value – generally bonds have positive yield.
So in negative yield bonds, an investor gets less money on maturity than the purchasing price.

In China’s issue, China is the borrower and investors are financial institutions, individuals, etc. Let’s say an investor invests €100 in China’s negative yield bond. At maturity, the investor will receive ~€99.85 (yield is -0.15%).

If investors are getting less money than they invested why are they even investing?

Reason For High Demand
You must note that China issued these bonds in (or raised money from) Europe. Due to Covid-19, bond yields in Europe and developed countries are even lower than what China is offering. Yields in developed countries and Europe are between -0.5% and -0.75% in comparison to China’s bond yield of -0.15%.

Better to receive €99.85 than €99.5 or €99.25 on an investment of €100, right?

Investors consider bonds as a safe investment instrument that prevents capital from significant erosion. As global nations continue fighting Covid-19, most of the economies are still reviving, and China is the only country to report positive GDP growth of 4.9% in the Jul-Sept 2020 period. Also, experts say investors have a positive outlook on China’s growth.

Expert’s View

There is an expectation that the new US government may impose fresh lockdowns in the economy as Covid cases are picking up in various US states and European countries, whereas China seems relatively safe now from that perspective. This is expected to lead to volatility in the financial markets in coming days, pushing up demand for safety of capital alongside flows into risk assets.

  • Simple interest is a fixed percentage of the principal amount that the borrower must pay. It is fixed. Compound interest is added to the accumulated interest of previous periods, so borrowers must pay interest on interest as well as principal borrowed.
  • State Bank of India started as Bank of Bengal. This was one of the three banks founded by a presidency government along with the Bank of Bombay and the Bank of Madras. The three merged to form the Imperial Bank of India and renamed to the State Bank of India in 1955 after Independence.
  • Zero interest-rate policy (ZIRP) is a concept of a very low nominal interest rate. The United States cut the Fed Funds rate to nearly zero due to the Covid-19 pandemic and weakening economy. ZIRP is considered to be an unconventional monetary policy instrument and can be associated with slow economic growth, deflation, and deleverage.

History Of Taiwan

History Of Taiwan

As Taiwan celebrates its National Day on 10 October, let us look at its history, its relations with China and its presence in the 21st Century.

Crux of the Matter

Taiwan is an island separated from China by a 150 km strait.

Taiwan Before World War II

  • Taiwan was ruled by Qing Dynasty of China till 1895.
  • 1895: The First Sino-Japanese War occurred. Japan defeated China, with Taiwan being ceded to Japanese control.
  • 1911: Uprising started against the Qing dynasty.
  • 1912: The Qing dynasty was removed and the ‘Republic of China’ (RoC) was established. China went under the rule of the Nationalist party (Kuomintang), which was later transformed into Chinese Kuomintang (KMT) in 1919.

Taiwan After WW II

  • Japan surrendered at the end of World War 2, after which the Allied forces put Taiwan under the control of China, which was ruled by the KMT (Nationalist Party).
  • 1949: Civil war in China, going since the 1930s, ended. Communist Party of China (CPC), under Mao Zedong, won the war and declared a People’s Republic of China (PRC).
  • KMT leader Chiang Kai-shek took exile in Taiwan along with 2 million of his soldiers. He formed a Government there and claimed itself the official Government of China. Meanwhile, the CPC continued its rule in China.
  • 1971: The United Nations (UN) officially recognized the Communist Party of China as the official representative, and stopped recognising Taiwan. Several countries shifted their embassies to Beijing and considered Taiwan as Chinese territory.

Taiwan Miracle
Taiwan embarked on economic development through industrialization labelled as “Taiwan miracle”. It proved successful as its Gross National Product (GNP) grew by 360% in the period 1965 – 1986, while its Global Industrial Production output grew by 680% in the same period.

  • China provided a “peaceful reunification” option to Taiwan in 1980s. A ‘1 country, 2 systems’ was offered to grant Taiwan autonomy while uniting it with China, which Taiwan did not accept.
  • 1988: Lee Teng-Hui became the first President of Taiwan born in the country.
  • 1996: First elections occurred in Taiwan. China initiated “missile tests” amidst elections, against which the US sailed aircraft carriers to protect Taiwanese elections.
  • 2000: Taiwan President Chen Shui-bian promised to not declare independence if China did not attack it and let it continue with its autonomy.

Taiwan In 21st Century

  • 2006: Taiwan removed the National Unification Council (to manage unification with China), which drew strong criticism from the mainland.
    Relations between Taiwan and China improved in the following years.
  • 2008: China sent 2 giant pandas to Taiwan as gifts.
  • 2010: Both countries signed ‘Economic Co-operation Framework Agreement (ECFA)’, the most significant pact in their history.

Tsai Era

  • 2016: Tsai Ing-wen, a pro-independence candidate of the Democratic Progressive Party, became the President of Taiwan. China broke diplomatic relations with Taiwan as Tsai didn’t acknowledge “one China”.
  • In the same year, US President Donald Trump broke decades old protocol and talked to Taiwanese President on phone.
  • January 2020: Tsai claimed in January 2020 that “we don’t have a need to declare ourselves an independent state [as] we are an independent country already and we call ourselves the Republic of China, Taiwan”.
    Chinese aggression has prompted several nations to strengthen their ties with Taiwan.

France discussed supplying upgrade to the French warships Taiwan bought in 1991 in May 2020 and told China to focus on the Covid-19 pandemic when it criticized the move. US put a demand to include Taiwan in the UN in May 2020 as Taiwan successfully managed the Covid-19 pandemic, with 524 total cases and 7 deaths as of 8 October.

Did you know that the Chinese embassy in India has written a letter to Indian media to not refer to Taiwan as a nation or its leader as the President after several Indian newspapers featured an ad by the Taiwanese government ahead of Taiwan National Day, which featured President Tsai Ing-wen with a slogan “Taiwan and India are natural partners”? Quench your curiosity here: Taiwan National Day: China Interferes In Indian Media Reporting

  • The Blue Sky with a White Sun serves as the national emblem of the Republic of China. In the “Blue Sky with a White Sun” symbol, the twelve rays of the white Sun represent the twelve months and the twelve traditional Chinese hours.
  • Deng Xiaoping was a Chinese politician who was the paramount leader of the People’s Republic of China from 1978 until 1989. The system of “one country, two systems” was formulated by Deng himself.
  • The Taiwan consensus is a Taiwanese political term, which was coined in 2011 by Tsai Ing-wen, and is intended to replace the “1992 consensus”. The “1992 consensus” is based on the “One-China policy”, which is a policy asserting that there is only one sovereign state under the name China.

US Bans Communist And Totalitarian Party Members

US Citizenship and Immigration Services (USCIS) issued policy guidance stating that Communist and Totalitarian Party members will be ineligible to immigrate to the US. Let’s take a deeper look into the news along with past bans imposed by the US on China.

Crux of the Matter

Ban On Immigration
On 2nd October 2020, Friday, US Citizenship and Immigration Services (USCIS) issued a policy update stating that a Communist Party or a Totalitarian of any foreign state, or any political or geographical subdivision of any foreign state, will be ineligible to immigrate to the US.

The policy stated that this applies to any member affiliated with the Communist party or any other Totalitarian party, and it is a set of laws passed by Congress for the safety and security of US from any threats.

The exclusion of Communist Party members has been a part of the US law since the Immigration and Nationality Act, 1952. However, the new guidance is an update on the implementation of the exclusion in the policy.

Past Bans By The US

  • In June 2020, the US Secretary of State, Mike Pompeo, stated that Washington is imposing visa restrictions on Chinese Communist Party, who were alleged by the officials for undermining the freedom of people in Hong Kong.
  • On 9th September 2020, Wednesday, a spokesperson from the State Department of US said that they revoked visas of more than 1,000 Chinese nationals under a May 29 presidential proclamation to suspend entry of students from China whom researchers deemed a security risk.

Presidential Proclamation
On 29th May 2020, President Donald Trump announced a proclamation as a part of the US response to China’s curbs on democracy in Hong Kong. This was an attempt to prevent the entry of goods in the US which was produced from slave labour, and they demanded that China respect the inherent dignity of each human being, this was a reference to alleged abuses of Muslims in Xinjiang region of China.

Read China’s Response here: China Slaps Back Sanctions On US Over Uighur Matter

The acting head of the US Department of the Homeland Security, Chad Wolf mentioned that the US charged China with unjust business practices and industrial espionage, including attempts to steal research on coronavirus and further accused them of abusing student visas to exploit American academia and decided to ban visas of any Chinese graduate student who had any interrelation with the Chinese army.

A spokesperson mentioned that this decision does not affect the legitimate students and researchers from China who want to study in the US.

China’s Response To Immigration Ban

  • In response to the Proclamation, China opposed the move in June and urged to enhance the mutual exchanges and understanding.
  • In response to restriction on visa, China asked US to not interfere in their domestic affairs, as Hong Kong is a part of China.

  • U.S. Citizenship and Immigration Services’ mission statement was changed in 2018. Among other changes, the phrase “America’s promise as a nation of immigrants” was eliminated, a move that drew criticism from immigration rights advocates and praise from those in favor of tighter restrictions on immigration.
  • The Immigrant is a 1917 American silent romantic comedy short. The film stars Charlie Chaplin’s Tramp character as an immigrant coming to the United States who is accused of theft on the voyage across the Atlantic Ocean, and falls in love with a beautiful young woman along the way.
  • An expatriate is a person residing in a country other than their native country. In common usage, the term often refers to professionals, skilled workers, or artists taking positions outside their home country, either independently or sent abroad by their employers, which can be companies, universities, governments, or non-governmental organisations. Historically, it has also referred to exiles.

A Short History Of Tibet

A Short History Of Tibet

As China recently stepped up its plan to shift the rural population of Tibet into industrial labour, another thread of strain was added to the relations between the two which have been in an alternating relationship with differing ideologies. Let us have a look at the history of Tibet and its relations with China.

Crux of the Matter

Recent Push Into Labour By China
China has reportedly increased the number of Tibetan rural labourers forced in military training camps, where they are trained to become factory workers. Recently, China claimed that ~500,000 people from Tibet (15% of its population) were trained from Jan to July 2020 in such camps. 50,000 of the total were sent to jobs inside Tibet while thousands were sent into labour in China.

Critics have claimed that the motive of such training camps is to eliminate the cultural influence of Tibet while indoctrinating Tibetans with Chinese ideology. These camps are compared to the detention camps in Xinjiang, where Uighur Muslims are sent to forced labour.

History Of Tibet

  • 620s AD: Songtsen Gampo became the ruler of Central Tibet. He married Princess Wencheng of the Tang dynasty (China) and founded major Buddhist temples like Jokhang and Ramoche in Tibet.
  • 820s: Peace treaty between China and Tibet was signed after a period of conflict.
  • 1042: Indian scholar Atisha travelled to Tibet and revived Buddhist teachings by inspiring the locals.
  • 1240-44: Mongol prince Godan Khan invaded Tibet, who later converted to Buddhism in 1247. Peaceful relations between Mongols and Tibetans were established, with the latter retaining significant autonomy in the Mongolian empire.
  • 1598: The title of ‘Dalai Lama’ was first given to High Lama Sonam Gyatso by Mongol King Altan Khan.
  • 1720s: Mongols invaded Tibet. In return, the Manchu (Qing) dynasty of China defeated the Mongols but then appointed its officers to administer Tibet and annexed its Kham and Amdo regions.
  • 1904: British forces from India invaded Tibet and forced to sign an agreement to prevent any Russian interference in the region. However, Britain acknowledged suzerainty of China over Tibet.
  • 1913: Tibet reaffirmed its independence from both China and Britain.
  • 1949: People’s Republic of China (PRC) was established by Communist leader Mao Zedong, who claimed Tibet as part of China.
  • 1951: Tibet was forced to sign the “Seventeen Point Agreement” by China, which granted autonomy to the former but established Chinese military quarters in the capital Lhasa.
  • 1959: The Dalai Lama was forced to take exile in India along with 80,000 followers as a revolt against Chinese rule broke out in Tibet, which was suppressed violently.
  • Refuge for Dalai Lama has been cited as one of the reasons for the 1962 Indo-China war.
  • 1963: Foreign visitors were banned in Tibet – opened back in 1971.
  • 1965: Tibetan Autonomous Region (TAR) was established by China.
  • 1966: The Cultural Revolution of China impacted Tibet, as Buddhist monasteries and entities were damaged.

Several talks of reconciliation have failed between the 2 groups since.

  • Lhasa is a prefecture-level city, one of the main administrative divisions of the Tibet Autonomous Region of China. The population is well-served by primary schools and basic medical facilities, although more advanced facilities are lacking. Tibetan Buddhism and monastic life have been dominant aspects of the local culture since the 7th century.  
  • The Uyghurs are a Turkic-speaking minority ethnic group in the Xinjiang Uyghur Autonomous Region in Northwest China. The Chinese government rejects the notion of the Uyghurs being an indigenous group. 
  • The Militia is the militia part of the armed forces of China, other two parts being the People’s Liberation Army (PLA) and the People’s Armed Police (PAP). It is one of the largest militias in the world.

Chinese Surveillance Over India And The World

Chinese Surveillance Over India And The World

With recent reports claiming that China has been monitoring more than 10,000 people in India including PM Modi, China seems to have added another layer to its concept of “hybrid warfare”, including continuous Chinese surveillance.

Crux of the Matter

Dragon Watching Over
Recent investigations by The Indian Express, Professor Chris Balding, and others have revealed that Zhenhua Data Information Technology Co. Limited has been monitoring 10,000 Indians. The list of people being tracked includes PM Narendra Modi, Congress President Sonia Gandhi, Chief Justice of India Sharad Arvind Bobde, Cabinet Ministers, several Chief Ministers as well as current and former Army, Navy, and Airforce Chiefs.

The list also includes figures like The Indian Express Chief Editor Raj Kamal Jha, Sachin Tendulkar, film Director Shyam Benegal, Ratan Tata, etc. Over 250,000 records monitored by Zhenhua have been recovered – includes records of 52,000 Americans, 35,000 Australians, 10,000 Indians, 9,700 British, 5,000 Canadians, etc.

What Is Zhenhua Data And Hybrid Warfare?
Zhenhua Data is a self-labelled “hybrid warfare” company working with the Chinese Communist Party and the Chinese military and intelligence. The Company registered in 2018, having 20 overseas data processing centres.

Hybrid warfare has been defined as the use of non-military weapons to damage opponents. Zhenhua has described its tools for hybrid warfare as “information pollution, perception management, and propaganda”.

How It Works?
Zhenhua contains an ‘Overseas Key Information Database (OKIDB)’, which collects information not only of the mentioned figures but also of their relatives and colleagues. It builds a database by gathering information from social media platforms, websites, articles, and research papers, etc, aiming to map networks of individuals and organisations as well as their functioning and leadership processes.

Its website was recently taken down on 9 September. An unnamed analyst has claimed that the Zhenhua database is “Cambridge Analytica on steroids”.

Chinese Hybrid Warfare

  • The blueprint for ‘Hybrid Warfare’ was developed around 1999 in China.
  • 2013: Cybersecurity firm Mandiant made revelations regarding Advanced Persistent Threat 1 (APT 1) of China’s People’s Liberation Army (PLA). In its report, the firm claimed that APT 1 has stolen “billions of terabytes of data” of 141 companies from over 20 significant industries.
  • 2014: US reported that Chinese hackers stole data of 22 million people – including military personnel, CIA and FBI agents.
  • 2017: China reportedly passed a law forcing all Chinese companies operating all over the world to aid the government in “intelligence gathering”.

China’s Internal Surveillance

  • China has even more intensive surveillance inside its territory.
  • China reportedly has 415 million CCTV cameras installed all over the country.
  • 2017: BBC journalist John Sudworth tested the surveillance system and its efficiency. Sudworth was found by the police using surveillance in just 7 minutes.

  • Edward Snowden is an American whistleblower who leaked highly classified information from the National Security Agency (NSA) in 2013. His disclosures revealed numerous global surveillance programs, many run by the NSA and the Five Eyes Intelligence Alliance with the cooperation of telecommunication companies and European governments. 
  • XKeyscore is a formerly secret computer system used by the United States National Security Agency (NSA) for searching and analyzing global Internet data, which it collects continually. In an official statement from July 30, 2013, the NSA said “XKeyscore is used as a part of NSA’s lawful foreign signals intelligence collection system. …” to legally obtain information
  • The Chinese Dream is a term promoted by Xi Jinping since 2013 within Chinese society that describes a set of personal and national ethos and ideals in China. Xi began promoting the phrase as a slogan in a high-profile visit to the National Museum of China in November 2012 after taking the office of general secretary.