• As China arrives with a splash in Honduras, the U.S. wrings its hands
• Exclusive: US warned China to expect updated export curbs in October-US official
• China hopes US will “do more things“ conducive to dialogue
• Two elves and a scroll: China military releases animation on Taiwan “reunification“
• How China-West tensions will shape global markets
• [World] China Belt and Road: Indonesia opens Whoosh high-speed railway
• In blow to India, pro-China candidate wins Maldives election

As China arrives with a splash in Honduras, the U.S. wrings its hands

https://www.washingtonpost.com/world/interactive/2023/honduras-china-taiwan-diplomacy/2023-09-07T17:03:01.784Z

TEGUCIGALPA, Honduras — When the leader of this impoverished Central American country visited Beijing in June, China laid out the warmest of welcomes. There was a state dinner in the president’s honor in the Great Hall with Chinese leader Xi Jinping, a 21-gun salute in Tiananmen Square and lengthy bilateral talks over a six-day visit.

For China, the attention granted to Honduras — long among the most docile of U.S. regional partners — was both payment and propaganda. Less than three months before President Xiomara Castro’s arrival, despite energetic appeals and warnings of duplicitous Chinese wooing from the Biden administration, Honduras had established diplomatic relations with China, breaking its decades-long ties with Taiwan.

In the global arena of U.S.-China competition, it was clearly a win for Beijing. But beyond the chagrin at China’s latest foreign policy victory, Biden administration and U.S. military officials see potentially ominous strategic implications.

Honduras hosts an American military base, Soto Cano, with up to 1,500 U.S. troops and a joint task force managing regional U.S. policy priorities such as narcotics trafficking, organized crime and migration, as well as disaster relief and training. Among its several ports on both the Pacific Ocean and the Caribbean, Puerto Cortés, on the northern coast, is the largest and the only deep-water facility in Central America.

While the United States itself recognized the People’s Republic of China 44 years ago, it has continued to urge the dwindling number of countries with diplomatic relations with Taiwan — now down to 13 — not to switch.

As China continues to campaign for diplomatic support, several of its most recent successes have been in Central America — Panama in 2017, El Salvador in 2018, Nicaragua in 2021 and now Honduras. Guatemala’s president-elect has indicated he plans to follow. In South America — where China is now the biggest trading partner — Paraguay is the lone holdout. In the Caribbean, Haiti and three smaller island nations continue to recognize Taiwan.

Castro’s government dismisses U.S. concerns as overwrought and patronizing. “We have a good relationship with the U.S. in defense and security,” Foreign Minister Enrique Reina said in an interview here. “I think that we will not change that at all. Our interest is in cooperation [with China] in general areas — education, health, technology related to civilian use. Transportation, infrastructure. But not anything related to security and defense.”

Like others in the hemisphere, Honduras has moved to the left, and Castro’s “democratic socialist” government is expanding its political and economic alliances in that direction. “For some people,” Reina said, without mentioning names, “I think it’s difficult to see that we’re a government that makes its own decisions.”

Recognition of China, with its huge market for raw material imports and appetite for foreign investment, is about “pragmatism, not ideology,” he said. China may be “a problem for the political interests of the United States. But for us … it’s mainly an opportunity to seek other alternatives for cooperation.”

So far, there is little evidence of China’s presence here. Its new embassy is lodged in temporary quarters at a luxury hotel. The streets are crowded with Dunkin’, Pizza Hut and McDonald’s, and local businesses announce themselves with English-language signs. In one downtown neighborhood, a lone piece of graffiti declares in Spanish, “Honduras is with Taiwan.”

Beijing says it has a lot to offer Honduras. As a “developing country” that has managed rapid growth, China has experience that is “easier to share” than that of some other partners, said Liu Pengyu, spokesman for the Chinese Embassy in Washington. (The Chinese Embassy in Tegucigalpa did not respond to repeated requests for interviews.)

With policies and a financial market that are more “predictable” and “stable,” Liu said, China has provided Latin America with an increasingly attractive alternative to its traditional ties with the United States. “Maybe the West needs a smarter strategy,” he said.

The 20-yard line

U.S. aid and investments throughout the region are historically seen as slow in coming and with significant stipulations on human rights and democracy, along with a preference for the private sector and nongovernmental organizations. Honduras, long known for violence and corruption, has been subject to particular U.S. scrutiny. In contrast, China’s offers of trade and investment, with few strings attached, have increasingly outweighed traditional ties or ideology in the region.

China has often outbid U.S. companies for infrastructure and raw material projects, including mining, in staunch U.S. allies such as Colombia. Even when Brazil’s diplomatic ties with Beijing cooled during the right-wing government of Brazilian President Jair Bolsonaro, Chinese trade and investment continued to grow. In Argentina, a massive space station run by the China Satellite Launch and Tracking Control General, part of the Chinese military’s Strategic Support Force, rises high above Patagonia. China has made significant investments in Chile’s substantial lithium resources.

Central America has gotten little visible payoff for the diplomatic switches, with the exception of Panama, where China now operates ports on both ends of the Panama Canal.

In Costa Rica, which led the way in ditching Taiwan in 2007, China built a new soccer arena — replicating its “soccer diplomacy” across Africa. But while a major Chinese-built road is under construction, a planned oil refinery was canceled, and hopes for increased exports to China have not materialized.

“We got the stadium, 200 Chinese police patrol cars and several infrastructure programs that were going to be developed,” Luis Guillermo Solís, Costa Rica’s president from 2014 to 2018, said in a recent interview.

“I got a review of the troops” during a 2015 visit to China and meeting with Xi, Solís added. “It was January, and it was cold. I didn’t get the golden tents with the dragons.”

In addition to help in restructuring its national debt, Honduras seeks loans and investments for a long list of potential infrastructure projects — at least four dams to improve electricity production; roads; communications; a new hospital; and a proposed new prison for gang members, traffickers and other criminals on an uninhabited Caribbean island about 100 miles off the mainland.

China’s development model “has a lot to teach” this country of 10 million people, Ricardo Salgado, Castro’s strategic planning minister and lead cheerleader for the new relationship, told Chinese television just days after diplomatic ties were established. “In the next four years, we should create at least half a million jobs.”

So far, Beijing has not committed to any of the Honduran proposals, and Reina said that the United States, the European Union, Japan and any other countries are welcome to offer to fund them. “We’ll see which of these countries are interested in investing in these projects.”

Beyond bilateral ties, China has moved to embed itself in regional organizations. In August, the Central American Parliament voted to boot Taiwan and transfer its “permanent observer” status to the People’s Republic of China. “This again shows that the one-China principle represents the unstoppable trend of the times and has the overwhelming support of the people,” the Chinese Foreign Ministry said.

Even if some of the returns envisioned by China’s newest partners in the hemisphere have not yet materialized, officials at both the Pentagon and the State Department have spent years worrying that China’s string of diplomatic victories has laid the groundwork for future threats.

“The PRC is investing in critical infrastructure, including deep-water ports, cyber and space facilities which can have a potential dual use for malign commercial and military activities,” Gen. Laura J. Richardson, commander of the U.S. Southern Command, told Congress in March. “In any potential global conflict, the PRC could leverage strategic regional ports to restrict U.S. naval and commercial ship access. This is a strategic risk that we can’t accept or ignore.”

“They’re on the 20-yard line to our homeland,” Richardson told a forum at the Center for Strategic and International Studies in Washington in August.

A demand for billions

When Castro mentioned plans to establish relations with China during her 2021 presidential campaign, the Biden administration took notice, sending Brian A. Nichols, the assistant secretary of state for Western Hemisphere affairs, to Tegucigalpa, the capital, to meet with the candidate.

“I underscored the importance of really looking at the reality of relationships, what is on offer, having all the information before making a decision,” Nichols said in an interview.

He returned to Honduras for another round as part of a U.S. delegation headed by Vice President Harris to Castro’s January 2022 inauguration. “We want to make sure that they understand that the PRC often has not delivered on the promises that it has made to encourage countries to change recognition” away from Taiwan, Nichols said. “And that the benefits promised often prove to be ephemeral … or nonexistent. That the debt overhang of the projects that they have advocated for … have left buyers’ remorse.”

Taiwan sent its own delegation to the inauguration, headed by Vice President Lai Ching-te. During a meeting with Castro, the Taiwanese president’s office reported, the new Honduran leader “recalled with gratitude Taiwan’s many years of assistance to Honduras and … emphasized her intention to continue deepening friendly ties.”

Castro waited more than a year to make good on her campaign promise. On March 15, she revealed on the platform X, then known as Twitter, that she had instructed Reina to begin negotiations with Beijing, and the deal was done 10 days later. Taiwan did not take the dismissal lightly. At a news conference in Taipei, the capital, Foreign Minister Joseph Wu said Reina wrote to him just before the break demanding $2.45 billion — $90 million for a hospital, $350 million for a dam and about $2 billion to “eat … its national debt.” Wu likened the request to attempted “bribery.”

Reina described the pre-break discussions with Taiwan as “frank” and “pragmatic.” Taiwan, he said, did not respond to Honduran proposals to negotiate new terms for its debt and consider “a loan for building some hydroelectric projects that are important.”

The State Department’s public reaction was terse. It was a sovereign decision that Honduras had every right to make, a statement said, while noting that China “often makes promises in exchange for diplomatic recognition that ultimately remain unfulfilled.”

Castro’s message to the region and the world, said Gustavo Irías, executive director of the nongovernmental Center of Study for Democracy here, was that “we have ceased to be a banana republic, and that we are not necessarily going to follow the dictates of American foreign policy.”

Watchful eyes

The China announcement served as a temporary distraction from the political chaos and stalemate that have ensued since Castro’s coalition took over from years of what she calls a “narco-dictatorship” that left a limping economy, institutional weakness and endemic corruption.

Her predecessor, Juan Orlando Hernández — whose acquiescence to U.S. defense policy and cooperation on migration issues kept him on the good side of both the Obama and Trump administrations — was indicted by the U.S. Justice Department on narcotics trafficking and weapons charges. He was extradited early last year by the Castro government and is awaiting trial in New York.

Castro’s first-round electoral victory, on a platform of social justice, an end to legal impunity for corruption, and economic growth had made clear that Hondurans were enthusiastic about the changes she promised. So was the Biden administration.

But without a legislative majority, Castro has made little progress in moving major proposals to take power away from her political opponents, the private sector and foreign investors — the “corrupt elite,” as her government describes it.

Critics charge that Castro is more interested in ideology than governing, strengthening ties with leftist regimes in Venezuela and Nicaragua and copying the autocratic populism of El Salvador’s Nayib Bukele, who has dealt with gang violence by declaring a state of emergency and throwing tens of thousands into a newly built mega prison.

Just like her predecessors, they say, she has packed her government with relatives and ideological cronies. Her son and her husband, Mel Zelaya — a former president ousted in a 2009 coup supported by some of her current political opponents — are her chief presidential advisers. Her nephew is defense minister. Her daughter, a member of Congress, has figured prominently in the nascent relationship with China.

“The government has managed to create an image of China as a savior,” said Helui Castillo, who is in charge of commercial policy at the Honduran Private Enterprise Council (COHEP), the country’s main business and trade organization.

“Commercially speaking, I see it as there’s not going to be a big change,” she said.

Even without diplomatic relations, China’s trade with Honduras was already second only to that of the United States, albeit far more imbalanced. In addition to coffee and produce, the United States imports Honduran-made knit and woven apparel and small electrical goods — items that China itself exports in quantity. In exchange for a wide range of Chinese communications, technological and manufactured goods, Honduras exports relatively small amounts of agricultural products and raw materials to China.

Although its influence is rarely seen in big projects and investments, the United States is deeply embedded here. The estimated $8.5 billion sent home last year, according to the World Bank — almost entirely by the 1.1 million people of Honduran origin living in the United States — “is the biggest part of our economy,” Castillo said. “We all have family there. It’s two hours away. It’s our main commercial partner. We have a [U.S. military] base here. … There are strong ties. Many people say out loud they don’t like the United States, but deep down … they go to Disney. And they’re still trying to get visas.”

Portraying the new China-Honduras relationship as a happy, mutually beneficial one has been a priority for both governments, with regular promotions here on TikTok and other social media. Xinhua, the Chinese state news agency, has opened a bureau in Tegucigalpa and announced plans to make the Honduran capital a hub for its Central American operations. Shortly after diplomatic relations were first established, a group of 30 Honduran journalists were taken on a 10-day all-expenses-paid tour of China.

“It was very modern,” said one, who spoke on the condition of anonymity to avoid problems with the government. “Driverless cars. Incredible technology. Big buildings. A high level of education. We got all VIP treatment and every day was stuffed” with tours of massive infrastructure and meetings with local and national officials.

All of it was conducted under the watchful eye of Chinese Foreign Ministry minders, the journalist said.

China’s Central Propaganda Department signed an agreement — one of 17 bilateral accords during Castro’s visit — under which Honduras’s telecommunications commission will broadcast and promote products of the state-owned China Media Group. The two countries will also “form a cooperative mechanism in news reporting,” along with technology and personnel exchanges, to “help China-Honduras relations get off to a strong start,” Chinese television reported.

Get over it

As Honduran officials touted the benefits of strong links to Beijing, often with veiled barbs toward Washington, U.S. Ambassador Laura Dogu went on the offensive. “In the year since my arrival, it has become clear to me that many Hondurans don’t fully understand how the people of the United States support the people of Honduras,” she said in an August speech to the Honduran American Chamber of Commerce.

Dogu highlighted that bilateral trade grew by a record 22 percent last year. Since the start of Castro’s government, she said, “the United States government has started programs that will represent an investment of over $800 million.”

“Our requirements are that jobs go to Hondurans and the project follows international environmental and labor standards,” she said. She added that U.S. agencies provide training and support across a wide range of activities and services including entrepreneurship, education, law and governance, human rights, agriculture and combating corruption.

“The bonds between our countries and our people cannot be broken,” Dogu said.

But conversations with a number of officials and others in both countries, many of whom spoke on the condition of anonymity to provide candid assessments and avoid further antagonism, made clear that those bonds are strained. Some believe that Castro and her husband hold a grudge for what they viewed as insufficient U.S. support for reinstating Zelaya after the 2009 coup. As recently as her Sept. 20 speech at the annual United Nations General Assembly, Castro attributed her own election to those who “rose out of the resistance in the streets fighting the coup d’état” that overthrew him.

“I certainly think it’s shaped their view of the world,” Nichols, the State Department assistant secretary, said. “‘Grudge’ is an emotional state, so I’m not in a position to characterize it. What I will say is that we are focused on having a strong relationship.”

But Castro officials see disrespect from Washington — which has yet to invite Castro to a White House meeting with President Biden — and a policy that harps on corruption and human rights over development and supplies nonmilitary aid to civil sectors antagonistic to the government.

Tom Shannon, a longtime senior State Department official in top jobs on Latin America policy, is now at the high-powered Washington law firm Arnold and Porter, where he manages a $90,000-per-month lobbying contract with the Honduran government to improve its relations with the United States. The Biden administration, he said, should just get over its pique.

“If I’m the U.S. government looking at Honduras, I don’t care what they say,” Shannon said in an interview. “What I care about is, does the joint task force get to operate? Do we get to fly at will out of the air base, get to launch our [Drug Enforcement Administration] reconnaissance aircraft, work with Honduras on air and sea intercepts? Because where else are we going to get that kind of help? … Having a secure base of operations to run counterdrug and security operations is hugely important.”

The many roadblocks, restrictions and sensitivities surrounding U.S. assistance and policy “puts us in an almost impossible place” in competing with China, said Shannon, a complaint that many current U.S. diplomats share.

Even strong supporters of the Biden administration worry that its focus on the Ukraine war and the Indo-Pacific has led to lost ground in the region.

“I just struggle to see what this administration is doing in Latin America that has any heft to it,” Sen. Tim Kaine (D-Va.), who chairs the Senate Foreign Relations subcommittee on the Western Hemisphere and took a year off from law school to work with Jesuit missionaries in Honduras, told State and Treasury department officials in a heated July hearing.

“If China’s offer is, ‘We’re not demanding any reform, here’s some money, here’s an investment,’ and our offer is, ‘Once we help you improve all these aspects of yourself, we’re open to more interaction,’ … we will fall farther and farther and farther behind.”

Cade Cadell in Washington contributed to this report.

About this story

Story editing by Peter Finn. Project editing by Courtney Kan. Photo editing by Max Becherer. Graphics by Cate Brown and Samuel Granados. Design and development by Kat Rudell-Brooks and Yutao Chen. Design editing by Joe Moore. Copy editing by Vanessa Larson.

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Exclusive: US warned China to expect updated export curbs in October-US official

https://reuters.com/article/usa-china-chips/exclusive-us-warned-china-to-expect-updated-export-curbs-in-october-us-official-idUSKCN3121LH

The Biden administration warned Beijing of its plans to update rules that curb shipments of AI chips and chipmaking tools to China as soon as early October, a U.S. official said, a policy decision aimed at stabilizing relations between the superpowers.

The Commerce Department, which oversees export controls, is working on an update of export restrictions first released last year. The update seeks to limit access to more chipmaking tools in line with new Dutch and Japanese rules, other sources said, and to close some loopholes in export restrictions on artificial intelligence (AI) chips.

"The PRC has been expecting an update around the one year anniversary, based on conversations with administration officials," the U.S. official said, using the abbreviation for People's Republic of China. The original rules were published Oct. 7, 2022.

U.S. officials provided the information to Chinese counterparts in recent weeks, the official said, which Reuters is reporting for the first time. The official declined to disclose details on the particular conversations.

Providing China with a heads up about the rules is part of a broader bid by the Biden administration to stabilize relations with Beijing. The outreach comes after a decision by the U.S. to shoot down a Chinese spy balloon sharply escalated tensions in February.

The Biden administration has also sent a series of high-level officials to China, including Commerce Secretary Gina Raimondo in August. Additionally, National Security Adviser Jake Sullivan held talks with Chinese Foreign Minister Wang Yi in September.

The restrictions released last October sought to prevent U.S. technology from being used to strengthen the Chinese military by cutting off its access to advanced AI chips and curbing its ability to import the most sophisticated chipmaking tools from the United States.

The Department of Commerce declined comment, while a spokesperson for the Chinese embassy in Washington had "nothing to offer," when asked for comment on the warning.

"China firmly opposes the U.S.'s overstretching of the national security concept and abuse of export control measures to wantonly hobble Chinese enterprises," said spokesperson Liu Pengyu.

Former White House official Peter Harrell stressed that he did not know if the administration had warned China about the new rules, but said, if they did, it would represent "a bit of an inflection point" for the administration as it tries to avoid sending misunderstood signals.

Treasury Secretary Janet Yellen also gave Chinese officials a warning in July about restrictions on U.S. investment in China released in August.

The Biden administration is hoping to clinch Chinese President Xi Jinping's attendance at the Asia-Pacific Economic Cooperation (APEC) summit in San Francisco in November, too, an effort which also has weighed on the timing of the upcoming export rules' release.

Officials have sought to avoid publishing them in the immediate lead-up to the summit, which they saw as potentially jeopardizing Xi's attendance, sources said. Any rules not ready for publication by early October would likely be held until after the summit to avoid antagonizing China, they noted.

“The Administration narrowed in on or near the one-year anniversary for a number of reasons – including to establish a clear cadence,” the official said.

But, the official added, the technical work needed to finalize the restrictions was not yet complete. "As of this moment, final plans are not in place," the official said on Friday.

Biden and Xi have not met in person since a G20 summit on Indonesia's resort island of Bali in November last year after Xi shunned the G20 meeting in India last month.

The United States, the Netherlands and Japan, which together control the world's top chipmaking equipment, agreed to coordinate efforts earlier this year.

The upcoming U.S. rules could hit ASML, the world's leading chip equipment maker and Netherlands' largest company, because its systems contain U.S. parts and components, as Reuters exclusively reported in June.

A spokeswoman for ASML declined comment.

It is not unusual for the U.S. to modify proposals before clearing regulations, so the restrictions, like the timing, could change.

China hopes US will “do more things“ conducive to dialogue

https://reuters.com/article/china-usa/china-hopes-us-will-do-more-things-conducive-to-dialogue-idUSKCN3120N9

China hopes the United States will "do more things" conducive to Sino-U.S. dialogue, the foreign ministry said on Monday, days after Washington angered Beijing with accusations of information manipulation.

Communication between officials of both sides has increased in recent months, bringing some improvement in ties strained for years over issues such as Taiwan, the origins of COVID-19 and accusations of Chinese spying.

"We hope the United States will meet (us) half way, do more things that are conducive to Sino-U.S. dialogue," the ministry said in a statement.

China has always viewed two-way ties along the lines of mutual respect, peaceful co-existence and win-win cooperation, the ministry added.

The statement came in response to a Reuters request for comment on a message last week by U.S. State Secretary Antony Blinken wishing "peace, happiness and prosperity" for the Chinese people ahead of Sunday's National Day holiday.

Although Blinken welcomed China's co-operation in tackling shared challenges on climate, public health, counter-narcotics, food security, and global macroeconomic stability, he made no mention of any co-operation on technology.

The Biden administration has placed curbs on chip exports to China, saying they aim to deny Beijing access to advanced technology that could further military advancements or rights abuses. China hit back with accusations of economic coercion.

A U.S. state department report published on Thursday accused Beijing of ploughing billions of dollars annually into information manipulation efforts, prompting China's foreign ministry to call the United States the true "empire of lies".

Monday's ministry statement made no mention of the earlier state department report, however.

Despite occasional sparks, expectations have been building that the recent rounds of high-level talks could help pave the way for a meeting between U.S. President Joe Biden and Chinese President Xi Jinping later this year.

Two elves and a scroll: China military releases animation on Taiwan “reunification“

https://reuters.com/article/china-taiwan/two-elves-and-a-scroll-china-military-releases-animation-on-taiwan-reunification-idUSKCN3120C0

BEIJING (Reuters) - The Chinese military released an animated short film on National Day showing pieces of a scroll painting torn in two more than 300 years ago being reunited, in a show of the mainland’s determination to bring self-ruled Taiwan into the fold.

The pieces of the “The Dwelling in the Fuchun Mountains”, one of China’s best-known ancient paintings, are kept separately in museums in China and Taiwan, the democratically governed island that Beijing claims as one its provinces, and which it reserves the right to take over by force.

On National Day on Sunday, the People’s Liberation Army’s Eastern Theatre Command, known for belligerent videos of exercises around Taiwan, released an animated short film called “Dreams Come True on Fuchun River”, appealing to the shared cultural roots of people on both sides of the Taiwan Strait.

The film featured two elves, representing the two pieces of the painting by Yuan dynasty master Huang Gongwang, which was torn apart in the 17th century by one of its owners.

At the end of the movie, the two characters came together, magically making the painting whole again.

The shorter piece of the scroll, known as “The Remaining Mountain”, about 51 cm long, is at the Zhejiang Provincial Museum in Hangzhou city. Taiwan’s National Palace Museum has kept the 640-cm long “Master Wuyong Scroll” since the 1950s.

The two pieces were reunited in 2011 when China lent its fragment to the Taiwanese museum for two months during a period of warmer relations as Taiwan pursued a policy of economic rapprochement with China.

But in recent years, as relations have cooled, China has ramped up military activities around Taiwan, including drills over the past month that Beijing said were targeted at combating separatist forces.

At the same time, China is drafting ambitious plans to “integrate” the economies of its Fujian province and Taiwan, on both sides of the Taiwan Strait, offering Taiwan firms a chance to take part in a joint development plan, which Taiwan’s government has spurned.

While China is keen to woo Taiwan with promises of economic gains, the threat of taking Taiwan by force is unrelenting.

During the journey by the two elves in the film, the Eastern Theatre Command inserted shots of aircraft carrier formations and J-20 fighter jets, reminding viewers of its battlefield capabilities.

How China-West tensions will shape global markets

https://reuters.com/article/global-china-markets/how-china-west-tensions-will-shape-global-markets-idUSKCN31206Z

Tensions between the West and China are rising, from tit-for-tat trade tariffs to tech rivalry and spying allegations.

The ramifications for global markets are significant, with Washington and Beijing's determination to loosen dependence on each other fraying long-established supply chains.

That could help keep inflation and interest rates elevated. Still, there are gains for emerging nations and tech giants on the right side of the power battle.

Here's how Western-China tensions are shaping markets.

U.S. President Joe Biden is determined to bring manufacturing in strategic sectors such as electric vehicles and semiconductors back home.

TSMC (.2330), the world's largest chipmaker, is moving some production to Germany to satisfy multinationals' need to diversify supply chains from China.

Goldman Sachs research found that bringing production home may have inflationary repercussions, particularly if Western manufacturing does not ramp up quickly enough to offset declining imports.

"We built a globalised world for a reason, it was efficient and cheap," said Wouter Sturkenboom, chief investment strategist for EMEA and APAC at Northern Trust.

"If we unwind some of that, it will add cost."

Prolonged U.S. inflation also means rates staying higher for longer, boosting the dollar.

A stronger dollar can export inflation to resource-importing nations in Europe by forcing them to pay more for commodities priced in dollars.

Many central banks target 2% inflation; market gauges of traders' long-term U.S. and European inflation expectations are running higher , .

Washington is pushing "friendshoring" - the idea of replacing China's role in supply chains with friendly nations.

Research led by Harvard Business School's Laura Alfaro identifies Vietnam and Mexico as the major beneficiaries of the U.S. supply chain shift so far.

Mongolia is seeking U.S. investment in mining rare earths, materials used in high-tech products such as smartphones. The Philippines is courting U.S. infrastructure investment.

Anna Rosenberg, head of geopolitics at the Amundi Investment Institute, said Sino-U.S. tensions, provide a "new lens" through which to analyse emerging markets' growth prospects.

India is viewed as the most able to compete with China in low-cost, large-scale manufacturing. Its large, young population and a burgeoning middle class also creates opportunities for multinationals seeing less business in China.

Indian stocks have rallied 8% this year (.BSESN) and the prospect of investor flows into the bond market just got a boost from JPMorgan's plan to include India in a key government bond index next year.

"India is a very large opportunity," said Christopher Rossbach, chief investment officer at asset manager J. Stern. "The global companies we are invested in are working on it."

India's central bank forecasts that the economy will expand 6.5% this fiscal year, while China is expected to grow around 5% this year.

Barclays reckons that if India raises its annual economic growth closer to 8% over the next five years, it would be in a position to become the biggest contributor to global growth.

A China-West clash creates winners and losers on both sides.

The EU is investigating whether to impose punitive tariffs against Chinese electric vehicle imports it says benefit from excessive state subsidies.

U.S. subsidies for domestic semiconductor manufacturing have boosted Intel's shares (INTC.O). But the performance of big U.S. tech stocks and global share indices are vulnerable to signs of Chinese retaliation.

Apple (AAPL.O) stock slid by more than 6% over two days in early September on reports that Beijing would ban government workers from using iPhones.

With China the world's dominant buyer of luxury goods, Western fashion houses are also ensnared in politics. China's top anti-corruption watchdog has vowed to eliminate what it calls the hedonism of Western elites. Chinese banks have told staff not to wear European luxury items at work.

"Higher levels of government scrutiny have started to weigh on the spending of more affluent (Chinese) consumers," Barclays analysts Carole Madjo and Wendy Liu said in a note.

Luxury sector shares surged as China loosened COVID-19 restrictions in early 2023. Since then, with China's economy in the doldrums and tensions with the West ratcheting up, they have slumped. European luxury stocks slid 16% in Q3 (.STXLUXL).

A faltering economy and property market turmoil mean the bearish China investment case extends beyond politics.

But the prospect of continued tariffs and the hassle of navigating U.S. restrictions on investing in Chinese technology does not help.

With China underperforming global stocks, investors are split on how to approach this market.

A JPMorgan survey of credit investors found that 40% were bearish on China, but almost the same proportion wanted to increase allocations.

"I'm actually warming to China because everyone hates (this market) so much," said RW Baird vice chair of equities Patrick Spencer. "Market expectations are really severe and the reality is slightly better."

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[World] China Belt and Road: Indonesia opens Whoosh high-speed railway

https://www.bbc.co.uk/news/world-asia-66979810?at_medium=RSS&at_campaign=KARANGA

In blow to India, pro-China candidate wins Maldives election

https://www.washingtonpost.com/world/2023/10/01/maldives-mohammed-muiz-india-china/2023-10-01T13:27:06.303Z

An opposition candidate widely seen as pro-China won a runoff election to be the next president of the Maldives, marking a significant loss for Indian influence in the archipelagic nation.

Mohamed Muizzu received 54 percent of the votes cast in Saturday’s election, the Elections Commission of the Maldives said on Sunday after almost all votes had been counted, compared with 46 percent for the incumbent Ibrahim Mohamed Solih.

“Congratulations to president-elect Muizzu,” Solih wrote on X, formerly known as Twitter, after conceding defeat on Sunday.

In a statement celebrating his win, Muizzu emphasized that the people of the Maldives should put aside their differences and work together. “With today’s result, we have got the opportunity to build the country’s future. The strength to ensure the freedom of Maldives,” he said.

The vote in Maldives highlighted a bitter divide between pro-India and pro-China camps in Asia’s smallest country. India and China hold sway in the island nation in the Indian Ocean, which has a little over 400,000 inhabitants spread across the archipelago and sits in a strategically important location for both trade and security.

The United States has also prioritized improving relations with the Maldives in recent years, and last month sent career diplomat Hugo Yue-Ho Yon to become the first resident ambassador there. The U.S. government previously maintained diplomatic relations through its embassy in Sri Lanka.

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The State Department congratulated Muizzu on his election win on Sunday. The United States “looks forward to deepening our partnership with Maldives and expanding our people-to-people ties,” spokesman Matthew Miller said in a statement.

Indian Prime Minister Narendra Modi also congratulated Muizzu. “India remains committed to strengthening the time-tested India-Maldives bilateral relationship,” Modi wrote on X.

The incumbent, Solih, has been in power since 2018 and pushed for closer relations with New Delhi under an “India First” policy that included seeking new trade agreements and allowing India to operate a small military attachment on Maldives territory.

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Solih’s push was a shift from the policies of his predecessor, Abdulla Yameen Abdul Gayoom, who led the country between 2013 and 2018. Yameen steered the country closer to Beijing, supporting major infrastructure projects with Chinese funding through the Belt and Road Initiative.

Advocacy groups accused Yameen of human rights abuses during his tenure, and after losing office in 2018, he was sent to prison on bribery and money laundering charges that his supporters claimed were politically motivated.

The 45-year-old Muizzu, a former construction minister and current mayor of the capital, Malé, was not an obvious choice for a presidential candidate — but he stepped in after a court ruled that Yameen could not run.

An ally of Yameen’s, he had helped oversee several major infrastructure projects, including a $200 million, Chinese-funded bridge that linked the capital with the Maldives’ main airport.

Muizzu campaigned on an “India Out” platform, arguing that the military presence in the Maldives undermined its sovereignty and pledging to expel all Indian military personnel. He also capitalized on widespread discontent with the country’s low economic performance and leaned into more nationalist rhetoric.

Muizzu won the first round of the presidential vote last month; a second runoff vote was held after no candidate received an absolute majority.

On Sunday, Yameen was transferred from prison to house arrest. Muizzu had pledged to release the former president should he win the election.

Muizzu’s victory drew sharp comments from Indian commentators. Brahma Chellaney, a former member of India’s national security advisory board and an outspoken critic of Beijing, wrote on X that it was an “important diplomatic setback for India in its own backyard” and was influenced by the “Islamist vote.”

Anti-Indian sentiment in the predominantly Muslim Maldives was linked to an attack on a New Delhi-sponsored yoga event in Malé last year. Some of the attackers carried flags of Muizzu’s Progressive Party of Maldives, as well as signs that said yoga was against the teachings of Islam, according to reports in Indian media.

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Indian influence in the Maldives has traditionally been strong, with New Delhi sending troops to the island in 1988 to thwart a coup attempt that would have ousted the dictator it was backing, Maumoon Abdul Gayoom (Gayoom was eventually removed from power 30 years later, in 2008, after the country’s first democratic election).

In 2018, an Indian member of Parliament had publicly suggested that India should “invade” the Maldives if the elections were rigged, which the government swiftly disavowed.

In interviews with the Indian publication the Wire, allies of Muizzu said the president-elect was not seeking to disrupt relations with New Delhi and would likely make his first international visit to India, as other Maldives presidents have done.

“We should be able to continue to enjoy cordial relations with India or for that matter with any country without the need to have boots on the ground,” said Ahmed Mohamed, who served as Maldives’ ambassador to India during the Yameen government.