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For much of the past year, since the passage of the Inflation Reduction Act (IRA) in 2022, U.S. officials have spoken at length about the urgent need to remove China from the critical minerals supply chain used, among other things, to manufacture electric vehicle batteries.

In fact, there are several provisions in the IRA that penalize automakers from using EV batteries that include resources that were either mined or refined by Chinese companies.

Now, one of the U.S. State Department's top officials is acknowledging that will not be possible.

“This is not about China,” Jose Fernandez, the U.S. undersecretary for economic growth and the environment, told a briefing in New York. “We are perfectly happy to work with them on this and right now we purchase many of the minerals from Chinese companies. It’s about diversifying.”

But even diversifying supply chains won't be easy for the U.S. given that Chinese mining companies and battery manufacturers are tightly integrated with firms from so-called "friendly countries."

Take, for example, the recent multi-billion dollar announcement by South Korea's LG Chem to partner with Chinese mining major Zhejiang Huayou Cobalt to build EV battery plants in both Morocco and Indonesia.

Washington's own efforts to build a new alternate battery metal supply chain have shown little progress. A MOU signed nearly a year ago among the U.S., Zambia and the DRC that aimed to "strengthen the EV battery value chain" is stillborn.

WHY IS THIS IMPORTANT? Reality may now finally be settling in among certain senior U.S. officials that no matter how much they want to remove China from the critical minerals production ecosystem, it's just not going to happen.

China's lead in both mining and refining are insurmountable, combined with the fact that many companies from U.S.-aligned countries are deeply engaged with Chinese firms in this arena -- which means that it's not going to be possible to create some kind of alternate China-less supply chain.

SUGGESTED READING:

• Bloomberg: US Says It Can’t Cut China Out of Critical-Minerals Supply Chain by Iain Marlow
• The Washington Post: U.S. plan envisions factories in Africa for surging EV battery demand by Joe Davidson

Vietnamese electric vehicle company Vinfast plans to ship its first batch of 3,000 VF8 crossovers to Europe later this year and the upstart EV brand may even get an assist from European Union trade authorities.

Earlier this month, the European Commission launched an investigation into whether Chinese-made electric vehicles are unfairly benefitting from illegal state subsidies.

Chinese mining companies and EV battery manufacturers, for example, have long benefitted from generous subsidies that reduced the cost of water, power and other services, among others.

China is already a major force in the European EV market, having shipped almost 70,000 units in the first half of the year. But if the EU slaps tariffs on future Chinese EV imports, that could provide a lane for new brands like VinFast to capture some of that newly available market share.

WHY IS THIS IMPORTANT? VinFast's biggest problem isn't competing with Chinese brands in Europe and the U.S. but the fact that its cars may not be ready yet for two of the world's most competitive and highly regulated auto markets. 

The VF8 that VinFast will soon ship to Europe is now widely described as "the worst-reviewed car in America."

Plus, there are rumors circulating that Chinese EV giant BYD may use its new car parts plant in Vietnam to supply components and possibly even batteries to VinFast, which would then potentially subject VinFast to both U.S. and EU sanctions.

SUGGESTED READING:

• Reuters: Exclusive: Vietnam's VinFast to deliver EVs to Europe this year as EU probes China rivals by Phuong Nguyen and Francesco Guarascio
• The Detroit Bureau: VinFast Focuses on Europe to Beat Chinese Rivals to Market by Jeff Zurschmeide

Kuwait's Crown Prince Sheikh Mishal Al-Ahmad Al-Jaber Al-Sabah left for China on Wednesday for an official visit that will likely include a meeting with Chinese President Xi Jinping (the Foreign Ministry has to confirm whether it will happen).

The focus of the Crown Prince's visit, according to Kuwaiti media reports, will be on signing a number of unspecified deals that are part of Sheikh Meshal's plan to transition the emirate's oil- dependent economy to include more diversified post-carbon industries.

Kuwait is currently China's seventh largest oil supplier. (KUWAIT TIMES)

Fu Cong, the Chinese ambassador to the European Union in Brussels, challenged the widely-held perception in Brussels and other Western capitals that the Belt and Road Initiative aims to undermine U.S. and European influence around the world.

If that was the case, he said, "I don’t think that would be welcome by the other part of the world, by the Global South.”

Fu made the remarks during an unusually candid discussion on Tuesday hosted by the European news site Euractiv where he also addressed the new initiatives from the U.S. and Europe that are ostensibly intended to challenge China's BRI:

• WELCOME THE COMPETITION: "As far as China is concerned, we are ready to cooperate. In fact, we are heartened to see that the BRI has motivated some major initiatives on the part of Western countries. The latest IMEC and the Global Gateway initiative from Europe. We see this as a good thing, even though some Western politicians say all of these are counterbalancing to the BRI, but in our view, we do not see them as a counterweight, we see them as complementary."

• CHINA CAN'T DO IT ALONE: "We know the world needs much more investment in terms of basic infrastructure in the Global South and China alone cannot afford to make all of this happen, so there is no reason we should become counterweights against each other."

• WE DON'T CARE WHAT THE WEST SAYS: "When it comes to the BRI, whether it's good or bad, we need to listen more to the receiving countries. We know there is a lot of criticism in the Western media and also from Western governments sometimes but we care more about the reactions from the receiving states, especially in the Global South."

WHY IS THIS IMPORTANT? The biggest takeaway from Tuesday's discussion with Ambassador Fu was that a Chinese representative was there at all to participate in this kind of unscripted event. Chinese diplomats, scholars and other stakeholders have become reluctant to engage in any kind of on-the-record public discussion that Fu's presence alone was notable.

SUGGESGTED READING AND VIEWING:

• Euractiv: Chinese ambassador: Belt-and-Road is not an effort to undermine the West by Georgi Gotev
• Watch the full event: The Belt and Road Initiative - Where are we 10 years on?

Three Republican legislators in the United States feel enough isn't being done to counter China's Belt and Road Initiative and want the State Department to come up with yet another plan to blunt Beijing's "debt-trap diplomacy disguised as infrastructure development" in developing countries.

The lawmakers on Tuesday introduced the BRIDGE Act (Build Responsible Infrastructure Development for the Global Economy) that calls for a new "inter-agency effort to counter the BRI."

“China poses the greatest threat not only to our own nation but to the sovereignty of countless nations across the globe. The Belt and Road Initiative is modern economic warfare; we need to use every tool at our disposal to counter it. The BRIDGE Act will ensure we can help other countries reject China’s Trojan horse aid and maintain a competitive edge on the global economy,” said Oklahoma representative Kevin Hern, one of the bill's three co-sponsors.

WHY IS THIS IMPORTANT? Both the bill and the alarmist tone of its authors are representative of the mood on Capitol Hill today when it comes to China and the BRI. The inaccurate reference to "debt-trap diplomacy" is also typical of many legislators on Capitol Hill who remain poorly informed about Chinese lending practices in the Global South.

Read the full statement on the WisPolitics website.

One of China's foremost scholars on international debt says accusations that Beijing engages in predatory lending, or "debt trap diplomacy" do not align with the facts -- and that it's actually the U.S., or more precisely the U.S. dollar, that's really to blame.

Tsinghua University Professor Tang Xiaoyang presented his findings last weekend at a forum at Shanghai's Fudan University to mark the 10th anniversary of the Belt and Road.

Tang's central argument is that bilateral loans from China typically account for a rather small share of developing countries' debt portfolio, whereas dollar-denominated loans from private creditors and multilateral lenders are far more prevalent.

And when the U.S. Federal Reserve hikes interest rates, as it's done 11 times since March 2022, the cost to service that debt surges and pushes borrowing countries into distress.

Key Highlights From Tang Xiaoyang's Presentation at Fudan University:

• IT'S NOT CHINA'S BILATERAL DEBT THAT'S THE PROBLEM: "In the 20 years from 2000 to 2020, total bilateral debt [in developing countries] did not increase... [but] international bonds alone, they account for more than half of the guaranteed foreign debt of low- and middle-income countries, and the main holders of international bonds are investment institutions in developed countries in Europe and the United States."

• DOLLAR-DENOMINATED DEBT IS THE REAL CULPRIT: "So why have developing countries experienced so many debt defaults in the past few years? This is because the interest rates of the U.S. dollar and the sharp increase in the U.S. dollar exchange rate have greatly increased the interest costs and repayment pressure of these developing countries, thus leading to a debt crisis."

WHY IS THIS IMPORTANT? Tang is one of the most important scholars on Chinese debt issues and his framing often finds its way into official thinking. He was one of the key architects of the Chinese government's evolving response over the past year to U.S./EU/Indian criticism of Chinese lending practices -- so what he says really matters a lot.

SUGGESTED READING:

• Observer: The international media is hyping up the "Belt and Road Debt Trap" for geopolitical purposes by Tang Xiaoyang (in Chinese)
• The China-Global South Project: Chinese Scholar Makes the Case That It’s Bond Debt, Not Bilateral Loans That Trap Developing Countries

Analysts are forecasting Chinese automakers will ship 5 million vehicles this year, solidifying the country's position as the world's largest auto exporter.

But there's a stark discrepancy in terms of what kind of cars go where, according to Michael Dunne, one of the leading Chinese automotive analysts:

• Affordable, gasoline cars are going to price-sensitive consumers in developing markets in South America, Africa and Southeast Asia. China is now the number one supplier of cars to Mexico. There are also huge numbers of new Chinese cars going to Russia. (In 2023, Chinese brands are accounting for half of new car sales in Putin’s kingdom).

• China-built electric cars, on the other hand, are landing mostly in Europe. SAIC leads today thanks to the MG brand’s strong welcome in the UK. Watch BYD hit its stride in 2024. According to Schmidt Automotive Research, Chinese brands already account for 10% of Europe’s EV sales.

Dunne adds that Chinese automakers have insurmountable advantages over their foreign rivals. "They have the scale, they have the supply chains and they enjoy significant support from national and local governments," he explained in his newsletter on Wednesday.

WHY IS THIS IMPORTANT? Chinese cars, both electric and internal combustion, are going to transform mobility in almost every country in the world over the next several years. In Europe, once unrivaled national brands are going to face unprecedented competition from BYD and other Chinese companies while in the Global South, those same Chinese automakers are going to create whole new markets with a new generation of low-cost vehicles.

SUGGESTED READING:

• The Dunne Insights Newsletter: China's Explosive Exports: Two Roads by Michael Dunne
• Nikkei Asia: China surpasses Japan as world's top auto exporter by Shunsuke Tabeta

Malaysian Prime Minister Anwar Ibrahim met with his Chinese counterpart Li Qiang on Sunday on the sides of the 20th China-ASEAN Expo in the southern Chinese city of Nanning.

The two PMs addressed the politically sensitive issue of competing territorial claims in the South China Sea and agreed to maintain "continued, open communication" on the issue.

Kuala Lumpur was among the first countries to publicly reject China's newly-published map that included the ten-dash line that demarcates China's expansive claim of virtually the entire South China Sea.

The Malaysian PM also oversaw the signing of $4.3 billion in Chinese investment deals and held closed-door talks with both Huawei and the state-run construction giant China Communications Construction Company (CCCC).

WHY IS THIS IMPORTANT? Anwar's foreign policy towards China reflects the same kind of pragmatism displayed by both Vietnam and Indonesia, among others, where territorial disputes are managed separately from the broader economic relationship.

SUGGESTED READING:

• Straits Times: Malaysia, China to have open communication over South China Sea issue: Anwar
• Carnegie Endowment for International Peace: Anwar’s Visit to China: Striving for Consistency Amid Global Uncertainty by Thomas Daniel

Cambodia's new prime minister, Hun Manet, promised even closer ties with China during a meeting with President Xi Jinping in Beijing on Friday.

The newly-named Cambodian leader thanked Xi for China's economic support and said he would deepen cooperation with Beijing's Belt and Road Initiative.

China is Cambodia's largest trade partner, source of FDI and aid provider, so it's not surprising that Hun Manet would choose to go to Beijing first since he was appointed to replace his father, Hun Sen, last month.

WHY IS THIS IMPORTANT? China's ties with many other SE Asian countries are becoming increasingly fraught over territorial disputes and the escalating Great Power competition with the U.S., but that is not the case with Cambodia, which is firmly aligned with China. The fact that Xi, not Prime Minister Li Qiang, met with Hun Manet is another sign of just how important this relationship is to Beijing.

SUGGESTED READING:

• Nikkei Asia: Cambodian PM Hun Manet pledges stronger China ties in Beijing visit by Yuji Nitta and Yukio Tajima
• South China Morning Post: China, Cambodia pledge stronger ties as Xi Jinping welcomes new PM Hun Manet to Beijing by Zhao Ziwen

Zambian President Haikinde Hichilema returned home this weekend from a week-long trip to China that appeared to be as much about sightseeing as it was about conducting substantive diplomacy.

During the last stop of his tour in Beijing on Friday, Hichilema met with Chinese President Xi Jinping for what appeared to be congenial albeit generic talks where the highlight was the modest upgrade of diplomatic ties to a "comprehensive strategic cooperative partnership."

But Zambia's pressing debt issues were apparently not addressed, at least according to the joint statement released after their meeting.

Zambia is in the midst of a multi-year debt restructuring process that still requires major bilateral creditors like China to ratify a deal they signed in Paris last June.

It was widely expected that Hichilema's trip to China last week was going to put that at the top of the agenda but there's no indication, at least publicly, that he met with creditors or made any progress in finalizing the deal.

Key Highlights of Hichilema's China Tour

• SIX MOUS: The president touted that he signed six MOUs for energy, housing, telecommunications and a ZTE smartphone assembly in Zambia. He also held talks with EV battery giant CATL for possible future collaborations. (@HHICHILEMA)

• CHINA'S STORY: Hichilema seemed inspired by China's economic development trajectory, where the country went from poor to powerful within a single generation and noted We can accomplish our vision for Zambia by learning lessons from the economic success story of China." (@HHICHILEMA)

WHY IS THIS IMPORTANT? The lack of any announcement on the debt restructuring deal is likely going to frustrate Zambian investors and other creditors who are eager to see Lusaka put the debt restructuring issue behind them.

SUGGESTED READING:

• Reuters: China, Zambia upgrade ties, focus on key economic sectors
• South China Morning Post: China firms up ties with debt-laden, resource-rich Zambia by Jevans Nybiage

Debt servicing costs have been steadily rising across Africa, largely due to the falling value of local currencies that are used to repay dollar-denominated loans.

But in Angola and Uganda, interest payments to Chinese creditors have jumped considerably in recent months as some of the loans have exited the grace period:

ANGOLA: Interest payments, mostly to Chinese creditors, doubled from $775 million in the first quarter of the year to $1.57 billion once a three-year debt repayment moratorium expired. (SOUTH CHINA MORNING POST)

UGANDA: Debt servicing costs increased from $584 million last year to $816 million in the current fiscal year due in part to increased interest payments to the China Exim Bank used to build the Karuma and Nsimbe dams. (MONITOR)

Chinese creditors account for just 4.1%, or $4.7 billion, of Nigeria's $114 billion total public debt, according to the latest figures released by the Debt Management Office in Abuja.

While China's share is significantly larger than other bilateral creditors, France is a distant second with just $572 million, the amount owed to Chinese creditors is nonetheless considerably smaller than that of other major external lenders:

• $16 billion owed to Eurobond holders
• $14 billion owed to the World Bank

WHY IS THIS IMPORTANT? Nigeria is often listed among African countries as a major borrower from China. While that's true compared to most African countries, when measured against the country's entire public debt, China's share is relatively small. Furthermore, all of the Chinese loans to Nigeria were used to build specific infrastructure projects and not used for general budgetary support.

SUGGESTED READING:

• Legit.ng: Nigeria Owes China $4.7bn, World Bank $14bn, France $573m, Indebted to Others by Zainab Iwayemi
• Nigeria's Debt Management Office: Facts about Chinese loans to Nigeria

Chinese President Xi Jinping will not attend this week's G77 Summit in Havana, making this the third major international event in as many weeks that he's avoided. Li Xi, head of the Chinese Communist Party's powerful anti-corruption body, will go in his place as part of a three-nation tour that also includes Brazil and Egypt. (AGENCE FRANCE PRESSE)

The U.S. and Saudi Arabia are reportedly in talks to form a strategic metals mining partnership in Africa, Washington's latest effort to reduce China's dominance in the EV battery supply chain. Under the purported deal, Saudi would invest in cobalt, lithium and other strategic metals mines that U.S. firms would then purchase the output. (WALL STREET JOURNAL)

Voters in the Maldives will go back to the polls at the end of the month for a presidential run-off in a contest widely seen as a referendum on whether the Indian Ocean island state should lean more towards India or China. Pro-China opposition candidate Mohammed Muiz performed better in Saturday's first round of voting with 46%. (ASSOCIATED PRESS)

Authorities are investigating an explosion at a Chinese-owned quarry in western Ghana that killed four people on Saturday, including one Chinese national. Four others are still missing. It's not clear what caused the blast that also destroyed nearby farmland and damaged a number of buildings in the area. (REUTERS)

China’s embassy in Niger has called on its citizens to leave the country. This follows the opening of Nigerien airspace to foreign and commercial flights following the military coup that deposed its civilian president in late July. A statement from the embassy read: “At present, the domestic situation in Niger is generally stable, but there is still some uncertainty in the future development of the situation. In view of the above situation, the Chinese Embassy in Niger reminds all overseas Chinese in Niger to leave Niger as soon as possible for a third country.” (CAJ NEWS AFRICA)

China’s Red Cross has donated $200,000 to Morocco’s Red Crescent to aid its rescue efforts after a devastating earthquake that killed at least 3,000 people and wiped out whole villages. China International Development Cooperation Agency also “stands ready to provide emergency humanitarian assistance,” according to Foreign Ministry spokesperson Mao Ning. (CHINESE FOREIGN MINISTRY)

The Saudi national real estate developer ROSHN has signed a $2.1 billion deal with China Harbor Engineering Company. It will see the state-owned construction giant build 6,700 residential units, mosques, commercial, retail, and other buildings as part of two urban developments driven by the company. (ZAWYA)

Chinese Defense Minister Li Shangfu hasn't been seen in public since he gave the keynote address at the China-Africa Security Forum two-weeks ago, prompting speculation about his fate. Li is now the second Chinese minister to go missing since former foreign minister Qin Gang disappeared from public view on June 25. (NIKKEI ASIA)

The aircraft carrier Shandong along with more than 20 other warships are headed to waters between Taiwan, the Philippines and Guam for China's largest-ever maneuvers in the Western Pacific. The upcoming exercises are seen as a response to recent U.S. Navy drills near China that involved more than two dozen countries. (FINANCIAL TIMES)

The Saudi power company ACWA signed a series of deals with Chinese companies, including China Southern Power Grid International and MingYang Smart Energy Group Ltd, which focuses on integrating renewable enrgy into power grids. The deals will focus on renewable energy, smart grid integration and the production of green hydrogen and ammonia. (ZAWYA)

Singapore tops the 2023 edition of the China Going Out Investment Index as the top international destination for Chinese capital. The city state’s strong status as a business destination, cultural overlaps with China and its neutral position between the two superpowers are all important factors. Positions 2 to 5 are occupied by: Indonesia, Malaysia, Hong Kong and Thailand. (FIBRE2FASHION)

China became the first country to officially appoint an ambassador to Afghanistan since the Taliban took over in August 2021. Zhao Xing presented his credentials te the government in Kabul on Wednesday. The Taliban leadership isn’t recognized by any country and it’s unclear whether the appointment indicates a step in that direction. A Foreign Ministry statement read: "This is the normal rotation of China's ambassador to Afghanistan, and is intended to continue advancing dialogue and cooperation between China and Afghanistan … China's policy towards Afghanistan is clear and consistent." (REUTERS)

Saudi Arabia is preparing to increase oil shipments to China in 2024 to meet growing demand from a crop of new refineries that will come online next year, according to S&P Global Commodity Insights.

While Russian sales are expected to remain strong next year, watch for Saudi Arabia to increase its market share in China thanks to massive new investments in the Asian country's downstream petrochemicals industry that were announced earlier this year.