Shanghai Power Politics: China Shuts Out Iran (Shan Shan)

Two weeks ago, the 10th Shanghai Cooperation Organization (SCO) Council summit, held in Tashkent, Uzbekistan, approved the SCO Rules of Procedure and the regulation on procedure for future membership expansion.

Before the summit, Chinese diplomats ritually pointed out that approval of the admission regulations was the first step in forming the basis for a future expansion of SCO membership and would serve as a cornerstone of the organization's rules for external links.

Behind this formality, however, was a more significant story: for now, Iran will not allowed to  join the organisation.

The ostensible reason was that the SCO's regulations proscribe that “any country under UN sanctions cannot be admitted”. At the time of the meeting, Iran was subject to a 4th round of restrictions; a few days after the meeting, the UN Security Council passed yet another resolution.

Iranian President Mahmoud Ahmadinejad did not attend the summit, although he visited the Shanghai Expo and took part in celebrations at the Iranian pavilion on June 11. The Chinese Foreign Ministry maintained that Ahmadinejad was only visiting the country to attend the Expo, but analysts said he “is here to seek more support from China to water down fresh sanctions”.

The rejection of Iran's membership is far from the entire story, of course. The relationship between China and Iran is still stable. "There is no reason to control or weaken the relationship (with China)”,  Ahmadinejad told a news conference after his visit to the Expo.
Moreover, this summit focused on economic cooperation and security issues in Central Asia, especially in Afghanistan, such as drug trafficking, terrorism ,and organized crime. Besides, the unrest in in Kyrgyzstan is another hot issue at this summit.

The fact remains, however, that Iran was kept at arm's distance. Zhang Xiao, deputy director-general of the Foreign Ministry's department of European and Central Asian affairs, indicated that the SCO is only considering the legal basis for expanding membership, indicating that there is a long way to go before formal accession will even be contemplated.

Furthermore, Beijing is more cautious than Russia, the other main power of the SCO. According to China Daily, Chinese President Hu Jintao told his Russian counterpart Dmitry Medvedev that SCO cooperation and exchange with outside countries should be done in a proper and stable manner, and on the basis of improving the strength of the bloc. "Blind expansion will spoil it (SCO) with excessive enthusiasm".

Pang Zhongying, a senior expert on world politics at Renmin University of China, assessed, "For a regional bloc, it is definitely not the more the better. Now the European Union has 27 members, and we can see more complex problems. The same reason also resulted in a loose APEC (Asia-Pacific Economic Cooperation forum). One of the approaches to ruin a bloc is encouraging it to admit more members."

Add the complicated situation in central Asia and the main concerns of the SCO, and it appears that Iran will be observing the group from outside for some time to come.

China This Week: Hu Visits Canada, The Currency Issue, Building Ties with Australia

Hu's Canadian visit & G20 summit: Chinese President Hu Jintao left Beijing for Canada on Wednesday to pay a state visit and to attend the 4th Group of 20 (G20) summit scheduled for 26-27 June in Toronto.

Strained ties between Beijing and Ottawa started to warm when Canadian Prime Minister Stephen Harper visited China last December. Ottawa had aggressively criticized Beijing for its human rights record, but after the financial meltdown last year, its tone softened slightly. The Harper Government, asserting that "new global realities demand a modernized Canada-China relationship", began to downplay rights-related issues.

Sources said the two countries are expected to sign contracts on energy, telecommunication industries, and tourism.

Looking towards the G20 summit, China said the meeting should focus on the recovery of world economy rather than a specific issue such as the RMB (yuan) exchange rate.

The fluctuations of the Chinese currency: The yuan rose by more than 0.4 percent --- the biggest rise in a day since it was revalued in 2005 --- on Monday, close to hitting its trading limit of 0.5 percent. But the currency on Tuesday then went through its biggest decline since December 2008, weakening 0.23 percent to 6.8136 per dollar.

"The dollar has been strong on the international markets in the past two days and it's normal for the yuan to weaken against the dollar today," said Liu Dongliang, currency analyst of China Merchants Bank. The yuan will not rise continually and strongly, contrary to the expectations of some US politicians and industry players, Liu added.

The Fair Currency Coalition, an alliance of US industry, agriculture, and worker organizations, urged the US Congress to pass effective legislation on the yuan issue, despite China's pledge to make its currency more flexible.

Brenda L. Foster, President of American Chamber of Commerce in Shanghai, warned that the yuan policy move will not significantly reduce the US trade deficit with China.

Chinese VP wants trade deal with Australia: China is keen to strike a free trade pact with Australia soon and opposes any return to protectionism in response to the global economic crisis, China's vice-president, Xi Jinping, said Monday.

His visit to Australia has focused on its burgeoning exports of iron ore, coal and natural gas that are supporting the expansion of Chinese manufacturing.

China has been quick to fill a slump in investment in the Australian resource sector since the global downturn. But Australia is cautious about allowing Beijing-controlled companies to buy the mines that are commanding record prices because of Chinese demand.

China is Austria's biggest trading partner, biggest export market and biggest importer. Despite the global financial crisis, Australia's exports to China rose by 31 percent in 2009.

South China floods toll continues to rise: Heavy rains and floods in south and central China killed 211 people and left 119 others missing as of 4 pm Wednesday, according to the Ministry of Civil Affairs.

More than 29 million people in southern and central provinces have been affected by the inclement weather, with about 2.4 million people evacuated, a statement from the ministry said.

The floods have caused economic losses of around 42.12 billion yuan ($6.2 billion), with more than 1.6 million hectares of farmland flooded and about 195,000 houses collapsing.

China’s auditors find local misuse of  funds: According to a report to the 15th session of the Standing Committee of the 11th National People's Congress, the country's local governments had run up bank loans totaling 2.79 trillion yuan ($410.3 billion) by the end of last year, most of it to fund infrastructure construction and to help pay for government stimulus package projects.

Auditors also found more than 20 billion yuan ($2.9 billion) of policy loans were misused by policy-based financial institutions

Funds embezzled from public finances totaling more than 94.116 billion yuan ($ 13.82 billion) had been recovered or returned. More than 790 people in connection to the cases had been investigated.

Tariff concessions for 33 countries: The Ministry of Finance said  that China would grant zero tariff status to 4,762 categories of commodities now imported from 33 of the world's least developed countries from 1 July.

The list include 26 African countries and seven from other regions. Aquatic products, textiles, farm produce, glass products, steel, and minerals are to be exempted from tariffs.

Since 2001, China has put 41 of the world's least developed countries on the zero-tariff list.

Hong Kong, Ireland sign tax pact

Hong Kong signed its 13th comprehensive agreement for the avoidance of double taxation (CDTA) with Ireland on Tuesday.

Hong Kong's Secretary for Financial Services and the Treasury, K C Chan, said: "The agreement will encourage Hong Kong enterprises to leverage on the success of Irish companies in the areas of technology, research and development, while facilitating Irish enterprises to tap into the Asian market, particularly the vast Mainland market, using Hong Kong as a gateway."

Hong Kong is actively seeking to establish a network of CDTAs with major trading and investment partners, and has concluded them with partners including Belgium, Thailand, Vietnam and the United Kingdom.

Chinese boat seized by Indonesia: A Chinese fishing boat, registered to South China's Guangxi Zhuang autonomous region, and its crew of nine were detained by an Indonesian gunship Tuesday in the South China Sea.

After negotiations, the boat was released the same day. However, eight fishermen who had been taken aboard the Indonesian ship were injured, with one seriously. A preliminary investigation by the region's border defense department showed there might be abuse involved, said Qin Yongjun, spokesman with Guangxi's public security department.