Friends,
So this week’s lame attempt to connect issues of this newsletter to music history brings us Edwin Starr’s hit “War.”
The anti-Vietnam War protest song was originally intended to be performed by The Temptations, but their Motown producers decided that Starr would be a better option and it turned out to be his most popular song and #1 for 1970’s Billboard Hot 100 Chart.
Fifteen years later, Bruce Springsteen would cover the song, connecting the Vietnam War to the Contras in Central America and it remains to this day perhaps the most popular anti-war song ever written.
Before we jump in to the meat of this week’s material, we should pay our respects to a music legend we lost this week, Kris Kristofferson.
Given that I write this newsletter every Sunday morning, perhaps his 1969 Sunday Morning Coming Down is the most appropriate. While written by Kristofferson, it was Johnny Cash’s performance of the song that you’re probably most familiar with as it went on to become the #1 song for 1970’s Billboard Country Chart.
Kristofferson and Cash would go on to perform together in The Highwaymen with Waylon Jennings and Willie Nelson. Willie is the only one still with us.
The Highwaymen performing Highwayman.
Economic Interdependence and Deterrence
For much of the last decade, I’ve spent time thinking about the employment of economic power to achieve geopolitical objectives. This started while I was in the Defense Department and continued when I moved to the Commerce Department and the White House. Since leaving Government, it has been an area of interest for me as it clearly shapes the geopolitical dynamics between Washington and Beijing as well as the landscape, we all live in day-to-day.
This week, I figured I’d share some of my observations on this topic, as well as highlight some arguments that do more to confuse our policymaking than help. I believe that it is critically important to understand what economic power can and can’t achieve, as well as understand the impacts of policies in the economic domain.
So, what do I mean by economic power and policymaking in the economic domain?
I see economic power as the sum of what a nation can influence and control in the financial, commercial, technological, and industrial domains. Policymaking in this field involves activities and decisions across a broad swath of society from the interest rates a central bank sets, to the tax code that creates incentives and disincentives, to government spending, to restrictions on exports and imports, to the imposition of financial sanctions, and more.
A government can coordinate its activities and decisions across these different areas to achieve certain policy objectives, but in doing so, it will involve trade-offs, as well as second and third order consequences that are often difficult to predict.
Over the years, I’ve wrestled with a number of questions:
Should we hold economic power in reserve to deter aggression or is it better to use economic power today to shape the international environment in ways that disadvantage our rivals?
Does economic interdependence reduce the likelihood of conflict and aggression?
Is the threat to impose economic costs a good deterrent?
To take the last question first, on the face of it, it seems like it should be.
We live in a world of interconnected trade and complex financial arrangements. Political leaders in every country want to achieve their goals and stay in power, so they must be sensitive to this globalized economic system and would want to avoid actions that would impose heavy costs. While not omnipotent, the United States controls some important levers in the economic domain, particularly over the dollar-denominated global financial system, access to the world’s largest consumer and capital markets, and control over some critical advanced technologies. This combination of economic powers seems like it should grant the United States the ability to deter aggression and incentivize responsible behavior.
The logic of using economic power to deter war and aggression isn’t new.
Nicholas Mulder describes this logic in his book The Economic Weapon: The Rise of Sanctions as a Tool of Modern War.
After the First World War, the victors believed they had discovered a powerful instrument that could deter aggression. Their experience during the war had taught them that the blockade of Germany had brought the country to its knees, and they believed strongly that the threat of doing so again would serve as a sufficient deterrent to any other country contemplating aggression. So, they invested their new international organization (the League of Nations) with the ability to wield this instrument: the power to impose sanctions and trade embargos.
Mulder found a great quote from President Woodrow Wilson in 1919 to describe how he envisioned this power as “something more tremendous than war” and the threat of imposing sanctions is the threat of:
“[A]n absolute isolation… that brings a nation to its senses just as suffocation removes from the individual all inclinations to fight… Apply this economic, peaceful, silent, deadly remedy and there will be no need for force. It is a terrible remedy. It does not cost a life outside of the nation boycotted, but it brings pressure upon that nation which, in my judgment, no modern nation could resist.”
We see reflections of this logic today in discussions about economic sanctions and “integrated deterrence.” If we can demonstrate both the capability and the willingness to impose significant economic sanctions (costs), then potential aggressors will conclude that the cost of aggression exceeds the benefits they would gain. Under this logic, we should bind potential aggressors more tightly to our economic system, make them even more dependent on their economic relationships with us (in other words encourage economic interdependence), so as to amplify the cost they would suffer if we imposed sanctions.
For several years, I thought this was the right way to think about economic power in a geopolitical context.
I encouraged my counterparts across the U.S. Government to conduct contingency planning on sanctions so as to persuade potential aggressors that the United States had not only the will to impose these costs, but also the capability to do it.
But I’ve changed my mind.
I no longer believe we should hold economic power in reserve as a deterrent and we should focus our policymaking on disadvantaging our rivals now, so that they have fewer capabilities and options in the future.
First of all, I’ve come to conclude that economic power is a poor deterrent for democracies to use. Authoritarian rivals, who are bent on waging wars of aggression discount the importance of free trade and global finance. They often see those systems as threats to their own rule and pursue policies to make themselves less vulnerable. To the degree that these rivals understand their vulnerability to sanctions and trade embargos, they are motivated to develop mitigation measures which make themselves “sanctions proof.”
They may be wrong, and these mitigation measures won’t make them invulnerable to sanctions, but that’s irrelevant: if they *believe* they can mitigate the effects of sanctions, then the threat of imposing sanctions after their aggression doesn’t work as a deterrent.
The leaders of authoritarian regimes seem to be particularly immune to this sort of deterrence. If they hold enough power to silence opposition, then they likely won’t hear alternative views on the impacts of sanctions until after they have been imposed, and even then, they can remain oblivious to the impact of them for quite some time.
The opposite seems to be true for democracies and open societies.
In political systems where there is robust opposition and a free press, the threat of economic costs are amplified across the political system. In a political system where power is shared across various institutions and individuals, and where policies must be considered and argued in public, threats of economic retaliation can force leaders to abandon actions that their rivals want to dissuade them from doing.
So, one conclusion I think we could draw is that using economic power to deter a rival from doing something works well against democracies, but doesn’t work well against authoritarian regimes.
By pursuing policies that favor economic interdependence with actual and potential authoritarian rivals, democracies open themselves up to being deterred far more than authoritarians.
I’m not advocating that we adopt an authoritarian political model, just the opposite. I’m pointing out that our theory of economic interdependence and using economic power as a deterrent is flawed given our political systems and the systems of the rivals we are trying to deter.
Under these conditions, it seems clear that we should make ourselves LESS economically interdependent with our authoritarian rivals and use our economic power today to disadvantage them with less access to capital, less access to advanced technology, and less access to our consumer and capital markets.
What seems to work as a deterrent with authoritarians is actual military power. If our rivals believe that they cannot achieve an objective using military force at an acceptable cost because we possess sufficient military power to stop them, then they will be deterred from using force.
***
Tighter Export Controls harm U.S. semiconductor companies… not so much
This week, my friend Paul Triolo wrote another opinion piece on how tighter export controls are harming American semiconductor companies and how the U.S. Government should reverse course on what he sees as a failed policy.
It was published by The Wire China and titled: “Decoupling Without Direction: Expected new U.S. export controls on China will accelerate the decoupling of the semiconductor sector, bringing big losses to American companies.”
He argues that both the Trump and Biden Administrations have imposed unnecessary and harmful restrictions on the business U.S. semiconductor companies can do with the PRC and that the U.S. Government “has still not provided any real cost-benefit analysis of its export control measures.” According to Paul, U.S. companies impacted by these policies are suffering and the U.S. Government must change course or risk destroying an important industry.
Reading his piece made me wonder just how badly these companies are doing.
The ones that are public must be getting hammered on the stock market as investors and analysts make the same conclusions Paul is sharing with us.
Clearly, they must have suffered enormous losses over the past few years and their stock prices must be near zero, right?!?
[I suspect you can detect the sarcasm]
Here’s one called Lam Research, it is headquartered in Fremont, California, is listed on the Nasdaq, and it makes tools for the semiconductor industry… presumably the kind of company that would be most impacted by tightened export controls.
CNBC Chart on the performance of Lam Research (LRCX) from October 4, 2019 to October 4, 2024.
That can’t be right, according to Paul, these export controls should be harming a company like Lam Research.
Let’s check what Lam’s CEO, Tim Archer, had to say to his investors in his most recent annual report (published September 4, 2024):
“Lam demonstrated strong performance in fiscal year 2024. Amid a steep cyclical decline in investment in equipment for the non-volatile memory sector, we delivered revenue of nearly $15 billion and diluted earnings per share of $29.00, while making significant strategic investments in our business. Our results showed strong improvements since the prior cyclical industry trough in 2019, including operating margin expansion and stronger cash generation. In addition, we benefited from our growing service and support capabilities for our 90,000-plus chamber installed base. We returned more than $3.7 billion to our stockholders through stock repurchases and company-record dividends of $7.73 per share during the fiscal year, underscoring our commitment to returning capital.”
Hmm… $15 billion in revenue (only beat by their revenues in FY22 and FY23) and company-record dividends, sounds like they are experiencing some really tough times.
Maybe Lam Research is just fluke, let’s take a look at the company Lam identifies in their 10-K as their #1 competitor, Applied Materials.
Applied Materials is another publicly traded Silicon Valley company based in Santa Clara, listed on the Nasdaq, and produces tools for making semiconductors. They must be the ones suffering from these export restrictions.
CNBC Chart on the performance of Applied Materials Inc (AMAT) from October 4, 2019 to October 4, 2024.
That’s strange, Applied Materials appears to be doing even better than Lam. Their last annual report and 10-K was published on December 31, 2023, let’s see what their CEO had to say about their performance:
“Applied Materials delivered record revenue, earnings and cash flow in fiscal 2023 and is outgrowing the wafer fabrication equipment market for the fifth consecutive year. This record performance is underpinned by the strength and breadth of our product portfolio as well as the central role we play in enabling major industry inflections. We have leadership positions in the key transistor, wiring and heterogeneous integration technologies that are critical to our customers’ roadmaps and shaping the future of the semiconductor industry.”
Wow!
Record revenue, earnings and cash flow, along with outgrowing their competitors around the world for the fifth consecutive year. That hardly sounds like a company being harmed by stricter export controls.
Perhaps I’ve focused too narrowly on just the past 5 years and I’m not appreciating the long-term losses these companies have suffered from the tightened export controls that began during the Trump Administration and have accelerated during the Biden Administration.
Maybe they were doing even better 5, 10 or 15 years ago.
CNBC Charts on the performance of Lam Research (LRCX) and Applied Materials Inc (AMAT) from the 1980s to October 4, 2024. Red line is the start of the Trump Administration.
I’ll let you draw your own conclusions on how much harm these two companies are suffering.
Perhaps you think I’ve just cherry-picked two companies that have done particularly well and the rest of the U.S. semiconductor industry is suffering from these onerous export controls.
Well, let’s examine the Top 10 U.S. Semiconductor companies by revenue and how they have performed over the past 5 years:
#1 – Nvidia (revenue: $96 billion) Up 2809% since October 2019
#2 – Intel (revenue: $55 billion) Down 56% since October 2019
#3 – Broadcom (revenue: $47 billion) Up 544% since October 2019
#4 – Qualcomm (revenue: $37 billion) Up 120% since October 2019
#5 – Applied Materials (revenue: $27 billion) Up 309% since October 2019
#6 – AMD (revenue: $23 billion) Up 495% since October 2019
#7 – Micron Technology (revenue: $21 billion) Up 137% since October 2019
#8 – Texas Instruments (revenue: $16 billion) Up 59% since October 2019
#9 – Lam Research (revenue: $15 billion) Up 254% since October 2019
#10 – Analog Devices (revenue: $10 billion) Up 106% since October 2019
Notice a pattern?
Here’s a chart comparing the performance of the Top 10 U.S. Semiconductor companies over the past 5 years… It is a bit hard to read because Nvidia’s performance skews the rest of the chart, but the only one that is down is Intel.
Here is the chart without Nvidia’s 2809% growth over the last 5 years.
I don’t know about you, but https://www.youtube.com/watch?v=bMdeg-WKt1Uthis looks a lot like winning… not being harmed by excessive export controls.
Thanks for reading!
Matt
MUST READ
1. China Is Ready for War: And Thanks to a Crumbling Defense Industrial Base, America Is Not
Seth G. Jones, Foreign Affairs, October 2, 2024
Amid a growing bipartisan consensus that the United States needs to do more to contain China, much of the policy debate in Washington has focused on China’s economic and technological clout. Now, given China’s economic problems—high youth unemployment, a troubled real estate market, increased government debt, an aging society, and lower-than-expected growth—some scholars and policymakers hope that Beijing will be forced to constrain its defense spending. Others go so far as to say the Chinese military is overrated, contending that it will not challenge U.S. dominance any time soon.
But these assessments fail to recognize how much China’s defense industrial base is growing. Despite the country’s current economic challenges, its defense spending is soaring and its defense industry is on a wartime footing. Indeed, China is rapidly developing and producing weapons systems designed to deter the United States and, if deterrence fails, to emerge victorious in a great-power war. China has already caught up to the United States in its ability to produce weapons at mass and scale. In some areas, China now leads: it has become the world’s largest shipbuilder by far, with a capacity roughly 230 times as large as that of the United States. Between 2021 and early 2024, China’s defense industrial base produced more than 400 modern fighter aircraft and 20 large warships, doubled the country’s nuclear warhead inventory and more than doubled its inventory of ballistic and cruise missiles, and developed a new stealth bomber. Over the same period, China increased its number of satellite launches by 50 percent. China now acquires weapons systems at a pace five to six times as fast as the United States. Admiral John Aquilino, the former commander of the U.S. Indo-Pacific Command, has described this military expansion as “the most extensive and rapid buildup since World War II.”
China is now a military heavyweight, and the U.S. defense industrial base is failing to keep up. When the Axis powers were advancing in Europe and Asia, President Franklin Roosevelt mobilized that base, calling it the “arsenal of democracy.” A similar U.S. effort is necessary today. U.S. defense production has atrophied, and the system lacks the capacity and flexibility that would allow the U.S. military to deter China and, if a conflict does break out, to fight and win a protracted war in the Indo-Pacific region or a two-front war in Asia and Europe. Washington must fix critical bottlenecks, and it must act fast if it wants to keep pace. In short, the United States needs to commit much more attention and resources to military readiness if it is to succeed in assembling a new arsenal of democracy.
RAPID BUILDUP
Chinese President Xi Jinping has made clear that developing a world-class military is central to his aim of pursuing the “great rejuvenation of the Chinese nation on all fronts.” A key part of that process is building a defense industrial base that can produce the hardware (such as ships, aircraft, tanks, and missiles) and software (such as technology and systems for command, control, communications, and intelligence) that military forces need. Over the past decade, China’s production of surface and subsurface vessels, aircraft, air defense systems, missiles, land systems, spacecraft, and cyberweapons has made the country a serious competitor of the United States.
Driving this production are China’s massive state-owned enterprises, which are charged with developing and building the country’s weapons systems. Today, four of the world’s top ten largest companies in combined defense and nondefense revenue are Chinese, including the two largest: Aviation Industry Corporation of China and China State Shipbuilding. This is a seismic change from a decade ago, when no Chinese firm cracked the world’s top 100 defense companies. Looking at defense revenue alone, China has five companies in the global top 12, also up from zero ten years ago. Chinese defense companies now rival such U.S. giants as Lockheed Martin, RTX (Raytheon), Boeing, Northrop Grumman, and General Dynamics in size and production capacity.
It is not just the volume of defense production that is driving China’s military rise. Beijing has also improved the research, development, and acquisition process for weapons systems, allowing the People’s Liberation Army to produce advanced platforms in such complex fields as carrier-based aviation, hypersonics, and propulsion systems. In addition to military hardware, the PLA has built the digital architecture that, in the event of war, would help the army coordinate its command, control, communications, computers, cyber, intelligence, surveillance, and reconnaissance networks and deploy firepower with the help of artificial intelligence, big data, and other emerging technologies.
The clearest example of Chinese military dominance is the country’s naval forces. With the country’s vast shipbuilding capacity, the PLA Navy has become the largest in the world. The U.S. Navy estimates that a single Chinese shipyard—such as the one on Changxing Island, located along China’s eastern coast—has more capacity than all U.S. shipyards combined. China’s naval production now includes everything from gas turbine and diesel engines to shipboard weapons, electronic systems, submarines, surface combatants, and unmanned systems. In the past decade, the PLA Navy has also made major advances in corvette construction, built eight destroyers, and completed the aircraft carriers Shandong and Fujian. The design of the Fujian features an electromagnetic catapult launch system for aircraft, which allows for more comprehensive air operations, making the carrier more capable than previous Chinese models. It can deploy up to 70 aircraft, including fighter aircraft and antisubmarine helicopters.
The PLA Navy still trails the U.S. Navy in several areas. China has more ships than the United States, but those it has are smaller. China has a disadvantage in firepower; its fleet can carry roughly half as many missiles as its U.S. counterpart. The United States also produces more advanced nuclear-powered submarines than China. But China’s shipbuilding production would likely give it an advantage over the United States in a protracted war, and the gap is expected to grow. Not only do China’s commercial shipyards dwarf their U.S. counterparts, but many of them are also used for both military and civilian construction, meaning that China can surge its military shipbuilding capacity more readily than the United States.
…
PEACETIME FOOTING
China’s defense buildup poses a serious threat to the United States and allies and partners, including Australia, Japan, the Philippines, South Korea, and Taiwan. China possesses thousands of missiles, some of which can strike the U.S. homeland. Others can hit U.S. overseas bases, which host U.S. aircraft, runways, ships, fuel depots, munitions storage sites, ports, command-and-control facilities, and other infrastructure. China’s suite of antiship ballistic missiles threatens U.S. surface ships operating in the South China and East China Seas and beyond. Looking at this array of Chinese military capabilities, U.S. Secretary of the Air Force Frank Kendall III bluntly noted, “China is preparing for a war and specifically for a war with the United States.”
With such a clear assessment of the threat, it is perplexing that the United States has not mobilized its own defense industrial base to keep pace. The U.S. military does not have sufficient munitions and other equipment for a protracted war against China in the Taiwan Strait, South China Sea, or East China Sea—all areas where territorial disputes involving China and U.S. partners and allies, such as Japan, the Philippines, and Taiwan, could turn violent. In war games simulating a conflict in the Taiwan Strait, for instance, the United States usually depletes its inventory of long-range antiship missiles within the first week. These weapons would be critical in an actual war, as they can strike Chinese naval forces from outside the range of Chinese air defenses. Especially in the early stages of a conflict, Chinese defenses would likely prevent most aircraft from moving close enough to drop short-range munitions.
COMMENT – Perplexing indeed!
I feel a bit like a broken record on this topic… but it is probably the most important issue facing us and I see very little being done to fix it.
To go back to the topic, I covered at the start of this issue. The failures to rebuild a defense industrial base and make significant defense spending increases has forced us to rely even more on economic deterrence (aka “integrated deterrence”). A concept that I think is deeply flawed given the rivals we are trying to deter.
2. This Is What Can Land You in Jail for Sedition in Hong Kong
David Pierson and Tiffany May, New York Times, September 27, 2024
Three men were the first to be convicted under the city’s recently expanded national security law, which has greatly curtailed political speech.
Wearing a T-shirt with a protest slogan.
Scrawling pro-democracy graffiti on public bus seats.
Criticizing Xi Jinping on social media.
Three men in Hong Kong were sentenced to prison last week for these acts of protest, which in another era probably would have drawn little notice — showing the power of a newly expanded national security law aimed at muzzling dissent.
The rulings, rendered over two days by a judge whom Hong Kong’s leader handpicked, highlight the political transformation that has taken place here.
A financial center and a city accustomed to freedom of political expression, Hong Kong now more closely resembles mainland China, where criticism of the ruling Communist Party is rarely, if ever, tolerated.
China agreed to preserve Hong Kong’s “lifestyle” for 50 years after the territory’s return to Beijing from British colonial rule in 1997 under a “one country, two systems” formula. But demands for greater democracy, culminating in antigovernment demonstrations that engulfed the city in 2019, led to a political crackdown that has eliminated virtually all public opposition to Beijing. A once freewheeling news media has also been silenced. Two editors who led the now-defunct Stand News were the first journalists in decades to be convicted of sedition.
“We are still in the midst of the national security reordering of the civic space in Hong Kong,” said Thomas Kellogg, executive director of the Georgetown Center for Asian Law. “Public debate and discussion is a shadow of its former self, and the government will continue to use its national security tool kit to police what people say and write.”
3. How fentanyl traffickers are exploiting a U.S. trade law
Drazen Jorgic, Laura Gottesdiener, Kristina Cooke, and Stephen Eisenhammer, Reuters, October 1, 2024
Hundreds of millions of small packages pour into the U.S. each year from China – some with fentanyl ingredients stashed inside. Now, a fight is shaping up over whether and how to undo the rule change that helped set off this deadly import boom.
In January 2023, U.S. federal agents raided the home of a Tucson maintenance worker who had a side hustle hauling packages across the border to Mexico.
They estimate that over the previous two years, the gray-bearded courier had ferried about 7,000 kilos of fentanyl-making chemicals to an operative of the Sinaloa Cartel. That’s 15,432 pounds, sufficient to produce 5.3 billion pills – enough to kill every living soul in the United States several times over. The chemicals had traveled by air from China to Los Angeles, were flown or ground-shipped to Tucson, then driven the last miles to Mexico by the freelance delivery driver.
Even more astonishing is what fed this circuitous route: a few paragraphs buried in a 2016 U.S. trade law supported by major parcel carriers and e-commerce platforms that made it easier for imported goods, including those fentanyl ingredients, to enter the United States.
This change to trade policy has upended the logistics of international drug trafficking. In the past few years, the United States has become a major transshipment point for Chinese-made chemicals used by Mexico’s cartels to manufacture the fentanyl that’s devastating U.S. communities, anti-narcotics agents say. Traffickers have pulled it off by riding a surge in e-commerce that’s flooding the U.S. with packages, helped by that trade provision.
In short, a regulatory tweak fueling America’s online shopping habit is also enabling the country’s crippling addiction to synthetic opioids.
So is an immutable aspect of international trade: Transporting goods is largely an honor system that’s easy for bad actors to exploit. Senders are supposed to tell the truth about what’s inside the boxes they export. But shipping documents are easy to falsify, and contraband fairly simple to camouflage. Authorities can’t inspect every box without bringing global commerce to a halt.
“It just makes it a monumental task to find that needle in a haystack,” said Patrick McElwain, a senior official with Homeland Security Investigations (HSI), an agency tasked with disrupting illicit fentanyl supply chains.
U.S. lawmakers inadvertently turbocharged this problem as part of the 2016 legislation by loosening a regulation known as de minimis. Individual parcels of clothing, gadgets and other merchandise valued at up to $800 – one of the highest such limits in the world – now enter the country duty-free and with minimal paperwork and inspections. Fully 90% of all shipments now enter the country this way, and most arrive by air, according to U.S. Customs and Border Protection. The liberalized trade rule has been a boon for retailers and e-commerce platforms such as China-founded Temu and Shein that ship merchandise directly to buyers’ doorsteps.
America’s ports of entry are now so jammed with these packages, most of them from China, that just a tiny fraction of the nearly 4 million de minimis parcels arriving on U.S. shores daily are inspected by U.S. Customs. Security officials say that has made it easy for Mexican traffickers to sneak in small boxes of fentanyl ingredients from China disguised as mundane household items. Even modest amounts of these chemicals, known as precursors, can produce vast numbers of pills.
Traffickers then route these precursors south to Mexico, often using informal parcel handlers such as the Tucson maintenance man. There, powerful crime syndicates such as the Sinaloa Cartel and the Jalisco New Generation Cartel use the chemicals to manufacture industrial quantities of fentanyl. The finished product is smuggled back north to the United States, where it’s powering the biggest drug crisis in U.S. history. Overdoses from synthetic opioids killed nearly 75,000 people in the U.S. last year alone, government figures show. Recent data suggest the pace of deaths may be slackening, but overdose fatalities remain alarmingly high, with hundreds of people dying weekly.
Stopping inbound fentanyl chemicals from reaching narcos has become paramount for law enforcement. Close to 3.8 tons of precursors were seized by U.S. Customs in fiscal 2023, nearly quadruple the total in 2021, when the agency first began collecting this data.
But security officials say they’re overmatched. The U.S. received 1 billion de minimis packages in fiscal 2023 with a declared value of $54.5 billion. That’s twice the number of parcels from four years earlier, government figures show. Mounds of sneakers, tools and toasters crowding customs warehouses are the perfect cover for random boxes of fentanyl ingredients to hide.
“We’ve lost control of what’s coming in,” said Rep. Earl Blumenauer, an Oregon Democrat who has proposed legislation to overhaul the system. “When you have a billion packages coming in, there’s no way you can keep track of illicit, unsafe, illegal products.”
COMMENT – I’m really glad Congressman Blumenauer (D-OR) is taking this on and I hope his fellow members of Congress support it.
4. Germany arrests Chinese national on suspicion of spying
DW, October 1, 2024
A Chinese citizen has been arrested in Leipzig, where she worked at the airport. She is accused of passing on information about the transport of military equipment to another suspected agent.
The German public prosecutor's office said Tuesday a Chinese woman had been arrested on suspicion of being an intelligence agent for a Chinese secret service.
The suspect, identified as Yaqi X., worked for a company that provides logistical services at the Leipzig/Halle Airport in eastern Germany, according to prosecutors.
Prosecutors said in a statement that X. used her position to gather information on "the transport of military equipment and persons with connections to a German arms company."
Connection to another suspected agent
From mid-August 2023 until mid-February, X. "repeatedly" provided information to Jian G., a separately prosecuted suspect, according to the prosecutor's statement.
The information allegedly included details about flights, freight and passengers at the airport, as well as transportation of military equipment.
A former employee of far-right politician Maximilian Krah, Jian G. was arrested in April on suspicion of espionage.
According to the prosecutor's office, G. allegedly spied on Chinese opposition members in Germany and passed on information about negotiations and decisions in the European Parliament to the secret service.
Krah, a member of the European Parliament and the Alternative for Germany (AfD) party, had his offices searched earlier this year in connection with the case against G.
COMMENT – Hopefully, this will motivate German political leaders to take the threats posed by the PRC more seriously.
5. U.S. Raises New Concerns Over Chinese Lending Practices
Alan Rappeport, New York Times, October 1, 2024
A Treasury official will call for greater transparency over emergency currency “swap” loans to struggling countries by China’s central bank.
The United States is raising new concerns about China’s practice of making emergency loans to debt-ridden countries, warning that a lack of transparency surrounding such financing can mask the fiscal predicaments facing fragile economies that have turned to China for help.
A senior Treasury official, Brent Neiman, publicly aired concerns about the practice in a speech on Tuesday in which he urged the International Monetary Fund to push China for greater clarity about its lending terms. The Biden administration broached the issue directly with Chinese officials in Washington this year during a meeting of a recently created bilateral economic and financial working group.
Chinese loans to countries already struggling to repay their debts are being made through China’s central bank using so-called swap agreements. These agreements allow countries to borrow Chinese renminbi and keep those funds in their central reserves while using the U.S. dollars that they hold to repay foreign debts.
The financing is essentially a line of credit, in which a country swaps its own currency for renminbi and agrees to pay Beijing a high interest rate. The arrangement allows those countries to use their dollar reserves to finance trade or other government needs. They can also use the funds to pay debts owed to Chinese banks or to make purchases from China, creating even deeper ties to its economy.
COMMENT – Instead of “calling for greater transparency” and asking Beijing to do better… why don’t we impose real costs on this harmful behavior?
6. Crew of Vietnamese fishing boat injured in an attack in the South China Sea, state media say
Hau Dinh and David Rising, ABC News, September 30, 2024
Vietnam's state media say a Vietnamese fishing boat was attacked in the South China Sea near the Paracel Islands, which are claimed by both China and Vietnam, and 10 crew members sustained injuries.
COMMENT – The next day, the Vietnamese Government accused the PRC of the attack.
Authoritarianism
7. Why Did China Experiment with and then Abandon Village Elections?
Stanford SCCEI, October 1, 2024
Why did China’s government allow for village elections only to later deprive elected officials of meaningful authority?
INSIGHTS
Analysis of decades of village governance data from China reveal that nationwide village elections launched in 1987 shifted important authority to locally elected officials away from Party-appointed officials.
Elected officials increased spending on popular public goods, like roads and irrigation, and curbed unpopular practices, like land expropriation and one-child policy enforcement, in effect weakening vertical authority.
As China’s wealth increased, the state expanded its bureaucratic capacity and gradually imposed new restrictions on the authority and autonomy of elected village leaders.
The analysis suggests China’s government prefers direct control when feasible but saw delegation through village elections as beneficial when bureaucratic capacity was weak.
COMMENT – Great piece of research.
As the PRC got wealthier, the Chinese Communist Party used that wealth to strengthen their monopoly hold on power.
8. Hong Kong doctor receives suspended deregistration over 2019 rioting conviction
Kelly Ho, Hong Kong Free Press, September 27, 2024
9. Ex-Hong Kong student leader denied early release from jail following national security committee decision
Hans Tse, Hong Kong Free Press, September 24, 2024
10. A path towards freedom: the new route to Europe for desperate Chinese migrants
Amy Hawkins, The Guardian, September 24, 2024
11. Xi Jinping Is Prioritizing Political Survival Over Economic Prosperity
Raja Krishnamoorthi, Foreign Policy, September 26, 2024
12. Fear of a Soviet-style collapse keeps Xi Jinping up at night
The Economist, September 30, 2024
13. Xi vows ‘reunification’ with Taiwan on eve of Communist China’s 75th birthday
Nectar Gan, CNN, October 1, 2024
14. Sympathy, Soul-Searching, and Censorship Follow Fatal Stabbing of Japanese Boy in Shenzhen
Cindy Carter, China Digital Times, September 27, 2024
15. Xi'an Woman Arrested for Posting Video of Snow
Alexander Boyd, China Digital Times, October 1, 2024
16. Hong Kong man arrested on suspicion of damaging decorations for China’s National Day in Sheung Shui
Hans Tse, Hong Kong Free Press, September 30, 2024
17. China’s Thickening Information Fog
Jonah Victor, CIA, September 2024
18. Hong Kong protests: Little remains of Umbrella Movement
Yuchen Li, DW, September 27, 2024
19. This Is What Can Land You in Jail for Sedition in Hong Kong
David Pierson and Tiffany May, New York Times, September 27, 2024
20. China revokes license of former Xu Zhiyong defense attorney
Chen Zifei, Radio Free Asia, September 24, 2024
21. Song Binbin, Poster Woman for Mao’s Bloody Upheaval, Dies at 77
Trip Gabriel, New York Times, October 1, 2024
22. China opinion survey gives Russia high marks; US, Japan seen as ‘unfavourable’
Alyssa Chen, South China Morning Post, October 1, 2024
23. China and Russia team up on Arctic coastguard mission, with new shipping routes on horizon
Sylvie Zhuang, South China Morning Post, September 30, 2024
24. Chinese and Russian coast guard ships sail through the Bering Sea together, US says
Associated Press, October 1, 2024
25. China tourism takes a great leap inward
Marco Ferrarese, Nikkei Asia, October 2, 2024
26. How China’s ‘one-child generation’ got trapped in the population pyramid
He Huifeng and Mandy Zuo, South China Morning Post, October 2, 2024
27. China denies injuring ‘illegal’ Vietnamese fishing crew
Radio Free Asia, October 2, 2024
China has denied that its law enforcement authorities adopted a heavy-handed approach to stop Vietnamese fishing boats from operating in disputed waters claimed by both countries in the South China Sea.
Vietnam’s state media reported that Chinese personnel boarded a Vietnamese fishing boat off the Paracel Islands in the South China Sea on Sunday and beat the crew with iron bars, seriously injuring four of them.
They also smashed the fishing equipment and took away the Vietnamese crew’s catch.
China’s foreign ministry, responding to a request for comment from the Reuters news agency, said that Vietnamese fishing boats illegally fished in the waters of the Paracel Islands without permission.
It said that Chinese authorities took measures to stop the boats and that "on-site operations were professional and restrained, and no injuries were found."
Vietnam denounced China’s treatment of the fishing crews operating in what it calls the Hoang Sa islands.
"Vietnam is extremely concerned, indignant and resolutely protests the brutal treatment by Chinese law enforcement forces of Vietnamese fishermen and fishing boats operating in the Hoang Sa archipelago of Vietnam," Vietnamese foreign ministry spokesperson Pham Thu Hang said in a statement.
The ministry delivered a strong protest to the Chinese embassy demanding that China respect Vietnam's sovereignty, investigate the incident and desist from further such actions, Hang said.
Vietnamese media ran several interviews with the captain and crew of the fishing boat QNg 95739 TS from central Quang Ngai province.
The fishermen described a “terrifying attack” by about 40 Chinese personnel on two steel-hulled Chinese ships.
Crewman Huynh Tien Cong told the Tien Phong newspaper that the attackers beat him and other crew members with meter-long steel bars, breaking his arms and legs.
Pham Linh, VN Express, October 3, 2024
Nguyen Thanh Bien, captain of a Vietnamese fishing vessel, remembered vividly the harrowing attack by Chinese forces near the Paracel Islands on Sept. 29, which left one of his crewmembers with broken limbs and himself unconscious.
"I’ve been a captain for over 10 years and have faced Chinese vessels several times, but this time they were very violent, using metal sticks to beat us brutally," said Bien.
The 40-year-old and his crew members are still receiving treatment for injuries days after the assault, which lasted four hours and involved strong blows of metal sticks.
Bien, along with nine others, had set out from Sa Ky Port in central Quang Ngai Province on Sept. 13 to fish near the Paracel Islands (Hoang Sa). After two weeks, they had captured four tons of fish.
COMMENT – This is how the Chinese Communist Party treats its neighbor and socialist ally.
29. Is China downplaying ‘restrained’ clash with Vietnamese fishermen near Paracel Islands?
Maria Slow, South China Morning Post, October 3, 2024
Beijing’s playing down of a recent confrontation in the South China Sea in which Vietnam claimed its fishermen were violently beaten by personnel from Chinese ships reflects a consistent strategy to convince the Chinese people of the superpower’s reasonable behaviour in the disputed waterway.
Observers also say the latest incident could be the “tip of the iceberg”, and Hanoi could pivot from its low-key diplomatic approach to its maritime dispute with Beijing if similar incidents were to recur.
Their comments follow a reported attack on a Vietnamese fishing boat on Sunday, with Hanoi protesting to Beijing days after the incident. In response, Beijing’s foreign ministry said “no injuries were found” and that on-site operations to handle a case of illegal fishing were “professional and restrained”.
30. Viet Nam opposes China's brutal treatment towards Vietnamese fishermen in Paracel Islands
Kim Anh, Socialist Republic of Viet Nam, October 2, 2024
Spokesperson of the Ministry of Foreign Affairs Pham Thu Hang the statement on Wednesday in response to the Chinese law enforcement force's suppression, injuring, and seizure of property of Vietnamese fishermen on fishing vessel QNg 95739 TS from central Quang Ngai province while the boat was operating in Viet Nam's Paracel archipelago area on September 29.
The aforesaid acts by the Chinese law enforcement force seriously violated Viet Nam's sovereignty over the Paracel archipelago, international law and the 1982 United Nations Convention on the Law of the Sea (UNCLOS), and ran counter to the common perceptions of the two countries' high-ranking leaders about better control and management of disputes at sea, stated Pham.
She went on to say that the ministry has sternly communicated with the Chinese Embassy in Ha Noi and demanded China fully respect Viet Nam's sovereignty over the Paracel archipelago, quickly investigate and announce results to the Vietnamese side, and not repeat similar acts.
COMMENT – Unless and until ASEAN can mobilize its members to push back against the PRC in unison, these attacks against them will escalate and continue.
This is a calculated campaign waged by the PRC Government using violence and coercion to seize territory from its neighbors.
Environmental Harms
31. How Chinese Fishing Vessels Dominate Domestic Waters Across the Globe
Ian Urbina, Pete McKenzie and Milko Schvartzman, Time, August 1, 2024
32. Chinese Illegal Fishing Fleet Makes Inroads in Peru
Juan Delgado, Dialogo Americas, September 23, 2024
The Peruvian government is increasing control and monitoring of the Chinese fishing fleet sailing off its coasts to strengthen the fight against illegal, unreported, and unregulated (IUU) fishing, focusing especially on squid, Peru’s Ministry of Production (PRODUCE) indicated in early July.
“The movements of the Chinese fishing fleet in Peru to catch squid in the Pacific began in 2017. A year later it finished consolidating with almost 300 vessels [and] added refrigerated cargo ships to store and transport the fish caught,” Milko Schvartzman, Oceans and Fisheries project coordinator at Argentine nongovernmental organization (NGO) Círculo de Políticas Ambientales, told Diálogo on August 11.
In August 2020, Peru introduced a regulation requiring foreign vessels using its ports to have an extra satellite device so authorities could better track their movements before they entered, environmental news site Mongabay reported. While the decision was welcomed, Chinese vessels continued to enter Peruvian ports, to change crews, renew documents, or fuel up, without the additional satellite device.
Many Chinese vessels that entered Peru’s ports following this regulation did so under an emergency entry, that is due to a medical or mechanical emergency or an accident. The issue raised suspicions among experts who believe the Chinese vessels have been seeking to avoid the extra surveillance.
Chinese vessels fishing illegally in Peru’s waters have also been reported. As recently as May, Chinese vessel Tian Xiang was caught fishing illegally in Peru’s exclusive economic zone (EEZ) and was fined an amount that the Peruvian fishing sector described as “laughable,” Argentine news site Pescare reported.
COMMENT – I wonder how the PRC Government would respond if Chinese fishermen were beaten with iron pipes by Peruvian law enforcement as they were illegally fishing off the coast of Peru?
I wonder if the PRC Government would consider that to be “professional and restrained.”
Ruohan Xie and Desire Nimubona, Global Voices, September 25, 2024
Moktar Diop and Mohamed Jawo are young Senegalese friends who, like their parents, grandparents, great-grandparents, and many others in their coastal community, work in the fishing industry off the coast of Dakar.
Moktar shared how he found himself in this profession:
Translation – I converted to fishing just like most of my male family members because I could not find jobs after leaving university. I joined forces with my friend Jawo to cope with life. However, I earn almost nothing due to the presence of uncontrolled foreign vessels that destroy fish nests.
Now, the pair are struggling to make a living and considering abandoning their community in order to make ends meet. Senegal is one of many countries affected by devastating overfishing due to illegal Chinese fishing vessels. Senegal’s unemployment rate remains high because, according to Greenpeace, an environmental organization working in more than 50 countries in the world, including West and Central Africa, the introduction of mass-scale fishing techniques by Chinese vessels has devastated local fishing industries, leaving many without their livelihoods.
The arrival of distant-water fishing vessels from China and other countries like Russia has devastated the local fishing economy. When large trawlers enter local waters, traditional fishers using dugout canoes struggle to compete. These trawlers use nets up to a mile long, sweeping up everything in their path and sometimes damaging local fishing nets.
These types of vessels have sparked international debates over environmental damage, as bottom trawling can significantly harm and even kill aquatic fauna and fish species that rely on aquatic fauna for food, shelter, productivity, and thus sustainable harvest may diminish with increasing levels of seabed disturbance.
Greenpeace estimates that more than 400 Chinese fishing vessels are currently operating off the coast of West Africa. These vessels rake in over EUR 400 million annually through their fishing activities, according to figures from the Ministry of Fisheries of the People's Republic of China.
In Senegal, about 220000 people work in the fishing industry; 90 percent are artisanal fishers, while the remaining 10 percent work on foreign vessels, joint ventures, or local industrial trawlers.
Now, Moktar and Jawo must reach remote waters to get fish, as much of the coast is occupied by Chinese vessels. The competition between Chinese vessels and local boats has become impossible, they say, and, in a country where the jobless rate exceeds 23 percent, many young people are losing hope.
To compensate for the declining domestic catches, China has also expanded its distant-water fishing (DWF) operations since 2000. But the expansion of China’s distant-water fishing industry has sparked international debate over its lack of sustainability and transparency. According to the China Fisheries Statistical Yearbook, in 2022, China's pelagic fishery production was 2,329,800 tons, and the number of pelagic fishing vessels was approximately 2,551.
According to a report by the Environmental Justice Foundation (EJF), much of China's fishing fleet operates across various developing countries, with one-third of the operations located in Africa, Asia, and South America. These regions often have limited fishing capacity but heavily rely on fisheries for economic development and food. Chinese fleets often employ large-scale fishing techniques that pressure local fisheries and fisheries’ livelihoods. Some activities are allegedly illegal, unreported, and unregulated (IUU), attracting external scrutiny.
Since 1989, China has been the world’s largest fishing nation, capturing 13.14 million metric tons (MMT) of fish in 2021, nearly double the second-largest producer, Indonesia, which captured 7.2 MMT. In 2022, China's fishing output accounted for 40 percent of the global catch, with a significant portion coming from its distant-water fleet.
Foreign Interference and Coercion
34. Taiwan opposition faces test over motion denying China's U.N. claim
Thompson Chau, Nikkei Asia, September 27, 2024
35. Singapore's lure for rich Chinese breeds family office tensions
Dylan Loh, Nikkei Asia, October 1, 2024
36. French Museums Waver Between “Tibet” and “Xizang” Amid Uproar Over Chinese Influence
Arthur Kaufman, China Digital Times, October 1, 2024
37. In global game of influence, China turns to a cheap and effective tool: fake news
Didi Tang and David Klepper, Associated Press, September 27, 2024
38. Watching China in Europe—October 2024
Noah Barkin, GMF, October 1, 2024
39. Chinese Media in Canada Amplifies Divisions and Beijing’s Narratives, Commission Hears
Sam Cooper, The Bureau, October 1, 2024
40. How Asean’s influence on China is growing
South China Morning Post, October 2, 2024
Human Rights and Religious Persecution
41. “We Can’t Write the Truth Anymore”
Human Rights Watch, September 24, 2024
42. Michael Kovrig: detention by China amounted to psychological torture, Canadian says
Reuters, The Guardian, September 23, 2024
43. Forging New Lives Abroad, Exiles Connect Homelands and Identities
Arthur Kaufman, China Digital Times, September 26, 2024
44. Tibetan monk jailed for 18 months over Dalai Lama’s speech
Radio Free Asia, September 24, 2024
45. US, EU demand China respond to human rights abuses in Xinjiang
Alim Seytoff and Roseanne Gerin, Radio Free Asia, September 25, 2024
46. How a Crackdown Transformed LGBTQ Activism in China
Darius Longarino, ChinaFile, September 26, 2024
Industrial Policies and Economic Espionage
47. What happens if China loses normal U.S. trade relations?
Pak Yiu, Nikkei Asia, October 1, 2024
48. BlackRock’s Fink Calls for Western Firms to Review China Ties
Marion Dakers and Francine Lacqua, Bloomberg, October 1, 2024
49. China economic slowdown sends chill through 'golden week' holidays
Wataru Suzuki, Nikkei Asia, September 30, 2024
50. Apple manufacturers moved from China to Vietnam. Now they’re desperate for workers
Lam Le, Rest of World, October 1, 2024
51. China’s Industrial Profits Fell in August
Wall Street Journal, September 26, 2024
52. China’s bumper stimulus leaves consumers wanting more
Joe Leahy and Arjun Neil Alim, Financial Times, September 26, 2024
53. China Stocks Soar in Biggest Single-Week Jump Since 2008
Keith Bradsher, New York Times, September 27, 2024
54. The $1.7 Billion Takeover Brawl Fueled by a Fear of China
Jiyoung Sohn and Rhiannon Hoyle, Wall Street Journal, September 28, 2024
55. China’s Housing Glut Collides with Its Shrinking Population
Rebecca Feng, Wall Street Journal, September 30, 2024
56. Why Kamala Harris Wants to Stockpile Minerals You’ve Probably Never Heard Of
Julie Steinberg and David Uberti, Wall Street Journal, September 29, 2024
57. China Removes Curbs on Home Buyers, Sparking Stock Market Surge
Alexandra Stevenson, New York Times, September 30, 2024
58. Threat assessment: ranking risk among US companies dealing with China
Khushboo Razdan, South China Morning Post, October 1, 2024
59. Made in China 2035: will it topple US hi-tech, military manufacturing in 10 years?
Stephen Chen, South China Morning Post, October 2, 2024
Cyber & Information Technology
60. China to roll out cybersecurity rules covering generative AI
Shunsuke Tabeta, Nikkei Asia, October 1, 2024
61. China Urges Local Companies to Stay Away from Nvidia’s Chips
Pei Li, Mackenzie Hawkins, and Debby Wu, Bloomberg, September 27, 2024
62. China, South Korea, Taiwan to spend most on chip equipment 2025-2027, industry body says
Reuters, September 26, 2024
63. Defense-Tech Startups Need a New Supplier: Anyone but China
Heather Somerville, Wall Street Journal, September 30, 2024
64. ByteDance said to be turning to Huawei chips to train AI model amid US curbs, sources say
Reuters, South China Morning Post, September 30, 2024
65. Huawei’s Meng Wanzhou back at the helm of firm ahead of next flagship smartphone launch
Xinmei Shen, South China Morning Post, October 1, 2024
Military and Security Threats
66. China’s Military-Civil Defusion
Aaron Mc Nicholas, The Wire China, September 22, 2024
67. China’s missile tests New Zealand’s principles
Nicholas Khoo, Lowy Institute, September 30, 2024
68. Ready or Not
Luke Patey, The Wire China, September 29, 2024
69. China’s New Export Restriction Choke Hold on Critical U.S. Ammunition Components, Are You Prepared?
F Riehl, Ammoland, September 23, 2024
70. Biden approves $567 million in defense support for Taiwan
DW, September 30, 2024
71. China holds drills near disputed South China Sea reef
DW, September 28, 2024
72. Taiwan on alert over 'multiple waves' of missile firing in inland China
Reuters, September 29, 2024
73. U.S. and Allies Sound Alarm Over Their Adversaries’ Military Ties
Edward Wong, New York Times, September 30, 2024
74. Alleged Chinese Spy Was Tracking U.S. Arms Shipments to Israel
Bertrand Benoit, Wall Street Journal, October 1, 2024
One Belt, One Road Strategy
75. Why Is China Investing In a $1.7 Billion Canal in Cambodia?
Zongyuan Zoe Liu and Nadia Clark, Council on Foreign Relations, September 30, 2024
76. Colombia to join China's Belt and Road Initiative to strengthen bilateral ties
TV BRICS, October 3, 2024
Colombia is set to become part of China's Belt and Road Initiative (BRI) in an effort to strengthen the political and trade relations that already link the two nations, Colombian Deputy Foreign Minister Jorge Rojas announced. This is reported by Prensa Latina, a partner of TV BRICS.
During an event at the residence of Zhu Jingyang, Ambassador Extraordinary and Plenipotentiary of the People's Republic of China to the Republic of Colombia, celebrating the 75th anniversary of the founding of the People’s Republic of China, the Colombian Deputy Minister also announced that Colombian Foreign Minister Luis Gilberto Murillo will be visiting China later this month.
COMMENT – This is a Russian “news” outlet, so take it with a grain of salt.
77. Brazilian officials work with China on details of joining belt and road
Igor Patrick, South China Morning Post, September 24, 2024
The Brazilian government has established an inter-ministerial working group to analyse Brazil’s entry into the Belt and Road Initiative in the coming days, while also examining the potential impact of membership on relations with Washington in the event of a Donald Trump victory in the US presidential election.
The local news site ICL Notícias first reported the news, which The Post confirmed on Monday.
Sources familiar with the matter say the Chinese embassy in Brazil has informed the Brazilian presidency that it expects to formalise membership during Chinese leader Xi Jinping’s visit to the country in November. The initiative is Xi’s plan to link global economies into a China-centred trading network.
However, diplomats from Brazil’s foreign ministry have reportedly advised President Luiz Inácio Lula da Silva to postpone the announcement until the outcome of the US presidential election on November 5 is known.
Brasilia has not officially commented on the US race, but Lula has spoken out in favour of Vice-President Kamala Harris, the Democratic contender. According to CNN Brasil, he discussed the matter with leaders of Brazil’s House of Representatives in early September and said: “God willing, Kamala will win this election.”
COMMENT – Unsurprising development from the Leftist government of President Luiz Inácio Lula da Silva.
The most surprising thing is that Lula has been in power for nearly two years and still hasn’t joined the Belt and Road Initiative, perhaps Beijing hasn’t provided a big enough bribe yet. (For those of you who don’t follow Brazilian politics closely, Lula was convicted of corruption and money laundering in 2017, spent 580 days in prison for it, and blocked from running for a third term as President in 2018 by the country’s electoral court… then in 2021 he managed to get the conviction nullified so that he could run for President again in 2022).
Lula began discussing the prospects of joining the Belt and Road publicly back in July (“After spurning China for years, Brazil reveals plan to join Belt and Road Initiative” July 20, 2024).
78. Somaliland is where India can counter China in east Africa
Samir Bhattacharya, The Strategist, October 1, 2024
79. The U.S. Has a Better Offer for Africa Than Debt
Henry Tugendhat, Foreign Policy, September 25, 2024
This month, Chinese President Xi Jinping pledged more than $29 billion in new lending commitments at the triennial Forum on China-Africa Cooperation. Washington has once again misunderstood this as a symbol of Chinese economic strength.
Like a deer caught in the headlights, the United States has spent the past few years responding to China’s vast lending programs in Africa and beyond by constructing its own equivalents, mostly lending through institutions such as the International Development Finance Corp. (DFC) and Export-Import Bank with tweaks to their efficiency here and there.
But trying to outmaneuver China by being more like China is a mug’s game. Chinese banks can easily out-lend U.S. equivalents because they are better structured toward this goal. And perhaps more importantly, they need to lend money to whoever will buy Chinese goods and services because China’s economic growth is now precariously dependent on sustaining a positive trade balance.
The best way to offer a real economic alternative to China is for the United States to play to its own strengths. For instance, if the United States is serious about strengthening U.S.-Africa economic relations, it should instead focus on African economic needs and the United States’ own domestic economic drivers. Rather than parroting Chinese lending practices, it could more easily expand popular trade agreements such as the African Growth and Opportunity Act (AGOA) or the Generalized System of Preferences (GSP) to benefit both African exporters and American households.
But before U.S. lawmakers can get behind these more positive forms of engagements, they may need to recognize that China’s addiction to credit is not in fact a reflection of strength but rather the symptom of a serious economic problem.
Opinion Pieces
80. Shenzhen attack's aftermath reveals cracks in China's governing power
Tetsushi Takahashi, Nikkei Asia, October 2, 2024
81. The lost art of understanding the enemy
Alexander Casella, Asia Times, October 3, 2024
On October 1, 1970, China’s People’s Daily published a picture on its front page showing American writer Edgar Snow standing next to Mao Zedong on the Tien An Men gate tower. Snow, the author of the acclaimed “Red Star Over China”, had met Mao in Yenan in 1936, and while not himself a Communist, never hid his sympathies both for China and its new regime.
Coming at a time when relations between Washington and Beijing were beginning to thaw, the picture was supposed to convey a powerful message to the US political establishment. By appearing in public with an American, Mao showed that he personally endorsed a resumption of bilateral relations. But it was all for naught.
In Mao’s eyes, Snow was an American. But in the eyes of the American establishment, he was just another Communist sympathizer. Thus, while the writing was on the wall, the message never got through because the intended recipient did not know how to read. It thus took more time and effort to convince Washington that China was ready to talk.
Reading one’s counterpart, be it an opponent, an ally, or even just an interlocutor, is not something that governments normally excel at. And, generally, the stronger the government, the more it is tempted to impose its own views and the less it is inclined to actually understand, not to say disregard, those of the party it is dealing with.
In this regard, the United States’ record is no different from that of the imperial powers that once held sway in the international arena. Starting from the Second World War, the United States’s power was so overwhelming that it could, within its sphere of influence, operate practically on its own terms.
COMMENT – While I agree with the author’s thesis (it is important to understand the motivations and intentions of one’s partners and rivals), his first anecdote is a bit off.
Individuals in Washington understood that there were changes afoot in Beijing by 1970 and efforts were in motion to capitalize on the opportunities. Heck, exactly three years before Edgar Snow stood next to Mao on the Tienanmen Gate, Richard Nixon of all people signaled his willingness to pursue a lessening of tensions with the PRC in a Foreign Affairs article titled “Asia After Viet Nam” (October 1, 1967) more than a year before he became President:
“Taking the long view, we simply cannot afford to leave China forever outside the family of nations, there to nurture its fantasies, cherish its hates and threaten its neighbors. There is no place on this small planet for a billion of its potentially most able people to live in angry isolation. But we could go disastrously wrong if, in pursuing this long-range goal, we failed in the short range to read the lessons of history.
The world cannot be safe until China changes. Thus our aim, to the extent that we can influence events, should be to induce change. The way to do this is to persuade China that it must change: that it cannot satisfy its imperial ambitions, and that its own national interest requires a turning away from foreign adventuring and a turning inward toward the solution of its own domestic problems.”
As documents at George Washington University’s National Security Archive show, Nixon spent much of his first year in office (1969) trying to establish a link to Beijing, which Mao would not respond to.
Nixon directed Kissinger to try again on September 12, 1970.
And once Mao did, Nixon replied immediately. Communication from Kissinger to Premier Zhou Enlai in December 1970, which brought a response from Zhou on April 14, 1971. That response caused Nixon to release a public statement the same day on granting visas to Chinese citizens, relaxation of currency controls on the use of dollars by the PRC, and ending the restrictions on providing fuel to ships and aircraft going to the PRC. Two weeks later, Nixon received a “Message from Premier [Z]hou En Lai” through the Pakitsani President. All of this led to Nixon dispatching Kissinger to Beijing for a secret meeting with Mao and Zhou three months later (July 1971).
Perhaps it was Mao’s misreading or intransigence (not Washington’s) that delayed the thaw.
82. Can China help end the escalating Middle East conflict?
Gedaliah Afterman, Nikkei Asia, September 30, 2024
83. Asian economies need nuanced steps to counter cheap Chinese imports
Doris Liew, Aaron Pek, and Guanie Lim, Nikkei Asia, October 1, 2024
84. Pivots, paper tigers and regional poles
Stacie E. Goddard, Lowy Institute, October 1, 2024
85. How the US Lost the Solar Power Race to China
David Fickling, Bloomberg, September 30, 2024
86. Fleeing Xi's 'China Dream': The great exodus of people and capital
Lynette Ong, Nikkei Asia, October 2, 2024
87. Rethinking the “Thucydides Trap”
Jeffrey E. Schulman, National Interest, September 30, 2024
88. Signs of China’s troubles around Hainan’s white beaches
Eleanor Olcott, Financial Times, September 30, 2024
89. China’s latest stimulus measures still don’t go far enough
Anthony W.D. Anastasi, South China Morning Post, October 1, 2024