Matt Turpin's China Articles - August 20, 2023
Friends,
First off, congratulations to the Biden Administration for a successful trilateral summit at Camp David with Japan and South Korea. This is an important diplomatic achievement and officials within the Administration deserve credit for their hard work. But Washington could not have brought Tokyo and Seoul together without the sustained and determined efforts of Xi Jinping and the Chinese Communist Party to push them together.
The diplomatic ineptitude of Beijing is obvious and I hope that they never learn to get better.
…
Leading this week’s ‘Must Read/Watch’ section is a Bloomberg video story from June that I missed at the time.
In early 2019, Huawei began an intricate corporate espionage campaign to beat its Swedish competitor, Ericsson, in a $200 million contract with a Danish telecommunications operator.
Ironically, as this espionage and corruption campaign unfolded, the U.S. Government was prosecuting Ericsson for violations of the Foreign Corrupt Practices Act (FPCA) in Djibouti, Vietnam, Indonesia, Kuwait, and the PRC. The bribes Ericsson paid were likely the only way they could compete against Huawei’s bribes in those jurisdictions and DOJ decided to prosecute Ericsson rather than Huawei.
I suspect that Ericsson’s executives are still quite sore that the U.S. Justice Department has never bothered to bring an FPCA case against Huawei. The whole Dov Goldstein-Jason Lan connection revealed in the Bloomberg story seems to provide at least one obvious example of a FPCA violation.
Bloomberg’s story does beg some important questions: Why did it take more than 3 years for this story to get out? (perhaps it did in Denmark, I might have missed it) When Huawei threatened the Danish Government with retaliation in a letter to the Prime Minister, why did the Danes sit on their hands? Why hasn’t the Danish Government and the European Union done more to reduce their dependency on Huawei? This example seems to prove that the Trump Administration’s concerns about Huawei were justifiable.
***
Carrying on a theme from last week, the Wall Street Journal broke a disappointing, but completely predictable, story.
After years of hand-wringing and crafting narrow restrictions on DuPont as the company sought to sell a sensitive technology to the PRC, we discover that those restrictions failed within weeks of implementation which allowed the technology to pass to Beijing as officials in the Defense Department had warned against.
It appears that the Assistant Secretary of the Treasury for Investment Security, Paul Rosen, whose primary job is to lead CFIUS (Committee on Foreign Investment in the United States), disregarded the warnings by the Defense, Energy, and Justice Departments and pushed through a CFIUS “mitigation plan” that was weak and unenforceable.
I suspect there will be few, if any, consequences for the folks in the Investment Security Office at the Treasury Department and that they will take an equally narrow, and ultimately ineffective, approach to crafting the regulations for outbound investment screening.
The fact that this leaked so quickly suggests that those who take their national security responsibilities seriously at CFIUS are deeply frustrated by their colleagues at Treasury who don’t. Five years after a major bipartisan overhaul of CFIUS with FIRRMA (Foreign Investment Risk Review Modernization Act of 2018) and it appears that Treasury is unable, or unwilling, to execute its responsibilities. The Treasury Department consistently places the narrow financial self-interests of those who benefit from these mergers and acquisitions above national security considerations that other Departments and Agencies pound the table on.
It is a bit striking to contrast Treasury’s narrow approach (an approach I define as ‘small yard, high fence with many holes’) with the aggressive tactics of the U.S. Federal Trade Commission. The Treasury narrowly interprets its mandate to protect Americans, while FTC defines its powers broadly as it intervenes in commercial activity domestically. Whether you agree with the FTC’s approach or not, the contradiction is glaring. One would be forgiven for thinking that these two efforts weren’t apart of the same Administration.
Surely if we are concerned that American companies acting in “anticompetitive, deceptive, and unfair” ways will harm Americans and therefore the Federal Government should intervene, then we should be equally concerned that PRC companies, guided and controlled by the Party-State, acting in even more egregious ways will harm Americans and, therefore, the Federal Government should intervene even more aggressively.
This contradiction is puzzling and suggests that there are some deep divisions within the Biden Administration that the Wall Street Journal article only scratches the surface on.
The one thing that I’m thankful for is that we have reporters like Kate O’Keeffe and Aruna Viswanatha going after these stories and shining a light on them.
Thanks for reading!
Matt
MUST READ/WATCH
1. VIDEO – Huawei, Denmark and A $200 Million Battle Over 5G
Jordan Robertson and Alex Webb, Bloomberg, June 19, 2023
Intrigue in Copenhagen: A Tale of High-Stakes Corporate Espionage
When Chinese tech giant Huawei learned it was set to lose a $200 million contract, a run-of-the-mill equipment deal spiraled into a saga of hidden microphones, drone encounters and covert surveillance, according to investigators for a Danish telecoms firm. Bloomberg reporters crisscrossed Copenhagen for the tale of TDC’s 5G showdown, in which technology, business and national security collide.
COMMENT – Note to Attorney General Garland: you might want to watch this video and consider an FCPA (Foreign Corrupt Practices Act) case against Huawei. You might also consider any of these other examples of FCPA violations.
Its kind of the least you could do after Huawei and the PRC Government took two Canadian hostages (and sentenced a third Canadian citizen to death) to force you to drop another criminal case against the company.
2. China, Lawfare, and the Contest for Control of Low Earth Orbit
Glenn Chafetz and Xavier Ortiz, The Diplomat, August 10, 2023
The Chinese government seeks strategic advantage in space through attacks on the Western private sector.
People’s Liberation Army (PLA) Air Force officers Qiao Liang and Wang Xiangsui Wang argued in their 1999 book, “Unrestricted Warfare,” that to win a war with the United States, China must mass its intelligence, economic, and political resources where U.S. defenses were weakest: its private sector. The book today reads like a plan for the past two decades of non-military warfare waged against the Western private sector by Beijing and its business surrogates.
The U.S. government and its allies have recently shown increasing concern about the broad scope of the China’s intellectual property (IP) theft and critical infrastructure attacks. However, Western businesses remain vulnerable, and even largely unaware of the threats they face. Moreover, democratic governments seem incapable of mounting an effective response. The following case study from the Low Earth Orbit (LEO) satellite industry illustrates both the problem and the difficulty of finding solutions.
Our analysis begins with a summary of LEO satellites’ value and a review of the PRC interest. The study then illustrates the methods that the PRC employs to achieve its stated goals: deception, predatory investment, intimidation, and lawfare. We conclude with recommendations for how democratic governments can help deter and mitigate these kinds of attacks.
Why LEO Satellites?
Commercially, LEO satellites offer affordable, global access to high-capacity internet. Militarily, such satellite provide improved abilities in intelligence, tracking, and warning; communications; navigation; ground support, and command and control. Until recently, the cost and technical constraints required to launch the thousands of small satellites needed for a LEO “mega-constellation” prohibited any serious effort. However, advances in onboard computing and the commoditization of hardware components allow manufacturers to build and launch LEO satellites much more quickly and cheaply, and to operate them more easily than higher orbiting satellites. A LEO mega-constellation is therefore also much more resilient than a higher orbiting, more expensive, more capable, single satellite. Such groupings render current anti-satellite weaponry cost ineffective, because destroying even multiple LEO satellites does not degrade the function of the system.
PLA interest in the military application of LEO satellites has grown significantly. PLA analysts believe Starlink helped Ukrainian forces maintain communications and direct operations when Russian artillery and rocket attacks destroyed traditional digital infrastructure. The PLA also fears that Taiwan will learn from Ukraine. Moreover, the PLA now believes that it must dominate LEO in order to defeat the United States in any potential future conflict. These conclusions motivated China both to build its own LEO military capability, and to find an effective way to degrade its adversaries’ capabilities.
As a result, China is deploying every resource to catch up and surpass the West.
One Chinese effort involves jumping the queue with the U.N.’s International Telecommunications Union (ITU). The ITU is key because it manages and deconflicts spectrum priority and flight paths to prevent satellite interference. Companies and governments could ignore the ITU, but the consequences would be like ignoring air traffic control.
The ITU awards priority of orbital slots and transmission frequencies to the first to file. Because China started its LEO effort later than the West, its filings with the ITU are lower on the priority table. For signatories to the Convention and Constitution of the ITU, which includes China, companies lower in priority are responsible for ensuring that their launches do not interfere with those higher in priority. If all parties involved cooperate, co-existence need not be a huge impediment to those lower on the list. However, an uncooperative operator could tie up other constellation operators in dispute-resolution procedures or force them to turn off their data stream. This appears to be part of the China’s plan.
The center of this effort is in Shanghai. Two of the main players are Shanghai Spacecom Satellite Technologies (SSST) and Shanghai Engineering Center for Microsatellites (SECM). The SSST is a military-connected, majority government-owned company specifically set up to invest in Western satellite projects (the PLA oversees all space activities in China). The SECM is a satellite manufacturer.
The SSST and SECM set their sights on a German/Liechtensteinian company called KLEO AG, which owned three of the highest priority ITU filings. KLEO AG acquired these coveted filings when KLEO, a German telecom company, bought a stake in Trion Space, a small Liechtenstein company that originally acquired the Liechtenstein rights to ITU filings in 2017. They in turn founded KLEO Connect GmbH to exploit those filings. (Hereafter, for simplicity, “KLEO” will refer to “KLEO Connect GmbH”).
KLEO was early to see the value of high priority filings, but not all the technology KLEO needed to reach the LEO constellation’s full potential was fully developed or cost effective. KLEO was small and dependent on outside investors who were uncertain whether KLEO could achieve the projected scale and cost efficiencies. KLEO needed more investment.
China’s government created the SSST to make this kind of investment. Given China’s broad effort in the LEO space, it is easy to see that KLEO’s place in the priority for orbital slots would be of interest. Trion’s ITU filing was one of the highest-priority in the world – higher than that of Starlink, and much higher priority than any Chinese filing. With KLEO in the market for financial backers, China saw an opportunity.
In 2017, the SSST’s representative, Zhou Ji, told KLEO’s founders he was looking for satellite filings to invest in, especially filings with access to the vital Ka frequency band. KLEO’s founders agreed, and so Zhou both helped arrange and took part in an investment by the SSST in KLEO, initially amounting to a 10 percent stake.
COMMENT – Eleanor Olcott at the Financial Times covered part of this story last year in her piece, “The corporate feud over satellites that pitted the west against China.” And it has been covered extensively that the PRC views spaced-based, broadband internet access as a significant threat. See The Economist’s “Why China fears Starlink,” the New York Times’ “Elon Musk’s Unmatched Power in the Stars,” and the South China Morning Post’s “China military must be able to destroy Elon Musk’s Starlink satellites if they threaten national security: scientists.”
As I’ve followed this topic for a while, it seems to me that Europe, Japan and the United States should be doing much more to ensure that this technology isn’t as dependent as it is on one company (Starlink) and preventing the PRC from gaining a competitive advantage in this domain.
It is at least as important as what we are trying to do with regards to advanced semiconductors, quantum, and artificial intelligence.
3. Xi opens Beidaihe with no elders but plenty of challenges
Katsuji Nakazawa, Nikkei Asia, August 10, 2023
China's summer political season has arrived. Chinese Communist Party leaders -- retired and incumbent -- have gathered at the seaside resort town of Beidaihe in Hebei province to hold their annual, but informal and secretive, discussions on the state of the nation.
This year's gathering looks to be historic.
"It is the first Beidaihe meeting from which all the powerful party elders have disappeared," said a veteran party member who for four decades has carefully observed Chinese politics.
For Xi Jinping, who has been China's president and party general secretary for close to 11 years, it will be the first Beidaihe meeting in his tenure absent the most influential elders.
In November, former top leader Jiang Zemin, long the most powerful of the elders, died at the age of 96.
A month earlier, Xi's immediate predecessor, Hu Jintao, 80, was dramatically escorted out of the closing ceremony of the party's national congress. Hu has not been seen much since. Rumors are that he is no longer residing in Beijing. An appearance at this year's Beidaihe meeting seems unlikely.
COMMENT – The Beidaihe retreat appears to be over now.
4. China has fallen into a psycho-political funk
James Kynge, Financial Times, August 12, 2023
Sly, Soviet-style jokes are enjoying a subtle revival on Chinese social media platforms. Their art resides in being too obscure for censors to understand yet clear enough for cynics to chuckle at their mockery.
Some are so esoteric that their satire is confirmed only by the censors’ decision to delete them — echoing the cat-and-mouse dynamic that distinguished dissident humour in the former Soviet Union. One joke this week monitored by the China Digital Times, a US-based site that covers Chinese affairs, belonged to this genre.
It read: “While out and about on vacation, I stubbed my toe on something. Upon closer inspection, I saw it was a bronze lamp. It was smudged, so I picked it up and gave it a good wipe — and out popped a genie! The genie said it could grant me any wish. ‘Is that so?’ I said. ‘Well then, could you make you-know-who you-know-what?’ No sooner had the words escaped my lips than the genie rushed over, clamped my mouth shut, and asked: ‘Are we even allowed to say that?’”
The author’s account appears to have been shut down after the joke was deleted. “Of course, by banning the joke and its author, censors merely proved the punchline,” commented the China Digital Times. “This is not the first time that ‘Soviet-style’ jokes have become Chinese realities.”
COMMENT – How will the Party respond to the malaise of the lao baixing?
At the very least we should expect to see an even greater emphasis on race-based ultra-nationalism and a tightening of internal security.
The PRC will only become more inhospitable to foreigners as the Party blames foreigners for their problems. This will only deepen the cycle of malaise.
5. A DuPont China Deal Reveals Cracks in U.S. National-Security Screening
Kate O’Keeffe and Aruna Viswanatha, Wall Street Journal, August 12, 2023
U.S. officials crafted a compromise to address worries about China’s military. It didn’t go as planned.
U.S. officials forged an uneasy compromise to let DuPont sell its sustainable-materials business last year to a Chinese company while ensuring the technology behind it never left the U.S.
The arrangement hasn’t worked as planned, according to people familiar with the matter, exposing flaws in a national-security review process on the front lines of a battle over technology between the U.S. and China—and ultimately prompting an investigation by the FBI.
Divisions on the cabinet-level committee that screens sensitive deals involving foreign buyers were so deep that the government review took more than a year, including an unsuccessful appeal for President Biden to intervene. And the solution members ultimately settled on was undermined in just a few weeks.
At issue was a DuPont technology used to make a key component of a more sustainable version of nylon. After initially describing the invention as revolutionary, DuPont decided a few years ago to sell the business. It found a willing buyer in China, prompting DuPont to apply for permission to proceed from the Committee on Foreign Investment in the U.S., or Cfius. The panel, led by the Treasury Department, includes representatives of the departments of Defense, Justice, Energy and Commerce and other agencies.
The Biden administration early on identified Cfius, whose job is to ensure that such deals don’t end up putting sensitive U.S. technology, data or real estate in hostile hands, as a linchpin in plans to square off with the world’s second-largest economy and reorient the U.S. economy away from China. In another prong of those efforts, the administration on Wednesday banned U.S. investments in some Chinese semiconductor and quantum-computing companies starting next year.
On DuPont, members of Cfius were split on how to proceed. The reason: a U.S. intelligence assessment that byproducts from one of DuPont’s manufacturing processes could theoretically serve as a high-quality base for fuel used in cutting-edge weapons. That had the potential to aid China when Washington is deeply concerned over Beijing’s military expansionism.
Defense Secretary Lloyd Austin argued in a tense video call with Treasury Secretary Janet Yellen and others that the deal should be blocked. Treasury didn’t agree. The agency found those concerns too abstract, and believed that scuttling a transaction on such grounds would amount to improper market interference.
Officials on the Cfius panel reached a complicated compromise to approve the sale, which closed in May 2022. But no sooner had it been signed than Cfius was told its effort to protect the industrial secret involved hadn’t worked. The process of figuring out what went awry is still under way.
Cfius deliberations are confidential. This article is based on interviews with people familiar with the discussions of the companies and government agencies involved in the transaction and its aftermath.
…
Internal Divisions Dog Cfius
Established in 1975, Cfius began scrutinizing Chinese deals more aggressively during the Obama administration. That focus sharpened during the Trump administration after Congress in 2018 expanded the panel’s powers. But the committee still struggles to be effective at times. It is at the center of a messy, yearslong review of the popular Chinese-owned social-media app TikTok.
In cases when Cfius approves a deal with conditions, compliance largely depends on the companies themselves. When parties violate a Cfius agreement, they are rarely punished: The panel has announced only two fines for noncompliance.
Deep internal divisions among its members are a challenge. The Pentagon and other departments that focus on security issues often push for a broader interpretation of foreign threats. The Treasury and Commerce Departments, tasked primarily with championing U.S. industry and economic interests, tend to take a narrower view.
Pentagon officials wanted Cfius to push DuPont to sell the business to an American buyer. Given the intelligence assessment, they worried about the possible military implications of the biomaterials technology moving to China, where laws mandate that private companies comply with Chinese Communist Party demands.
The officials also wanted to know why DuPont would agree to a deal with Huafon despite earlier misadventures with Chinese partners, including intellectual-property disputes involving Sorona that prompted Chinese authorities in 2017 to raid DuPont’s Shanghai offices and demand passwords to its research network.
Huafon’s chairman has described the deal as part of the company’s strategic efforts to strengthen its supply chain in biomaterials.
Some U.S. officials suspected that DuPont selected Huafon to curry favor with Beijing as DuPont sought greater access to China’s booming electric-vehicles market. The U.S. officials considered any such arrangement an unsavory quid pro quo.
A DuPont spokesman said the Huafon deal wasn’t part of any attempt by the company to gain greater market access in China, adding that by the end of the sales process there were no U.S. bidders interested in the purchase.
Treasury and Commerce officials found their counterparts’ concerns around the intelligence assessment overblown, and they deemed considerations such as DuPont’s possible motive for the sale irrelevant. They also thought the idea of trying to engineer a sale to a U.S. buyer was inappropriate.
The disagreements, often tense, dragged on for months.
Cfius officials pushing to block the deal asked to meet with Biden to break the stalemate. The White House declined, instead offering a meeting with Jake Sullivan, the national security adviser. Sullivan said he agreed the deal presented substantial risks but directed the departments to work it out among themselves.
A Complicated Compromise
The compromise Cfius settled on was to allow the purchase to go ahead with a major condition: Huafon wasn’t to gain access to the proprietary fermentation process DuPont used to make the corn-derived product, BioPDO, at its Tennessee plant.
To meet the condition, Huafon created a new U.S. holding company called Covation Inc. Under that umbrella, two more entities were formed: Covation Biomaterials, which holds the majority of the assets from DuPont’s biomaterials business; and CovaPDO, a small carve-out that Huafon wasn’t permitted to access because it holds the secrets of the BioPDO production process.
Huafon and the three Covation companies signed what is known as a national-security agreement with Cfius pledging to honor those terms. With Cfius’s blessing, DuPont and Huafon then closed the $240 million deal in May 2022.
A month later, as Defense Department officials were planning a trip to China to ensure that the key technology hadn’t made its way to Huafon, they got some very unwelcome news: CovationBio employees found information on their servers that should have stayed within CovaPDO, meaning the Cfius effort to ringfence the sensitive technology had been undermined.
Some “slippage,” as it is known among specialists who work on company integrations, isn’t uncommon. But Pentagon officials were furious and suspected the potential breach of the Cfius agreement was deliberate, following a preliminary investigation into the matter. They, with the support of their Energy Department counterparts, called in the Federal Bureau of Investigation, which launched a criminal probe, the status of which couldn’t be determined. The FBI declined to comment.
In the aftermath, DuPont and Covation, in statements to the Journal, traded blame on who was responsible. Covation said DuPont transferred the information to the wrong corporate entity; DuPont said it acted at Covation’s direction.
COMMENT – This is what happens when you let Treasury run the process and you are committed to a ‘small yard, high fence with many holes’ approach to national security.
It seems pretty clear that Defense Department’s Office of Industrial Base Policy is getting rolled on all of these issues, even when Defense Secretary Austin intervenes personally (apparently DoD is the only one that thinks that ‘integrated deterrence’ is important).
I will be very surprised if anyone involved with CFIUS is ever held accountable for these failures.
Keep this in mind: the folks at Treasury responsible for this fiasco are the ones who have been put in charge of developing the regulations around outbound investment restrictions over the next year and they are not even required to coordinate with the Department of Defense, the Justice Department, the FBI, or the Intelligence Community (see last week’s issue and my commentary about the Executive Order).
6. China crushes US giant Intel’s acquisition of Tower Semiconductor
Dylan Butts, South China Morning Post, August 16, 2023
The US$5.4 billion acquisition had been part of the American tech giant’s plan to expand its foundry business.
The failed deal highlights the precarious situation of US chip companies doing business in China amid geopolitical tensions.
Intel has cancelled its plans to buy Israeli foundry Tower Semiconductor after the deal failed to get approval from Chinese regulators ahead of a final deadline amid souring Sino-US relations.
The American tech giant on Wednesday terminated its deal to acquire Tower for US$5.4 billion “due to the inability to obtain in a timely manner the regulatory approvals required under the merger agreement”, the company said.
Beijing requires mergers involving companies with a major business presence in China to be approved by the State Administration for Market Regulation (SAMR), the antitrust regulator.
COMMENT – This is the same Intel that has been lobbying the U.S. Government against tighten restrictions on the export of advanced chips to the PRC… it appears that Beijing did not follow through on the quid pro quo.
If Intel were to reduce its presence in the PRC, as many have encouraged the company to do over the past seven years, then the PRC Government wouldn’t have had the grounds to block the merger. And if Intel had spent the past decade focused on advancing its semiconductor engineering prowess, rather than boosting its stock price through financial engineering ploys like stock buy-backs, then they wouldn’t need to acquire Tower.
See Bloomberg’s “Chip Leaders Head to Washington to Lobby for China Rules Relief” and “Intel, Qualcomm CEOs Lobby Washington to Loosen Chip Export Rules.”
Of course, Intel has been lobbying to weaken chip export controls on China for quite some time (see Politico, “Intel, others seek weaker China rules in chips bill,” July 18, 2022) even as Intel makes a strong national security case for why they deserve CHIPS and Science Act funding more than their rivals (see The Register, “Gelsinger: Intel should get more CHIPS Act funding than rivals,” August 15, 2023 and Tom’s Hardware, “Intel CEO Says It Should Get More CHIPS Act Money Than TSMC, Samsung,” August 14, 2023).
7. Chinese Capital in Latin America and the Caribbean
Americas Society/Council of the Americas, August 16, 2023
“Chinese investment and financing embed negative externalities,” says an AS/COA publication aimed at entrepreneurs competing with Beijing in the region.
The new report, titled Exploring the Impact and Implications of Chinese Capital in Latin America and the Caribbean, stems from a series of public and private meetings hosted by Americas Society/Council of the Americas (AS/COA) between 2021 and 2023. The meetings, organized around the report theme featured private sector leaders, experts, and other interested observers. Participants offered real-world experiences, ideas, and analysis of these challenges with potential solutions.
COMMENT – For the last few years AS/COA has been expamining the impacts of PRC investment in Latin America… it is clear that Beijing is enabling the degradation of democracy across the region, as well as using its propaganda outlets to sow divisions between the United States and the rest of the hemisphere.
Authoritarianism
8. Heeding Beijing's call, law firms tone down China risks in IPO applications
Reuters, August 16, 2023
Law firms in China are scrambling to comply with Beijing's new guidance to tone down the language used to describe China-related business risks in companies' offshore listing documents, five people familiar with the matter said.
The moves come after China's securities regulator last month in a closed-door meeting asked domestic law firms to refrain from including negative descriptions of China's policies or its business and legal environment in the IPO prospectuses.
A failure to do so could mean their listings are not able to get a regulatory nod, the China Securities Regulatory Commission (CSRC) warned, Reuters had first reported, citing people with knowledge of the matter.
The law firms are now racing to change the wordings in some already submitted listing prospectuses and applications yet to be filed, said the five sources, who declined to be identified due to sensitivity of the matter.
COMMENT – If this isn’t grounds for MSCI to remove China A-shares from their passive investment indexes, I don’t know what would be.
In 2019, under pressure from the PRC Government, MSCI increased the inclusion ratio of China A-shares in their Emerging Markets Index from 5% to 20%. This pushed a massive amount of capital from passive U.S. investors into PRC companies, which are now required by PRC law to withhold data on their performance and to tone down language that describe PRC-related business risk.
Where is Gary Gensler and the Securities and Exchange Commission?
A quote from the SEC’s mission on its website:
The federal securities laws we oversee are based on a simple and straightforward concept: everyone should be treated fairly and have access to certain facts about investments and those who sell them.
Companies offering securities for sale to the public must tell the truth about their business, the securities they are selling, and the investment risks. And those who sell and trade securities and offer advice to investors – such as brokers-dealers, investment advisers, and exchanges – must treat investors fairly and honestly.
We protect investors by vigorously enforcing the federal securities laws to ensure truth and fairness. We deter misconduct, hold wrongdoers accountable, and provide resources to help investors evaluate their investment choices and protect themselves against fraud.
Given what we know about what is happening inside the PRC, the SEC has a responsibility to step in and prevent investors from being manipulated by deceptive practices.
9. I Watched the Dramatic Rise of Qin Gang — and Never Expected His Sudden Fall
Terril Yue Jones, Politico, August 15, 2023
10. China corruption watchdog nabs 160 hospital bosses in healthcare blitz
William Zheng, South China Morning Post, August 12, 2023
11. ‘I Miss My Children’: Australian Journalist Pens Letter From China Prison
Michael Heath, Bloomberg, August 11, 2023
An Australian journalist detained in China for three years on espionage charges said in a letter dictated to a diplomat in Beijing that she misses walks in nature and especially her children.
“I miss the sweet encounters of wildlife in Australia, the seasalt whirling in my ear, the sand between my toes,” said Cheng Lei, a former anchor for Chinese state media who was tried on national security offenses at a closed-door hearing last year.
12. China Health Care Braces for Sweeping Anti-Corruption Campaign
Bloomberg, August 16, 2023
13. Storm clouds gather over Xi Jinping’s political beach retreat
Edward White and Ryan McMorrow, Financial Times, August 11, 2023
14. When Tragedy Strikes in China, the Government Cracks Down on Grief
Li Yuan, New York Times, August 14, 2023
15. Rock ’n’ Roll According to the Chinese Communist Party
Vivian Wang and Weiyi Cai, New York Times, August 13, 2023
The song is one of China’s most influential indie rock songs, depicting a story of despair in a struggling industrial city.
But a local Communist Party group decided to rewrite it. What if it could spread “positive energy” instead?
A man spends decades working a monotonous factory job. His wife grows increasingly insecure about the future. Their son is withdrawn, seemingly struggling at school. Then a building collapses, and their world comes crashing down. It was a story of disillusionment and hopelessness in the industrial city of Shijiazhuang, and it was one of China’s most influential indie rock songs.
Then a local Communist Party group decided to rewrite it.
COMMENT – Another great piece of journalism by the New York Times.
16. China’s Economic—and Social—Contract Is Fraying
Nathaniel Taplin, New York Times, August 15, 2023
17. China Suspends Report on Youth Unemployment, Which Was at a Record High
Claire Fu, New York Times, August 15, 2023
18. China Turns to Well-Honed Playbook: Cut Rates, Hide Data
Jason Douglas and Stella Yifan Xie, Wall Street Journal, August 15, 2023
19. China Slashes Rates, Suspends Youth Jobless Data as Economy Signals Sharper Downturn
Jason Douglas, Wall Street Journal, August 15, 2023
Environmental Harms
20. China avoids climate change discussion despite extreme weather
Martin Quin Pollard, Reuters, August 11, 2023
21. China calls for more secrecy on sensitive energy issues: Kemp
John Kemp, Reuters, August 16, 2023
Foreign Interference and Coercion
22. Code Pink, Code Red
David Bandurski, China Media Project, August 16, 2023
23. ‘Into brain and the heart’: how China is using apps to woo Taiwan’s teenagers
Emma Graham-Harrison and Chi-Hui Lin, The Guardian, August 13, 2023
24. Muting Zoom
Bethany Allen, The Wire China, August 6, 2023
25. New leaders may be best hope for US-China relations, says ex-Obama aide
Yuanyue Dang, South China Morning Post, August 15, 2023
Ryan Hass said it is hard to imagine a better future at present, but the best-case scenario would be the emergence of leaders who want to move on from the past.
Ex-White House adviser also said this ‘perhaps’ will not happen while Xi Jinping is in power but the US should still be looking to the future.
The best hope for US-China relations may be the emergence of a new generation of leaders who want to solve problems rather than settle past scores, a former adviser to Barack Obama has said.
But Ryan Hass, now an analyst at the Washington-based Brookings Institution, said that will “perhaps not [happen] during the Xi Jinping era”.
COMMENT – I admire Ryan’s optimism.
For decades, we have been hoping that like-minded liberals, or even just folks who are less paranoid, are waiting silently in the wings of the Chinese Communist Party. The thinking goes that if the United States just loosens the pressure on Beijing, helps to grow the Chinese economy, makes efforts to set up dialogues, and focuses on addressing “global challenges,” these liberals will ascend to power and all will be well.
The Chinese Communist Party has spent decades cultivating this belief among American and European China hands… it gives the Party what it wants (a permissive international environment and the legitimacy it craves) and allows the Party to maintain its grip on power.
Having watched this dynamic for years, it reminds me of this:
Unfortunately, the problem isn’t just Xi Jinping… it is the entire Leninist system. Pining for “new leaders” won’t fix that.
26. The reality of China’s influence in the Middle East
David P Goldman, Asia Times, August 10, 2023
27. China courts Germany's far-right populist AfD
Matthias von Hein, DW, August 11, 2023
28. Robert F. Kennedy Jr.’s Unsubstantiated Bioweapon Claims Find Big Audience in China
Natasha Khan and Clarence Leong, Wall Street Journal, August 10, 2023
29. Taiwan Vice President Flashes Defiance Against China During U.S. Stopover
Joyu Wang and James T. Areddy, Wall Street Journal, August 14, 2023
Human Rights and Religious Persecution
30. Canada's corporate watchdog probes Ralph Lauren on alleged use of forced labor in China
Reuters, August 15, 2023
31. A Chinese lawyer was detained in Laos. His friends see Beijing's reach.
Christian Shepherd, Washington Post, August 11, 2023
32. Two accounts of surviving and escaping Chinese repression
The Economist, August 17, 2023
Kenan Malik, The Guardian, August 14, 2023
The very fact of being a Uyghur in China turns everyday life into a political act, as this memoir by renowned poet Tahir Hamut Izgil recounts
Ritu Sharma, Eurasian Times, August 17, 2023
35. Hikvision still sells Uyghur-tracking surveillance cameras, and they use NVIDIA chips
The China Project, August 17, 2023
COMMENT – This suggests that the U.S. Government still has a lot of work to do… and corporate America is still unwilling to take the most basic ethical actions.
As of Friday, NVIDIA has a market cap of $1.07 trillion… they can afford to do better.
Industrial Policies and Economic Espionage
36. Sidelined: How the World Trade Organization lost control of its two most important members — and became irrelevant in the process.
Grady McGregor, The Wire China, August 13, 2023
On November 30, 2020, in a small classroom in Geneva, Switzerland, one of the world’s most powerful courts withered into nothing.
That day, Dr. Hong Zhao, the last remaining member of the World Trade Organization’s Appellate Body, stepped down. For 25 years, the seven-person committee had provided the final say in trade disputes between the WTO’s member countries, acting in many ways as the referee of globalization. As of 2022, 98 percent of the $25 trillion global trade market took place between the WTO’s 164 member states.
But with Zhao’s departure, the Appellate Body, at least functionally, ceased to exist.
“From tomorrow on, the Appellate Body will be an entity that exists only in the Treaty of Dispute Settlement Understanding,” Zhao said in her farewell speech, referring to the 1995 agreement that established the WTO appeals court. Normally, as chairperson, Zhao’s speech would be delivered in front of hundreds of delegates in one of the cavernous halls of the WTO campus on the banks of Lake Geneva. But these were not normal circumstances.
Thanks to a years-long U.S.-led effort, the Appellate Body had been mostly neutered during Zhao’s tenure. By refusing to nominate or re-appoint members to their four-year terms, the U.S. had sentenced the Appellate Body to a slow death of attrition; since 2019, it hadn’t had sufficient members to rule on cases. Add Covid restrictions to the Body’s ignominious end, and it meant that Zhao’s historic speech was delivered in front of a tarp painted to look like a library in an empty classroom at the Graduate Institute of Geneva.
But the speech was not just a eulogy for the Appellate Body. Zhao also wanted to issue a warning about what lay ahead: total disintegration of the global trading system.
“The WTO’s existential crisis is looming large,” she said. “This should be highly alerted and clearly sensed by all members. Save the dispute settlement system, save the WTO. There is no time to waste.”
Padideh Ala’i, a law professor at American University, notes that Zhao wasn’t exaggerating. Because every member of the WTO has the right to appeal WTO decisions, countries can now file appeals indefinitely “into the void” since the Appellate Body no longer exists.
“The Appellate Body used to be called ‘the crown jewel’ of the multilateral trading system,” she says. “Now it’s not there.”
It is perhaps one of the greatest ironies of the 21st century that the United States, once one of the WTO’s biggest cheerleaders, is almost entirely responsible for sidelining it.
COMMENT – The Appellate Body is just one part of an institution that failed a decade ago and is being swept into the dustbin of history.
It is a stretch to call the Appellate Body a “court.” For about 15 years it performed marginally well as a venue for arbitration in international trade disputes, but like other international organizations, the WTO had no way to enforce its rulings and depended on the sovereign authority of its members to legislate its rules and self-police. But as it became increasingly clear that the PRC was becoming the world’s leading exporter and Beijing wasn’t going to fulfill its commitments to become a market economy or police itself, the Appellate Body, along with the rest of the WTO entered hospice and died.
The time to have saved the WTO was the early 2000s just after the PRC entered and the organization was negotiating the Doha Round. After 14 years of failure, the Doha round of negotiations ended without resolution and countries, including the United States, backed away and sealed the Organization’s fate. Grady’s timeline for the decline of the Appellate Body begins at this point. I suspect that the Obama Administration considered this question: why continue to appoint adjudicators to an entity that is dead (even if no one is willing to admit it out-loud)?
While the WTO will continue to exist as a zombie, with folks going in and out of its offices in Switzerland, its leadership invited to speak on stage at various conferences and summits, and its advocates wringing their hands, the world has moved on from the WTO and embraced bilateral and regional trading agreements with the ability to make revisions and real enforcement mechanisms. In essence, we are returning the tried and true methods that existed before the WTO was created in the mid-1990s. Liberal, market economies will likely create some version of a GATT 2.0 and non-market economies will try to institute their own forms of neo-mercantilism. As those systems interact there will be tension and trade wars, tariffs and embargos, just as there has always been. This confusing mess of overlapping systems and agreements will not be the kind of efficient system that economists crave… but it will conform to geopolitical realities and balance opportunities and risks (that many economists ignore), something that the idealism of the WTO could not do.
The WTO was created in the heady days of peak neo-liberalism and the end of history. One globalized world with one body to set and enforce rules for international trade: it was a grand idea that failed because the world changed. It could only work if geopolitical rivalry had become extinct and countries felt safe to surrender their sovereignty to an international body.
It is clear now that the WTO expanded too quickly and the WTO’s vision was too ambitious and doomed to fail, it was an organization that was no longer fit for purpose.
37. Zhongrong Trust's missed payments trigger fears among Chinese investors
Reuters, August 16, 2023
38. China's fertility rate drops to record low 1.09 in 2022- state media
Reuters, August 15, 2023
39. Can India Inc extricate itself from China?
The Economist, August 14, 2023
40. Why Australia could follow US on China tech ban
Matthew Cranston, Australian Financial Review, August 10, 2023
41. China's industrial production growth slowed to 3.7% in July
Iori Kawate, Nikkei Asia, August 15, 2023
42. China real estate slump deepens with 8.5% investment drop
Kenji Kawase, Nikkei Asia, August 15, 2023
Chinese data released on Tuesday shows a steep decline in real estate investment in the first seven months of the year, as developers' sales dropped and cash availability decreased.
The National Bureau of Statistics announced that overall investment in real estate development for the January-July period came to 6.77 trillion yuan ($943.5 billion), an 8.5% decrease from a year earlier. The main culprit was residential housing investment, which accounts for about three-quarters of the total, as it dropped by 7.6%.
43. China's state-owned firms overtake private sector in economic slump
Iori Kawate, Nikkei Asia, August 16, 2023
44. ByteDance’s China Business Is Slowing, Putting Spotlight on TikTok
Jing Yang and Juro Osawa, The Information, August 10, 2023
45. Taiwan Regulator Seeks Urgent Feedback on China Investment Risk
Chien-Hua Wan and Ka Ho Cheuk, Bloomberg, August 15, 2023
46. Labor considers following US on China tech ban
Andrew Tillett, Australian Financial Review, August 13, 2023
47. Xi Faces More Tough Choices After Surprise China Rate Cut
Jill Elaine Disis, Bloomberg, August 15, 2023
48. China Reveals Plan to Boost Capital Inflows, Attract Foreign Firms
Zhang Ziyu, Caixin Global, August 14, 2023
49. China Issues Policy to Further Boost Foreign Investment
Lester Ross, Kenneth Zhou, and Tingting Liu, WilmerHale, August 15, 2023
50. Multinationals turn to generative AI to manage supply chains
Oliver Telling, Financial Times, August 13, 2023
51. China’s Options for Retaliation Are Few After U.S. Investment Ban
Liza Lin and Dan Strumpf, Wall Street Journal, August 11, 2023
52. EU treads cautious line over US investment bans on Chinese tech
Alice Hancock, Laura Pitel, and Leila Abboud, Financial Times, August 10, 2023
53. How U.S. and China Are Breaking Up, in Charts
Anthony DeBarros and Yuka Hayashi, Wall Street Journal, August 12, 2023
54. American VCs Still Have a Lot at Stake in China
Yuliya Chernova and Angus Loten, Wall Street Journal, August 10, 2023
55. China’s Worsening Economy Is Hurting Corporate America
Dan Strumpf, Wall Street Journal, August 14, 2023
56. China’s Deepening Housing Problems Spook Investors
Weilun Soon and Rebecca Feng, Wall Street Journal, August 14, 2023
57. Korea battery materials maker onshores China supply chain to win US subsidies
Christian Davies, Financial Times, August 13, 2023
58. iPhone maker Foxconn’s cautious pivot to India shows limits of ‘China plus one’
Kathrin Hille and John Reed, Financial Times, August 14, 2023
59. Brics creator slams ‘ridiculous’ idea for common currency
Arjun Neil Alim and Joseph Cotterill, Financial Times, August 15, 2023
60. Chinese drugmakers develop copycat versions of ‘miracle’ weight-loss drug
Eleanor Olcott, Hannah Kuchler and Wang Xueqiao, August 16, 2023
61. Why This Company’s Financial Crisis Threatens China’s Economy
Alexandra Stevenson, New York Times, August 15, 2023
62. Wall St. Weighs the Effect of Weaker China and Stronger U.S.
Joe Rennison, New York Times, August 15, 2023
Cyber & Information Technology
63. U.S. and Chinese Military AI Purchases
Margarita Konaev, Ryan Fedasiuk, Jack Corrigan, Ellen Lu, Alex Stephenson, Helen Toner, and Rebecca Gelles, Center for Security and Emerging Technology, August 15, 2023
64. China chipmaking tech execs urge greater supply chain self-sufficiency
Shunsuke Tabeta, Nikkei Asia, August 11, 2023
65. Biden's China tech curbs to keep investors sidelined, fearing more steps
Kane Wu and Michael Martina, Reuters, August 10, 2023
66. Tesla assures Chinese drivers their data is stored locally
Tomoko Wakasugi, Nikkei Asia, August 15, 2023
67. Behind Meta’s ‘Made in USA’ AR Glasses: a Military-Grade Material
Wayne Ma, The Information, August 10, 2023
68. “Please do not make it public” Vulnerabilities in Sogou Keyboard encryption expose keypresses to network eavesdropping
Jeffrey Knockel, Zoë Reichert, and Mona Wang, The Citizen Lab, August 9, 2023
69. U.S.-China Competition in Emerging Technologies: LiDAR
Congressional Research Service, August 14, 2023
70. China’s Chip Champion Is Taking It From All Sides
Jacky Wong, Wall Street Journal, August 11, 2023
Military and Security Threats
71. Chinese cyberattacks on Japan prompts U.S. push for stronger defenses
Ryo Nakamura, Nikkei Asia, August 10, 2023
72. China to disclose secret US ‘global reconnaissance system,’ claims official
Alexander Martin, The Record, August 14, 2023
73. Taiwan sees no Chinese military response to VP's US trip
Yimou Lee, Reuters, August 15, 2023
74. Since the Pelosi Visit, China Has Created a New Normal in the Taiwan Strait
Adrian Ang U-Jin and Olli Pekka Suorsa, The Diplomat, August 10, 2023
75. NSA chief: Chinese cyber spies continue to improve — but haven't surpassed US
Martin Matishak, The Record, August 10, 2023
76. How tomorrow never comes: Russia’s war against Ukraine and its impact on Taiwan
Angela Köckritz, European Council on Foreign Affairs, August 8, 2023
77. Why are three former Indian service chiefs attending a security conference in Taipei?
Pradip R. Sagar, India Today, August 9, 2023
With China’s aggressive posture against Taiwan increasing in intensity, former chiefs of India’s three services are in Taipei to engage with various sections of the Taiwanese leadership and express India’s views.
At a time when China has been flexing its military muscles around Taiwan, hoping to intimidate the democratic country which it regards as its own territory, the Indian military is weighing its options on how to deal with a sudden crisis.
Though the Indian establishment has traditionally adopted a cautious approach to the China-Taiwan issue, New Delhi is now considering a deep dive into the conflict. Former chiefs of India’s three services are in Taipei to engage with various sections of the Taiwanese leadership and express India’s views. Admiral Karambir Singh, General M.M. Naravane and Chief of Air Staff R.K.S. Bhadauria—the former Navy, Army and Indian Air Force chiefs respectively--are in Taipei for the Ketagalan Forum’s 2023 Indo-Pacific Security Dialogue, in what is seen as Indian representation for the conference.
With Taiwan consistently rejecting China’s territorial claim, Beijing has never ruled out the use of force to bring the island nation under its control. According to military and strategic analysts, China will not take any military action in the next three-four years. But, the mighty People’s Liberation Army (PLA) navy and air force would continue to make regular threatening gestures, with probing sallies in the air and in the Taiwan Strait, as well as military manoeuvres.
The presence of three former chiefs of the Indian military in Taipei has resulted in a lot of speculation, especially about India’s stand on Chinese aggression against Taiwan. The Indian armed forces have been locked in a face-off with the PLA in high-altitude Ladakh and elsewhere along the Line of Actual Control (LAC) for over three years, with the PLA making multiple incursions to alter the Line of Actual Control (LAC).
The Indian establishment is increasing taking the view that a conflict in the Taiwan Strait will have an adverse impact on India and its economy. So, a section of the Indian leadership is of the opinion that Taiwan should be backed against China’s aggressive tactics.
New Delhi’s new stand has also prompted the Indian military to make an assessment of India’s response in case of a Chinese attack on Taiwan. The office of the Chief of Defence Staff (CDS) Gen. Anil Chauhan has asked the three services to come up with suggestions and options for India in the event of a full-blown crisis.
India follows the ‘One China policy’ vis-a-vis Taiwan and does not have formal diplomatic ties with Taipei.
South Block mandarins claim that if the US and its allies support Taiwan against China, India may need to review its stand, especially in case Washington asks for India’s support for refuelling its jets and other similar requests. India and the US have also signed a Logistics-Exchange Memorandum of Agreement (LEMOA) to support each other in case of need. LEMOA gives access to designated military facilities on either side for refuelling and replenishment. Other areas in the agreement’s ambit include food, water, billeting, transportation, petroleum, oils, lubricants, clothing, communication services, medical services, storage services, training services, spare parts and components, repair and maintenance services and calibration services between the two nations.
COMMENT – The Chinese Communist Party only has itself to blame for this development. Inept diplomacy, growing race-based ultra-nationalism, and an unwillingness to find a peaceful solution to differences with its neighbors, is creating the kind of encirclement and collective security structure that Beijing says that it fears.
78. Russian and Chinese cyber attacks on the Foreign Office risked national security, ex-GCHQ boss warns
Richard Holmes, inews, August 13, 2023
79. China Is Building A Runway On Its Closest Island Outpost To Vietnam
Thomas Newdick, The War Zone, August 15, 2023
80. Beijing claims to arrest Chinese national over spying for US
Edward White and Demetri Sevastopulo, Financial Times, August 11, 2023
81. China’s Military, ‘Chasing the Dream,’ Probes Taiwan’s Defenses
Chris Buckley and Amy Chang Chien, New York Times, August 11, 2023
82. VIDEO - Mountain Shield: How Taiwan Plans to Counter a Chinese Invasion
Wall Street Journal, August 14, 2023
83. Chinese spies who read State Dept. email also hacked GOP congressman
Joseph Menn, Washington Post, August 15, 2023
84. Keeping tabs on China’s murky maritime manoeuvres
The Economist, August 15, 2023
One Belt, One Road Strategy
85. Mexico’s Engagement with China and Choices for Its Future
R. Evan Ellis, Diálogo Américas, August 11, 2023
Opinion Pieces
86. The US-China decoupling story is not over
Rana Foroohar, Financial Times, August 14, 2023
87. Without Human Rights Sanctions, the World Is Normalizing China’s Genocide of Uyghurs
Omer Kanat, The Diplomat, August 15, 2023
Every visit by a U.S. official to China, without uttering a word about the Uyghurs, contributes to the alarming prospect of normalizing the Uyghur genocide.
In his haunting 1956 memoir “Night,” Elie Wiesel recounts the horrors he endured during the Holocaust and how indifference to the suffering of millions shook his faith in humanity. In the book’s 2006 preface, he explains that his manuscript was originally “rejected by every major publisher.” Then he notes a seachange 50 years later. Students read “Night” in schools. The Holocaust Memorial Museum in Washington had already hosted more than 22 million visitors. Survivors like Elie Wiesel, Jews around the world, and ultimately the whole world refused to allow the unspeakable to be forgotten.
But today, Uyghurs are afraid that policymakers are normalizing China’s ongoing genocide of our people. A parade of foreign leaders are visiting Beijing to make deals and appeal to the Chinese leadership to cooperate on global crises, without saying a single word about the atrocities against our people.
Is it normal to treat a genocidaire as a partner in “responsible global governance,” in the words of U.S. Treasury Secretary Janet Yellen last month? Apparently so, if the genocidaire is the Chinese government.
International enforcement of human rights sanctions is being put to the test by these visits.
COMMENT – The lack of attention by the Biden Administration on the Uyghur genocide is conspicuous. Beijing has effectively forced the U.S. and others to tone-down their criticisms.
88. Extend the Pentagon’s ban on China’s consumer drones
Mark Montgomery, Defense One, August 14, 2023
89. PODCAST – Vacation From History is Over
GeoTech Wars, Center for Strategic and International Studies, August 8, 2023
90. China’s Micron Ban Cannot Stand
Robert Atkinson, DC Journal, August 9, 2023
91. Is a declining China even more dangerous for the West?
George Magnus, Sunday Times, August 13, 2023
92. US industry is getting its way on China
Oren Cass, Financial Times, August 14, 2023
93. Powell's Fed Let the US Economy Get Too Hot for a Soft Landing
Niall Ferguson, Bloomberg, August 13, 2023
94. Biden Walks a China Tech Tightrope
Wall Street Journal, August 10, 2023
95. China Will Hunt You Down
Wall Street Journal, August 14, 2023
96. China is becoming more trouble than it’s worth for US investment banks
Kaye Wiggins, Financial Times, August 15, 2023
97. No One Should Want to See a Dictator Get Old
Michael Beckley, New York Times, August 15, 2023