Matt Turpin's China Articles - September 24, 2023
Friends,
It appears that the Biden Administration is pursuing a “reset” with Beijing.
That may sound overly provocative, so bear with me…
On Friday, Treasury Secretary Yellen announced that the United States and the PRC will launch two new “Working Groups”: the “Economic Working Group” and the “Financial Working Group.”
I think this deserves a new acronym: the E&FWG.
The E&FWG should be viewed as just a rebranding of the failed SED/S&ED process.
Some history…
The SED (Strategic Economic Dialogue) started in 2006 under Treasury Secretary Hank Paulson and was meant to be a forum in which the U.S. and the PRC could improve economic relations between the two countries. For Paulson, this was an excellent opportunity for Treasury to push the State Department aside and focus solely on economic issues, while avoiding pesky national security, human rights, or labor concerns. When the Obama Administration entered office, they wanted to continue this dialogue and adapted it by dividing it into two tracks (Economic and Strategic) and bringing the Secretary of State in to lead the “Strategic” track. The new dialogue became the S&ED (Strategic and Economic Dialogue).
The Obama Administration rightly saw their predecessors had mistakenly let Treasury set the agenda for U.S.-PRC relations at the expense of the broader relationship (Treasury is simply not well suited to consider issues beyond their narrow mandate of financial interests). But unfortunately, the Obama Administration largely failed to right the ship because it couldn’t bring itself to force Treasury to take a back seat to the State Department. This meant that Beijing could gain leverage in both tracks by playing off the Treasury-State divide and relying on a relatively weak National Security Council that could not impose a holistic approach on the rest of the Administration. This led to the overhyped “Engage, Bind, and Balance” strategy which sought to both help the Chinese economy grow and become more technologically advanced AND sought to balance against Beijing’s rise. This schizophrenic strategy had something for everyone and allowed Departments and Agencies a free hand to determine their own priorities based on their bureaucratic interests and the lobbying by outside groups, all under a broad US-PRC dialogue which the Chinese side exploited.
Restarting the SED/S&ED process has been a long-time dream of the engagement faction that still exists in the U.S. Government (just six months ago I heard a senior Congressional Staffer say that restarting the S&ED process was the most important priority) and the business lobby. The fact that Secretary Yellen announced this new “working group” without the participation of Secretary of State Blinken suggests that we have taken several steps backwards.
Beijing must be giddy at their luck at accentuating schisms within the Biden Administration. The E&FWG suggests that National Security Advisor Jake Sullivan and his Indo-Pacific Coordinator, Kurt Campbell, are isolated within the Administration. For instance, why isn’t Defense Secretary Austin weighing in that Yellen shouldn’t open a new working group dialogue until the PLA re-establishes communications with the Department of Defense. How could we possibly justify deepening “discussions on economic and financial policy matters” if Beijing won’t speak to us about mitigating military tensions?
The creation of the E&FWG undermines not only the February 2022 Indo-Pacific Strategy, which calls for creating an international system that is maximally favorable to the United States and its allies, but also the Indo-Pacific Economic Framework that Commerce Secretary Raimondo has been championing, a framework that is meant to isolate the PRC. Though Raimondo’s decision to announce her own working group with Beijing over export controls did plenty to undermine her own efforts.
It appears that the Treasury Department has re-assumed its traditional role of guiding the U.S.-PRC relationship in ways that benefit the U.S. business community (in particular the financial services industry) and the Chinese Communist Party, who effectively employed the S&ED process for a decade to prevent objections from labor, the human rights community, and the national security establishment, from derailing Beijing’s plans.
By allowing the Treasury Secretary to consolidate the bilateral relationship in this way, the Administration is sacrificing its leverage on other, more critical issues.
I predict that we will see an ever-expanding mandate for the E&FWG (just as we did with the SED/S&ED process). When I supported the S&ED between 2014 and 2016, nearly the entire cabinet was involved on the U.S. side with over 160 separate working groups underneath those cabinet secretaries. The United States did not invest this kind of effort into any other bilateral relationship and that sent a clear message to other countries: the United States was more interested in a stable relationship with Beijing than in standing up for interests and values the U.S. shared with its allies.
I fear we are on the verge of falling back into that same pattern and likely only a few steps away from dreaming about a new economic G2 between the US and the PRC. It seems clear that our strategy has become schizophrenic again (I don’t use that term lightly… we have a strategy characterized by hallucinations, delusions, and extremely disordered thinking and behavior).
In an effort to achieve “global financial stability” and maintain “globalization” (the goals that the Treasury Secretary appears to be focused on), the Treasury Department seems willing to sacrifice the Administration’s broader, stated objective of building a better functioning liberal international order. Trying to include the PRC in that liberal international order is delusional. Beijing certainly wants the benefits from that system but is working hard to undermine it and build an alternative order that is antithetical to the system that Yellen is trying to defend.
Thanks for reading!
Matt
MUST READ
1. The Billionaire Keeping TikTok on Phones in the U.S.
John D. McKinnon and Stu Woo, Wall Street Journal, September 20, 2023
Financier Jeff Yass made a big bet on the app, and he’s a top donor to lawmakers who support it.
TikTok had hardly any friends in government earlier this year as the Biden administration, Congress and state legislatures were threatening to ban the Chinese-owned video giant.
TikTok now has many more friends, with something in common: backing from billionaire financier Jeff Yass. They’ve helped stall attempts to outlaw America’s most-downloaded app.
Yass’s investment company, Susquehanna International Group, bet big on TikTok in 2012, buying a stake in parent company ByteDance now measured at about 15%. That translates into a personal stake for Yass of 7% in ByteDance. It is worth roughly $21 billion based on the company’s recent valuation, or much of his $28 billion net worth as gauged by Bloomberg.
Yass is also one of the top donors to the Club for Growth, an influential conservative group that rallied Republican opposition to a TikTok ban. Yass has donated $61 million to the Club for Growth’s political-spending arm since 2010, or about 24% of its total, according to federal records.
Club for Growth made public its opposition to banning TikTok in March, in an opinion article by its president, at a time when sentiment against the platform among segments of both parties was running high on Capitol Hill. Days later, Sen. Rand Paul (R., Ky.) stood up on the Senate floor and quashed an attempt to fast-track a bill by Sen. Josh Hawley (R., Mo.) to ban downloading of the TikTok app.
“We will be acting like the Chinese government if we ban TikTok here,” Paul said around that time.
In June, Yass donated $3 million to a political committee backing Paul. Including that contribution, Yass and his wife, Janine Yass, have donated more than $24 million to Paul or committees that support him since 2015, according to federal records. Club for Growth has given a Paul-supporting political committee $1.8 million since 2020.
Another Club for Growth-backed Republican who came out against a TikTok ban was Rep. Thomas Massie (R., Ky.), an important ally of House Speaker Kevin McCarthy. Massie urged House GOP leadership to oppose a different effort in the Senate, a bipartisan bill targeting TikTok that had the backing of the Biden administration, people familiar with the situation say.
Since 2020, Jeff and Janine Yass have given $32,200 to Massie or a political-action committee supporting him.
Club for Growth has been Massie’s biggest overall political contributor since 2011, directing $192,000 to him from the organization’s supporters, according to OpenSecrets, a nonpartisan group that tracks political contributions.
A spokesman for Massie said the congressman doesn’t like TikTok, but banning it wasn’t right because “the cure is worse than the disease.” A spokeswoman for Paul said his “opposition to censorship and his unwavering support for the First Amendment are consistent and deeply held libertarian beliefs.” Both libertarian-minded Republicans have broken party lines in the past to take hard-line stances on protecting free speech.
Other Republicans in Congress, including at least five others besides Paul and Massie who received financial support from Club for Growth, have also objected to legislation targeting TikTok. With many Democrats already skeptical of a ban, the whittling away of Republican support killed momentum for several bills, including the bipartisan Restrict Act backed by the Biden administration.
The lobbying effort by Yass is notable in part because of the extent of his political spending—he and his wife were the third-largest conservative donors nationally in the 2022 election cycle, chipping in about $49 million to support conservative candidates and causes, according to OpenSecrets.
COMMENT – Brilliant move on ByteDance’s part… find a wealthy American political donor, who will put his own financial interests ahead of the country, to lobby hard on ByteDance’s behalf with ultra-libertarian Republicans, while simultaneously making the platform critical for Democratic Party campaigning (see: “Some Democrats worry crackdown on TikTok could hurt party,” Washington Post, April 16, 2023).
Foreign interference in U.S. lawmaking is alive and well… and it appears that FARA (Foreign Agents Registration Act), which was passed in 1938, is completely inadequate to addressing the tactics that hostile foreign states like the PRC use today.
Yass is the richest man in Pennsylvania and 48th richest man in the world… almost all his wealth comes from his early investment in ByteDance/TikTok. Needless to say, he is desperate to protect his personal wealth and will use whatever means to ensure he doesn’t suffer a loss to his own pocketbook.
This also explains the position that the Cato Institute has taken on TikTok over the past year (see ““TikTok Legislation” Is a Blank Check for Government Encroachment Upon Americans’ Wealth, Privacy, and Safety,” Cato Institute, April 3, 2023, “TikTok Panic Threatens Speech,” Cato Institute, April 21, 2023, and “Banning TikTok Stifles Internet Innovation and Freedom,” Cato Institute, June 4, 2023). Jeff Yass has been on the Cato Board since 2002, is now on its Executive Advisory Committee and is one of the organization’s top donors.
Perhaps it is not surprising, but Cato makes no mention of the fact that its top donor owns a sizeable chunk of ByteDance (it is the largest chunk of his wealth) and would become much poorer if the U.S. Government passed legislation to ban TikTok. It certainly calls into question the objectivity of any of Cato’s research if they can be so blatantly manipulated by a donor.
2. The Endless Frustration of Chinese Diplomacy
Cindy Yu, Foreign Policy, September 17, 2023
Jorge Guajardo’s first mission as Mexico’s new ambassador to Beijing was dealing with the fentanyl crisis. It was 2007, and the United States’ growing fentanyl addiction was already fueling Mexico’s organized crime, with groups using precursor chemicals smuggled from China. “We never got any traction with that,” Guajardo said. “[Chinese officials] didn’t understand, or they pretended not to understand.”
It wasn’t until Mexico hosted the G-20 in 2012, when then-Mexican President Felipe Calderón raised the issue directly with his Chinese counterpart, Hu Jintao, that the country’s concerns were finally heard. After the summit, the Chinese Ministry of Foreign Affairs reached out to Guajardo’s team to ask for meetings on the issue—five years after his first efforts.
For Guajardo, now in the private sector, the episode was a typical example of how Chinese diplomats worked. “It’s a one-way channel. [Chinese diplomats] come to you with messages they want to relate to you, but anything you want to relate to them, they just either ignore or don’t know what to do with that information. So it becomes unimportant to them.” He believes that Hu had never been informed about the issue earlier, and only when Calderón was able to directly reach him did the order to do something come down from the top.
It’s an all-too-typical experience for outsiders trying to deal with China’s bureaucratic, opaque, and oftentimes defensive diplomats.
Traditionally, diplomats are supposed to represent their nation—but also to build bridges between countries, especially over difficult issues. They maintain communication channels and find fudges to resolve seemingly intractable differences of position. This doesn’t seem to be the case for Chinese diplomats, whose role is more to “keep foreigners away from Chinese policymakers,” said John Gerson, a former advisor to British Prime Minister Margaret Thatcher on China. “It’s a moat.” Their role is to protect and bolster an authoritarian regime keen for the world’s approval but unable to take any approbation.
In many ways, the patterns of Chinese diplomacy have changed remarkably little since the decades it was run out of Yanan, the mountain headquarters of the Chinese Communist Party (CCP). It has the same military discipline, fierce loyalty, and underlying defensiveness. As journalist Peter Martin writes in China’s Civilian Army, the Chinese diplomatic service had been “set up to help a closed and paranoid political system cope with a more open outside world.”
That results in diplomats who are valued for their message discipline, their loyalty (to the party), and their diligence. But they are also molded into bureaucrats who have little flexibility or ability to act on their own initiative. International diplomats often complain that it’s difficult, if not impossible, to find any personal rapport with individual Chinese diplomats, especially at the lower levels. “China wants to have two ambassadors. They want to have a Chinese ambassador in Mexico telling Mexicans what China is thinking. And they want a Mexican ambassador in China telling Mexicans what China is thinking,” Guajardo said, quite seriously.
Pavel Slunkin, a former Belarusian diplomat, was on the receiving end of Chinese diplomatic bureaucracy when he worked on President Xi Jinping’s visit to Minsk in 2015. He was used to state visits taking two weeks to arrange—Xi’s took two months of meeting after meeting. The peak of the box-ticking exercise came when the new director of protocol at the foreign ministry demanded, at 2 a.m., a final check of the Great Patriotic War Museum before Xi was due to visit the next day.
COMMENT – This rings true to me… but this is built by design. Beijing doesn’t want its diplomatic system to work as a two-way street.
Much of this comes from the Leninist/Stalinist nature of the PRC’s politics, which does not want to be constrained by rules and limits that apply in normal state-to-state relations and is deeply paranoid of anything foreign.
From its founding, the PRC’s Ministry of Foreign Affairs (MFA) has had an impossible job: sell the Party’s plan to the world and convince foreigners to acquiesce. If the MFA’s diplomats can’t do that, then it must be because they didn’t work hard enough, or they are traitors (or both).
This should remind us of the impossible position that Soviet diplomats found themselves in during the Great Terror of the late 1930s. Stalin’s purges rendered the Soviet Foreign Ministry (People’s Commissariat for Foreign Affairs), as well as the Red Army, impotent. Its best and brightest were removed and the individuals best suited to formulate foreign policy were excluded from the process, which left the Soviet Union at a huge disadvantage (see “The Soviet Diplomatic Corps and Stalin’s Purges,” Alastair Kocho-Williams, Slavonic and East European Review, January 2008).
3. The Global Economy Enters an Era of Upheaval
Shawn Donnan and Enda Curran, Bloomberg, September 18, 2023
US-China tensions and the war in Ukraine are already swinging investments to like-minded countries — a sign that companies are making geopolitical bets.
One word has been popping up increasingly on earnings calls and in corporate filings of some of the world’s biggest companies. From Wall Street giants like BlackRock Inc. to consumer titans like Coca-Cola Co. and Tesla Inc. and industrial mainstays like 3M Co., S&P 500 chief executives and their lieutenants have used the word “geopolitics” almost 12,000 times in 2023, or almost three times as much as they did just two years ago.
It’s not just talk. Hard evidence is now emerging that all the discussions of strained international relations and more than a decade of warnings over the end of an era of globalization are finally spurring corporations to pick sides with their capital. Western multinationals that for years have avoided geopolitics in favor of pursuing profits in less mature markets are increasingly building the factories of the future in like-minded nations.
As the world’s leaders gather in New York this week for the annual United Nations General Assembly, a Bloomberg Economics analysis of UN foreign-direct investment data points to a world reorganizing into rival — though still linked — blocs that reflect UN votes on Russia’s invasion of Ukraine. Of the $1.2 trillion in greenfield FDI invested in 2022, close to $180 billion shifted across geopolitical blocs from countries that declined to condemn Russia’s invasion to those that did, the analysis found.
“This is a historic change,” said Yeo Han-koo, a former South Korean trade minister, who sees a world entering an era of upheaval. “A new economic order is being formulated and that will cause uncertainty and unpredictability.”
COMMENT – As investors and multinational companies adjust to these geopolitical realities, the PRC will become less “coupled” to Europe, Japan, South Korea, and the United States. Investors and multinational companies who bet on further integration between the PRC and developed economies will be the ones to suffer the most as these dynamics play out (side-eye at Jeff Yass).
These folks who stand to lose the most are also the ones who are desperately trying to prevent any talk of “decoupling.”
It is like they are in a game of musical chairs and all the chairs have been pulled away… they desperately don’t want the music to stop and are hoping that someone will bring their chairs back before it does.
4. China’s international students and a tale of two fears
Jianli Yang and Leslie Fu, Politico, September 1, 2023
Concerned about facing discrimination abroad and being persecuted in their home country, Chinese students are reluctant to engage in open dialogue.
Western politicians and educators have observed that a significant number of overseas Chinese students are unwilling to engage in conversations about China, particularly about the ruling Chinese Communist Party (CCP). And even if they do, when faced with criticism directed at the government, they often perceive the West, especially the United States, as intentionally trying to stifle China’s ascent.
Yet, time and again, Chinese youth are unable to adequately defend the CCP, making it extremely difficult for these institutions to initiate genuine dialogue. However, their reluctance isn’t surprising, as it is shaped by two concerns: fear of being discriminated against abroad, and fear of persecution in their home country.
The first of these worries revolves around an almost reflexive patriotism, as these students are concerned about facing potential discrimination because of strained U.S.-China relations, which they believe could lead to prejudice against them. At the same time, many studying in the West are also worried that any actions or statements suggesting dissent could be detected by China’s autocratic government, leaving them vulnerable and potentially leading to problems not only for themselves but also for their families in China. And these fears manifest themselves in a variety of ways.
To promote the narrative that foreign imperialists are pursuing an agenda to subjugate Chinese nationals, the CCP has long used victimization as a rationale in its state-mandated “patriotic education” campaign. And in an effort to create and reinforce agitation among Chinese international students, China’s Ministry of Foreign Affairs has repeatedly accused the U.S. of using various pretexts to deliberately deny or restrict students’ visa access.
In recent years, the CCP’s propaganda machine has also repeatedly accused the U.S. of “speed[ing] down the wrong path” toward conflict and confrontation and of promoting “hysterical neo-McCarthyism.” And with the rising rate of anti-Asian hate crimes, the CCP has fueled the rhetoric that America’s innate imperialist instincts have inevitably led to a tense relationship with China. As a result of all this, Chinese international students — most of whom have been bombarded with years of ideological indoctrination, putting them on high alert against “Western imperialism” — often instinctively react with anger when their country is portrayed in any negative way.
As for the second fear, the CCP has been known to harass Chinese students who criticize the regime, and they can face swift retaliation. Unfortunately, American universities rarely intervene, leaving vulnerable students completely unprotected.
Meanwhile, spying is also common, and there have even been cases of student activists being forced to spy on fellow dissidents because officials from China’s Ministry of State Security have discovered their identities and threatened their families with imprisonment in China.
In addition to the CCP’s surveillance of Chinese youth studying abroad, there have also been instances where some pro-CCP Chinese students have themselves volunteered to participate in violent attacks on Hong Kong dissidents and Uighur communities, among others. As a result, self-censorship is also common among overseas Chinese students who don’t feel safe enough to speak out about human rights abuses — or anything negative about China at all.
Over the years, both of these fears have contributed significantly to the lack of enthusiasm for a thorough discussion of the CCP’s flagrant crimes. Thus, it’s critical the West understands and empathizes with the worries of Chinese students, meaningfully and substantively addresses them and fosters more productive interactions with these international students.
When it comes to taking on concerns regarding discrimination abroad, the West should clearly distinguish between China and the CCP. And Western governments and institutions should emphasize this distinction to avoid blanket prejudice.
In addition, rather than making condescending moral judgments that further alienate Chinese youngsters, Western institutions should address human rights issues through relatable examples, giving these students a voice in discussing specific cases.
When it comes to dealing with fears of CCP persecution for both students and their family members in China, Western universities should commit to taking specific measures to protect students and support their own Chinese graduates — particularly those at risk upon their return home. In reacting to such threats to their students, universities should reflect their best traditions, first by publicly announcing — as then President of Purdue University Mitch Daniels did in 2021 — that no harassment over criticism of the Chinese (or any other) government will be tolerated. Students who choose to speak out should also be given special assistance, legal protection and even mental health support. And if their students are persecuted upon returning to China, universities should speak out. (When I was detained in Beijing from 2002 to 2007, more than 40 Harvard professors spoke out for my freedom. So did the University of California, Berkeley community, where I received my PhD.)
With such policies, committed universities could then provide a safeguard — especially prestigious schools that are the top educational destinations for the children of China’s elite class and can therefore carry weight with the Chinese authorities.
Western universities can also implement procedures to protect the privacy and security of their students’ personal information, thereby reducing the risk of exposure to CCP scrutiny. It would be a shameful betrayal of everything these institutions stand for if Chinese students who continue to come over to study were to face similar intimidation for speaking out here as they do in China.
The concerns of international students from China are legitimate. And it’s time for the U.S., as well as other Western academic institutions to engage with Chinese international students and field their concerns with a more respectful, empathetic and pragmatic approach.
COMMENT – Quite a few Americans amplify the CCP’s propaganda machine by alluding to neo-McCarthyism and continuing to give the impression that hate crimes against Asian-Americans are going up.
The opposite is happening with the rate anti-Asian hate crimes dropping across the United States. One example is California, where Attorney General Rob Bonta, a Filipino-American, pledged to make anti-Asian hate crime a priority when he entered office in March 2021.
California, the state which saw the largest increase in anti-Asian hate crimes in 2020, and which experienced a 20% increase in hate crimes between 2021 and 2022, saw a 43% decrease in anti-Asian hate crimes that year… the only ethnicity to see a drop in these crimes.
5. James Cleverly refuses to say if he raised Parliament spy claim with China
Laura Kuenssberg and Kate Whannel, BBC, September 18, 2023
Throughout the interview, the foreign secretary said repeatedly it was impossible for him to say if he had raised the specific case of the researcher on his visit to China.
The challenge for ministers is that keeping silent on the subject gives their critics room to claim that the government has not had the determination to do so.
And that could include some in their own party who are continuing to push the leadership to be more strident about China.
Senior Tory MPs - including former Prime Minister Liz Truss - have urged the government to officially designate China a "threat" - a step the government has resisted taking.
Asked about the criticism from his own party, Mr Cleverly said: "Pretending China doesn't exist is not a credible policy."
COMMENT – Cleverly’s remark is a real head-scratcher… who in the Conservative Party is “pretending China doesn’t exist”? The point that critics are making is that Sanuk (the Prime Minister), Hunt (the Chancellor), and Cleverly are being naïve in their approach to Beijing and that they refuse to recognize the threat that the Chinese Communist Party poses to the UK’s domestic stability and its interests around the world.
What seems to be playing out in the UK is a similar dynamic in the United States: the City of London, the heart of the UK’s financial services industry, and a handful of wealthy UK investors want to build closer relations with the PRC over the objections of the vast majority of UK citizens. The current leadership of the UK Conservative Party is much more sympathetic to those appeals by the financial services industry, than they are to the rest of the UK population.
In fact, Cleverly’s critics within the UK Conservative Party are paying much closer attention to the PRC than he and the Prime Minister are.
6. China’s Defense Budget Is Much Bigger Than It Looks
Peter Robertson and Wilson Beaver, Foreign Policy, September 19, 2023
U.S. Sen. Dan Sullivan recently revealed that U.S. government estimates put the Chinese annual defense budget at around $700 billion. That is far higher than previous estimates and almost on par with the United States’ 2023 defense budget of just over $800 billion.
Sullivan’s number stands in stark contrast to other estimates of Chinese defense spending. One of the most respected independent sources of defense data, the Stockholm International Peace Research Institute, pegs China’s military budget for 2022 at only about $290 billion. The new, much higher number also completely contradicts the widespread assertion that U.S. defense spending is so lavish that it amounts to more than that of the next 10 countries put together.
Sullivan is not the only prominent figure in Washington to suggest that China spends much more than anyone thought. U.S. Army Gen. Mark Milley, chairman of the Joint Chiefs of Staff, has repeatedly testified before the U.S. Senate that the widely circulating figures are misleading, not least because they don’t take into account China’s far lower domestic costs for wages, weapons, facilities, and other budget items. Because of these lower costs, China literally gets more bang for the buck.
So how much does China actually spend on its military? And why is there so much confusion?
First, Milley is right to point to cost differences. Put simply, China’s 1.9 trillion yuan budget buys a lot more in China than the equivalent amount of dollars in the United States. This is because wages and other costs are far lower in China: An American truck driver, for example, earns a starting salary of $40,000 per year, more than five times as much as his Chinese counterpart, who earns only about 54,000 yuan ($7,400 at the market rate). Although the gap varies for different occupations, average wage incomes across the whole Chinese economy are about one-fifth of those in the United States. Based on China’s official personnel budget and a leading international think tank’s estimated numbers of military personnel, the gap in military wages is slightly less—with Chinese military personnel earning about one-quarter of their U.S. counterparts’ salaries. In other words, China’s military personnel budget goes four times further.
A price gap also applies to other domestic inputs, from many weapons and supplies to services and facilities. Comparing each country’s defense inputs suggests that the purchasing power of China’s overall defense budget is 60 percent higher than the dollar equivalent suggests. Even when using the old, low estimate of $290 billion, that would give the Chinese military nearly $469 billion in actual spending power—about 59 percent of the 2021 U.S. defense budget.
But there is even more Chinese military spending that the adjusted figure fails to account for. China’s official defense budget excludes its paramilitary forces that can be deployed in a conflict, China’s militarized coast guard, and foreign weapons purchases—and probably also excludes extensive military-civilian fusion. The most glaring difference is in research, development, testing, and evaluation (RDT&E), for which the U.S. military budgeted roughly $100 billion in 2021. China claims its RDT&E costs are included in its equipment budget, but this is unlikely given the massive investment needed for Chinese advances in aircraft, warships, and other capabilities over the last several decades. In China, most of these items come out of other budgets.
The SIPRI figure of $290 billion attempts to adjust for most of these off-budget items, but there is little transparency, and China’s rapid advances and buildup suggest that the off-budget items are much higher. If additional off-budget defense items amounted to, say, another 50 percent of SIPRI’s conservative estimates of China’s defense spending, that would indeed imply a purchasing power of around $700 billion—the figure quoted by Sullivan. So, even allowing for purchasing power differences, Sullivan’s figure suggests that there a massive amount of hidden spending, most of which is likely to be associated with military-civilian fusion.
For the time being, the U.S. military has the edge both in terms of capacity and capability, while the Chinese People’s Liberation Army is more labor-intensive. But this edge quickly fades to a U.S. deficit when one considers the strategic landscape and China’s path of modernization.
China’s equipment procurement has been catching up to that of the United States at an average annual rate of 8.6 percent (adjusted for inflation) since 2010. China has been steadily decreasing the share of its military budget spent on personnel, while increasing the amount spent on equipment, such as missiles, aircraft, and warships. Beijing’s shift from a military that overspends on personnel to a military focused on modern weapons systems will require a sea change in Washington’s strategic thinking.
U.S. policymakers and military strategists should also take note of the vast difference in planning for a Chinese military with about one-third of the United States’ resources compared to planning for one funded at almost the same level. What’s more, China’s military spending is almost entirely concentrated in a single theater of operations, whereas the U.S. military has a global footprint.
COMMENT – For years, we have been conditioned to believe that the United States spends far more on defense than every other country (just try Googling: “US spends more on defense than…”). Here’s an example of a chart that purports to “prove” this assertion:
Source: here
But what if this popular belief isn’t true?
It is a bit similar to the impression that many have that the United States spends far more on defense than it does on education: “The US spent $877 billion on military in 2022, a new report says — more than 10 times federal education spending,” Business Insider, April 25, 2023.
To arrive at a calculation that the U.S. spends 10 times as much on defense requires one look only at “Federal” spending. In the United States almost all education spending happens at the State and Local Government level, with nearly $1.3 trillion spent at the State and Local level on education (primary, secondary, and higher) last year without including any federal spending. State and Local Governments spend next to zero on defense, which means that the U.S. spends almost double on education than it does on the military.
Source: here
Looking at this graph, one might wonder why we aren’t getting more for our money when it comes to education.
Authoritarianism
7. Berlin blocks complete takeover of satellite startup by Chinese firm
Andreas Rinke, Reuters, September 13, 2023
The German government on Wednesday forbid the complete takeover of satellite startup KLEO Connect by a Chinese firm, two government sources told Reuters.
The cabinet agreed a decision by the economy ministry not to let Shanghai Spacecom Satellite Technology, which already has 53% of the company, acquire the 45% minority stake of German company EightyLeo, according to the sources.
KLEO Connect wants to establish a network of more than 300 small, low earth orbit satellites to be fully operational by 2028 along with the ground infrastructure to provide global communications services - similar to SpaceX with its project Starlink.
COMMENT – Good move by Berlin!
Given how compromised Starlink is to PRC coercion (something Elon Musk openly admits), countries like Taiwan will need to have additional options when it comes to space-based internet connectivity.
8. China’s Language Police
Gina Anne Tam, Foreign Affairs, September 19, 2023
9. Is That a Spy in Your Car?
Nadia Schadlow, The Free Press, September 18, 2023
10. Xi’s Security Obsession Turns Ordinary Citizens into Spy Hunters
Bloomberg, September 17, 2023
11. Beijing orders foreign missions in Hong Kong to submit staff data
Pak Yiu, Nikkei Asia, September 19, 2023
12. Capital Markets with Chinese Characteristics
Sam George, John Pomfret, Matthew Johnson, and Matt Pottinger, FDD, September 14, 2023
Beijing is re-engineering conditions for foreign businesses with a raft of new laws and regulations that seek to bend investors to the ruling party’s priorities and render overseas regulators irrelevant.
The new legislation likens many normal business practices to espionage. In capital markets, Chinese regulators have instructed lawyers writing prospectuses for overseas initial public offerings (IPOs) to water down language on business risk in China. And a new concept for pricing IPOs — “valuation with Chinese characteristics” — aims to privilege firms that align with Beijing’s political priorities.
Taken as a whole — and further informed by an essay by top diplomat Wang Yi — China is executing an integrated program of “lawfare” to control information flows and to force businesses to choose between Chinese and Western legal and regulatory systems that are increasingly incompatible.
COMMENT – Companies and investors need to come to grips with the incompatibility between the legal structures in the United States, Europe and Japan and the legal structure being built by the PRC. Increasingly what is required by the law in the United States is prohibited by the law in the PRC.
Ignoring these developments is not sustainable.
13. China’s plot to take over Taiwan’s islands
Sheng I-che, Taipei Times, September 18, 2023
14. Germany’s Baerbock calls China’s Xi Jinping a dictator
Camille Gijs, Politico, September 16, 2023
‘If Putin were to win this war, what sign would that be for other dictators in the world, like Xi, like the Chinese president?’ the foreign minister said.
German Foreign Minister Annalena Baerbock labeled Chinese President Xi Jinping a dictator on Friday as she stressed the German government’s support for Ukraine.
“We will support Ukraine as long as it takes,” Baerbock told Fox News on Friday, when asked how the government in Berlin saw the end of Russian President Vladimir Putin’s war against Ukraine.
“If Putin were to win this war, what sign would that be for other dictators in the world, like Xi, like the Chinese president? Therefore, Ukraine has to win this war,” Baerbock said in the interview during her trip to the U.S.
COMMENT – From Merriam-Webster definition of “dictator” (noun):
1(a): a person granted absolute emergency power, one appointed by the senate of ancient Rome
(b): one holding complete autocratic control: a person with unlimited governmental power
(c): one ruling in an absolute and often oppressive way
Seems like the term “dictator” fits perfectly to describe the role Xi Jinping holds within the PRC. Needless to say, Beijing objects…
15. China complains to Germany after foreign minister calls Xi a 'dictator'
Reuters, September 18, 2023
China has complained to Germany after its foreign minister labelled President Xi Jinping a "dictator", the Chinese foreign ministry said on Monday, calling the title "absurd" and an "open political provocation".
German Foreign Minister Annalena Baerbock made the remarks in a live interview with Fox News last week when asked about Russia's war on Ukraine.
COMMENT – Reference article #2 above… the PRC MFA is in an impossible position; it is forced to deny something that is obvious to anyone.
16. China’s coming lawfare offensive
Jay Newman, Financial Times, September 15, 2023
17. China’s Former Foreign Minister Qin Gang Ousted After Alleged Affair, Senior Officials Told
Lingling Wei, Wall Street Journal, September 19, 2023
Environmental Harms
18. Indonesia asks China's Geely to help build homegrown EV by 2026
Reuters, September 14, 2023
19. EU-China fight further muddies Brussels ‘Green Deal’ agenda
Alice Hancock, Financial Times, September 19, 2023
Foreign Interference and Coercion
20. China trying to headhunt British nationals in key positions, UK says
Andrew Macaskill and Kylie Maclellan, Reuters, September 14, 2023
21. Paraguay’s Leader Defends Ties with Economic Role Model Taiwan
Maria Elena Vizcaino and Ken Parks, Bloomberg, September 20, 2023
22. China's foreign minister holds talks in Russia after meeting with US national security adviser
Associated Press, September 18, 2023
23. Xi Jinping Is Done with the Established World Order
Michael Schuman, Atlantic, September 9, 2023
24. Does the BRI Increase China’s Influence?
Ethan B. Kapstein and Jacob N. Shapiro, Foreign Policy, September 20, 2023
25. Why the New Cold War Will Split Africa
Brett L. Carter, Foreign Affairs, September 20, 2023
26. The end of Germany’s China illusion
Janka Oertel, ECFR, September 15, 2023
27. America’s Warrior Diplomat, Rahm Emanuel, Takes on China’s Xi Personally
Peter Landers, Wall Street Journal, September 16, 2023
Human Rights and Religious Persecution
28. China sentences Uyghur scholar to life in jail
BBC, September 22, 2023
A prominent Uyghur academic has been reportedly jailed for life by China for "endangering state security".
Rahile Dawut's sentence was confirmed after she appealed against a 2018 conviction, according to the US-based Dui Hua Foundation rights group.
The 57-year-old professor lost her appeal this month.
China has been accused of crimes against humanity against the Uyghur population and other mostly-Muslim ethnic groups in Xinjiang.
Human rights groups believe China has detained more than one million Uyghurs against their will over the past few years in a large network of what the state calls "re-education camps".
It has sentenced hundreds of thousands to prison terms.
"The sentencing of Professor Rahile Dawut is a cruel tragedy, a great loss for the Uyghur people, and for all who treasure academic freedom," said John Kamm, executive director of the Dui Hua Foundation.
He called for her immediate release and safe return to her family.
Her daughter, Akeda Pulati, said that she worried about her mother every day.
"The thought of my innocent mother having to spend her life in prison brings unbearable pain. China, show your mercy and release my innocent mother," she said in a statement released by Dui Hua.
Ms Dawut's secret trial in December 2018 in a Xinjiang court followed her arrest the previous year for "splittism", a crime of endangering state security.
A source in the Chinese government confirmed the sentence of life imprisonment to Dui Hua, the group said.
Ms Dawut is an expert on Uyghur folklore and traditions and had been teaching at Xinjiang University College of Humanities before her arrest.
She founded the Ethnic Minorities Research Centre at the university in 2007 and conducted field work throughout Xinjiang. She had lectured in universities in the US and UK, including Harvard and Cambridge.
Dui Hua said Ms Dawut was among "the long and growing list of Uyghur intellectuals" who have been detained, arrested, and imprisoned since 2016.
The US is among several countries to have accused China of genocide in Xinjiang. The leading human rights groups Amnesty and Human Rights Watch accuse China of crimes against humanity.
COMMENT – I think we can be pretty certain that Secretary Yellen will NOT bring up topics like this in the new E&FWG process.
As the Biden Administration pursues its “reset” with Beijing, I fear that tragedies like this will be ignored for the sake of achieving “progress” with the Chinese Communist Party.
29. Hong Kong squeezes activists in exile by interrogating relatives
Pak Yiu, Nikkei Asia, August 30, 2023
30. The One Million Tibetan Children in China’s Boarding Schools
Gyal Lo, New York Times, September 15, 2023
31. Elon Musk Told Bari Weiss That Twitter Would Cater to China for Tesla’s Sake, Uyghur Genocide Has ‘Two Sides’
Isaac Schorr, Mediate, September 13, 2023
32. China’s 2022 Acquittal Rate Lowest in Two Decades
Dui Hua, September 12, 2023
33. China's Uyghur villages hide their secrets after Xinjiang crackdown
Matthew Walsh, Yahoo! News, September 8, 2023
34. Tesla and EV supply chains raise concerns about forced labor in China
Evan Halper, Washington Post, September 18, 2023
Industrial Policies and Economic Espionage
35. China, Venezuela upgrade ties to 'all-weather strategic partnership,' state media report
Reuters, September 13, 2023
36. Why Europe Will Struggle to ‘De-Risk’ From China
Agathe Demarais, Foreign Policy, September 19, 2023
37. How China Uses Shipping for Surveillance and Control
Elaine Dezenski and David Rader, Foreign Policy, September 20, 2023
Beijing’s global maritime operations double as intelligence-gathering outposts.
Ninety percent of the world’s trade is shipped by sea, bringing finished goods, components, and commodities to markets around the globe. But maritime trade is not only critically important—it’s also fragile, easily disrupted by pandemics, port bottlenecks, or large ships getting stuck in canals. While maritime embargoes during wartime have been a staple of conflicts since the days of the Spanish Armada, today’s warfare won’t require a flotilla to keep essential goods from reaching their destination. Instead, adversaries can paralyze shipping by weaponizing information.
The Chinese government has spent the past three decades trying to gain access and influence in the open seas, strategic shipping lanes, and foreign ports in Asia and around the globe. China owns, co-owns, or operates some 96 foreign ports globally, with its portfolio constantly expanding—most recently in Hamburg, Germany, and the Solomon Islands. Of course, foreign ownership or control of ports and logistics operations is not an intrinsic hazard; companies from the Netherlands, Singapore, and the United Arab Emirates own and operate dozens of overseas ports.
But China’s operations have two additional and problematic aspects. First, China has introduced massive and little-understood information-gathering infrastructure at critical ports worldwide. Second, Chinese laws require that all Chinese companies operating overseas—both private and state-owned—must gather and report intelligence on foreign entities to the Chinese government.
Given Beijing’s increasingly adversarial economic and geopolitical posture toward the West, it is critical that the risks of Chinese infrastructure ownership are fully understood and mitigated. This must begin with understanding exactly what Beijing knows—what data streams it has access to, what information it collects, and what intelligence-gathering is linked to Chinese port operations.
Of the world’s 75 leading container ports outside the Chinese mainland, almost half have at least partial Chinese ownership or operations (with operations more significant, since they allow China to control access to terminals, supplies, dry docks, and storage). More than half of China’s overseas maritime assets sit on major shipping lanes passing through the Indian Ocean (the Port of Hambantota, Sri Lanka), the Red Sea (the Port of Djibouti), the Suez Canal (the Port of Sokhna, Egypt, and the Suez Canal Economic Zone), the Mediterranean Sea (the Port of Haifa, Israel, and Piraeus, Greece), and other waters.
Ranging from small facilities to larger footprints with substantial operational control, this maritime presence opens the door for information-gathering and other strategic activities. China also leads the world in shipping capacity with its vast commercial fleets, including container ships, oil tankers, liquid natural gas transporters, and bulk carriers for coal and grain. The country manufactures more than 90 percent of all shipping containers and 80 percent of the world’s ship-to-shore cranes.
Chinese shipping activities abroad are known to double as outposts for data collection, intelligence-gathering, and surveillance on a massive scale. Many ports around the world use China’s logistical software system, LOGINK, to track a wide range of trade, market, and maritime information, including vessel and cargo status, customs information, billing and payment data, geolocation data, price information, regulatory filings, permits and licenses, passenger manifests, trade information, and booking data.
Chinese-owned ports operate 5G telecommunications towers, and China provides the operating systems for port facility computers. U.S. officials are even investigating China’s shipping cranes as possible spying tools. Beijing’s systematic information-gathering activities could help it pinpoint critical Western trade and supply chain vulnerabilities, as well as track the shipping of military supplies, equipment, and components.
The Chinese navy, already the largest in the world, also benefits from having access to a global web of state-owned ports. Beijing operates only one foreign naval base—in Djibouti—compared to the U.S. Navy’s extensive global network of dedicated ports and joint bases. But Chinese commercial ports routinely host Chinese military vessels and could act as critical resupply points or repair facilities in any conflict. To this end, China is increasingly pursuing civilian-military interoperability in maritime infrastructure and other domains.
38. German investment in China eases in first half after record high
Sarah Marsh, Reuters, September 20, 2023
39. Afghanistan's $6.5bn mine deals with China, others dig up questions
Zia Ur Rehman, Nikkei Asia, September 17, 2023
40. ‘Very high level’: Putin plays up Russia’s economic ties with China
Liu Zhen, South China Morning Post, September 12, 2023
41. Xi's economic policies are leaving many China watchers perplexed and confused
Michelle Caruso-Cabrera, CNBC, September 20, 2023
42. Bankers’ 40% Pay Cuts Show the China Dream Fading in Its Richest Cities
Bloomberg, September 13, 2023
43. EU chamber in China lays out ideas to spur growth, hits at self-reliance push
Wendy Wu, South China Morning Post, September 19, 2023
44. China’s Apple iPhone Ban Appears to Be Retaliation, US Says
Jenny Leonard, Mark Gurman, and Airielle Lowe, Bloomberg, September 13, 2023
45. Malaysia to double palm oil exports to China, dodge EU restrictions
Norman Goh, Nikkei Asia, September 18, 2023
46. Venture Capital and Supply Chain Vulnerabilities
National Counterintelligence and Security Center, 2023
47. Electric Shock: Interpreting China’s Electric Vehicle Export Boom
Ilaria Mazzocco and Gregor Sebastian, CSIS, September 14, 2023
48. How China became addicted to its tobacco monopoly
Jason McLure, Jude Chan, Manyun Zouand, and Christoph Giesen, The Examination, September 13, 2023
49. How will the EU’s investigation into Chinese electric vehicle subsidies work?
János Allenbach-Ammann and Sean Goulding Carroll, EURACTIV, September 14, 2023
50. Virginia opens new trade office in Taiwan
Ben Paviour, VPM, September 19, 2023
51. American Business Confidence in China Slumps to Lowest in Decades
Newley Purnell, Wall Street Journal, September 18, 2023
52. German carmakers in the line of fire of possible EU-China trade war
Patricia Nilsson, Gloria Li, and Sarah White, Financial Times, September 19, 2023
53. Thought the U.S. Office Market Was Bad? Try China
Stella Yifan Xie, Wall Street Journal, September 20, 2023
54. The Yuan and Yen Need the Fed’s Help. They Might Not Get It.
Jacky Wong, Wall Street Journal, September 19, 2023
Cyber & Information Technology
55. U.K. Chancellor Jeremy Hunt defends China’s invitation to AI summit
Steven Overly, Politico, September 19, 2023
Hunt begins a multi-day visit to major U.S. tech companies on Wednesday as the country aims to expand its own artificial intelligence and life sciences industries.
The U.K. will invite China to participate only in limited portions of an artificial intelligence summit planned for later this year amid hesitation from the U.S. and other allies, U.K. Chancellor Jeremy Hunt told POLITICO Tech.
“We’re not going to invite China to every single part of the summit,” Hunt said, as he defended the decision to include Beijing despite widespread concerns about its use of AI technology for surveillance and suppression. He added that British officials intend “to be very open” about practices that “we don’t consider to be acceptable.”
“If you’re trying to create structures that make AI something that overall is a net benefit to humanity, then you can’t just ignore the second-biggest economy in the world,” Hunt said in an interview that will air Wednesday. “That doesn’t mean that you make any kind of compromises with your values but sometimes dialogue can be beneficial.”
COMMENT – This has become a mess for London and demonstrates just how divided the UK Government is about the PRC.
56. China's Huawei says it has reached global patent licensing deal with Xiaomi
Reuters, September 13, 2023
57. Huawei unit ships Chinese-made surveillance chips in fresh comeback sign
Reuters, September 20, 2023
58. China gives nod to ancient myth amid launch of nuclear fusion research centre
Victoria Bela, South China Morning Post, September 19, 2023
59. AUDIO – Huawei's Breakthrough, the Technical, Industrial and Strategic Implications
Jordan Schneider, ChinaTalk, September 13, 2023
60. China may have Unmatched Supercomputer Abilities, Third Exascale Machine Apparently Online
Francisco Pires, Tom’s Hardware, September 17, 2023
61. China Aims to Replicate Human Brain in Bid To Dominate Global AI
Didi Kirsten Tatlow, Newsweek, September 19, 2023
Military and Security Threats
62. Chinese shipbuilding capacity over 200 times greater than US, Navy intelligence says
Michael Lee, Fox News, September 14, 2023
63. Ex-RAF officers face prosecution if they train Chinese pilots
Will Hazell, The Telegraph, September 17, 2023
64. US spy agency ‘hacked Huawei HQ’: China confirms Snowden leak
William Zheng, South China Morning Post, September 20, 2023
65. 'Redfly' hackers infiltrated power supplier's network for 6 months
Bill Toulas, Bleeping Computer, September 12, 2023
66. Taiwan reports record number of military incursions, urges China to stop 'harassment'
Joseph Yeh, Focus Taiwan, September 18, 2023
67. Arms Megadeal Collapsed When China, Russia Links Emerged
Stephen Kalin, Wall Street Journal, September 15, 2023
68. China Has Paused Its Spy Balloon Operations, U.S. Officials Say
Julian E. Barnes, New York Times, September 15, 2023
One Belt, One Road Strategy
69. Africa’s biggest city is nervous about a Chinese-built metro system
Alexander Onukwue, Semafor, September 19, 2023
70. AUDIO – Who gains the most from China’s Belt and Road Initiative?
David Rennie and Alice Su, Drum Tower Podcast, September 19, 2023
COMMENT - The Economist is moving this podcast behind a paywall… very disappointing.
71. Italy Wants to Exit the Belt and Road – But Without Curbing Ties with China
Nicola Casarini, The Diplomat, September 21, 2023
Even after Italy’s BRIexit, the central government, companies, and local authorities will likely continue, and even boost, relations with China across the board.
72. ASEAN to stay priority for China's BRI investment despite slowdown
Amy Chew, Nikkei Asia, September 21, 2023
Despite slowing growth at home, Southeast Asia will remain an investment priority for China and a core target for its Belt and Road Initiative (BRI), as Beijing views the region as geopolitically important to counter U.S. influence, economists say.
Southeast Asia is also an important source of critical minerals, including nickel, for China's green technology and electric vehicle ambitions.
Investment and construction contracts under the BRI to ASEAN countries averaged around $27.9 billion from 2015 to 2019, before falling to $10.8 billion in 2021. Last year, they rebounded 72% to $18.6 billion, according to a July report by Maybank Singapore.
"BRI investments will slow in the next five years," Guonan Ma, a senior fellow at the Asia Society Policy Institute's Center for China Analysis, told Nikkei Asia. However, "Southeast Asia will still be a priority area for China for geopolitical and investment purposes in terms of its green transition. Given this constellation, Southeast Asia will still be a core part of China's BRI projects."
Wu Alfred Muluan, an associate professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore (NUS), said that because China's current ties with the West are "not good," Beijing will focus on Southeast Asia and the Middle East, as the two regions are considered "powerful."
Opinion Pieces
73. AUDIO – A big-picture look at the India-China relationship
Vijay Gokhale, Shivshankar Menon, and Tanvi Madan, Brookings Institution, September 20, 2023
74. I’d be the perfect communist shill
Cindy Yu, The Spectator, August 27, 2022
75. The Case for Urgency Against China
Alex Velez-Green, Heritage Foundation, September 13, 2023
76. World events are not going America’s way
Elbridge Colby, The Spectator, September 18, 2023
77. Shipping industry: risk of war has yet to be fully priced in
Lex, Financial Times, September 14, 2023
78. Keeping Taiwan Online
Jason Hsu and Richard Y.K. Chen, The Wire China, September 17, 2023
79. Why Aren’t the Presidential Candidates Debating China?
Gabriel Scheinmann and David Feith, Wall Street Journal, September 19, 2023
80. We shouldn’t call ‘peak China’ just yet
Martin Wolf, Financial Times, September 19, 2023