Friends,
Happy Lunar New Year and Year of the Dragon!
For everyone celebrating over the next two weeks, I hope you have a great time with family and friends. Travel safe and don’t eat too much!
***
First up is a little bit of commentary on what seems to be a clear picture of things to come.
Over the next 12 months a tidal wave of PRC exports will sweep over Europe, the United States, and Japan in a few critical sectors. This subsidized dumping of excess manufacturing will drive down prices and put manufacturers in each of these countries at considerable disadvantage.
Why is Beijing doing this? Two reasons.
The first is that doubling down on manufacturing output is perhaps the only thing that PRC economic policymakers have in their toolbox to address the serious downturn in the PRC. The Chinese consumer has never been able to consume what their export-heavy economy produces, and with the collapse of the real estate market, the collapse of the Chinese stock market, and massive debts by local governments, the Chinese consumer is spending even less than before. This means these products, goods, and commodities must go somewhere… and that somewhere will be foreign markets.
The second is that Beijing must sabotage any and all efforts by Europe, Japan, and the United States to reinvigorate manufacturing in their own countries and/or successfully shift a sizeable chunk of manufacturing to South, Southeast Asia, and Latin America. The PRC Government knows that if any of those things happen, particularly in electronics manufacturing, clean energy technology, and electric vehicles, the PRC’s future economic plans will be in tatters with no escape from the middle-income trap. Remember point #1, Chinese consumers cannot afford to consume what the Chinese economy produces. So in this zero-sum game, if the G7 countries get the time to implement their own plans, the Chinese Communist Party knows how all of this will end: not well for Beijing.
Hence the CCP’s beggar thy neighbor policies.
Which sectors will see this flood of overcapacity? Three primarily: Solar panels and other green tech components, Electric Vehicles, and Legacy Semiconductors.
The wave is already pounding the shores of the European Union and its levies are breaking. The European solar industry is near collapse as the PRC sends boatloads of panels. On one level, some Europeans welcome this. It allows them to transition to renewables even more cheaply, but it is creating a set of dependencies in the energy sector that Europeans should know better than to fall for.
The impact of these artificially cheap panels and other green tech components will be the destruction of Europe’s own green tech manufacturing industry.
Even easier to see is how the influx of deeply subsidized Electric Vehicles into Europe will do serious harm to one of Germany’s most important industries: automobile-making. Just a few years ago, German automobile executives were dreaming of the success they would have with cheap Russian natural gas and a massive Chinese market to sell their cars to. Now that whole concept has collapsed.
When I was in Switzerland last month, I was stunned by the commercials, billboards, and advertisements for BYD and other Chinese electric vehicles. Unless Brussels can mounts some hefty trade barriers in the next few weeks or months, the damage to European automakers (as well as the political backlash against centrist, neoliberal policies) will be irreversible.
American, Japanese, and Korean automakers won’t escape this fate either. Their home markets are better protected than Europe’s, but Beijing will come to dominate much of the rest of the world.
The tidal wave on the horizon is legacy semiconductors. Over the past few years, Chinese semiconductor manufacturers have been buying semiconductor tools at an enormous rate. Most of the news we see is about how advanced tools and chips are being blocked, but that hides the important story of how Beijing stands to double or triple global production of legacy semiconductors (those that are 14nm and above).
As this enormous capacity to produce older chips comes online, the price will collapse. That may sound great, who doesn’t like something cheaper?
The problem is that the revenue from older chips, ones designed five, ten, or fifteen years ago, makes up the lion’s share of what funds research and development of cutting-edge chips. So just as the United States, Japan, and Europe are trying to reinvigorate their own semiconductor industries, the PRC will flood the electronics industry with their own chips at subsidized prices and destroy the companies who are doing the most advanced development of more advanced semiconductors.
And since the PRC remains the global hub of electronics manufacturing, they can effect this swap in chips domestically and force the rest of the world to accept these changes.
One counter-move by the United States, Europe, and Japan would be to pursue an Anti-dumping/Countervailing Duties (AD/CVD) case, a form of trade remedy. It would involve investigating the harms and imposing duties (tariffs) on goods containing legacy chips produced by Chinese companies. To pursue this, there would need to be significant reform to how AD/CVDs are implemented now. First, this AD/CVD would need to be preemptive, waiting for the trade harms to take place and then conducting a 18-month investigation would mean that semiconductor companies would be bankrupt well before any remedy gets imposed. Second, the U.S., EU and Japan would need to act in concert… something that Washington and Brussels have not been able to do.
I’m not optimistic about our capacity to take action to prevent the worst impacts of the flood of overcapacity that we face.
I think this piece in the Harvard Business Review by Hemant Taneja and Fareed Zakaria does a good job making the case that business leaders and investors must internalize how the massive geopolitical shifts we are experiencing changes the way businesses operate and how capital is allocated. Its titled, Geopolitics Are Changing. Venture Capital Must, Too.
They easily could have titled it: The End of Our Vacation from History.
While its focuses on tech and venture capital, their conclusions range much farther. I’m glad that Harvard Business Review is finally recognizing these changes.
***
I don’t follow soccer (football for everyone outside the United States), but I know who Lionel Messi is (I don’t live in a cave).
This week Messi caused quite a stir as the Party’s apparatus to manufacture outrage kicked into high gear.
If we believe the narrative spreading across social media controlled by the Chinese Communist Party, Inter Miami was playing a preseason exhibition game for a sold-out crowd in Hong Kong on Sunday and Messi refused to make an appearance in the match (or participate in the team handshake with the sanctioned Chief Executive of Hong Kong, John Lee).
Then three days later in Tokyo, after what many Chinese on social media sarcastically called a ‘medical miracle,’ Messi played for the enjoyment of Japanese fans near the end of the game.
Cue the manufactured outrage of nationalists across the PRC…
The match organizer in Hong Kong expressed its deep dishonor for having subjected Chinese citizens to this indignity and refunded 50% of the ticket price to fans who attended the match and missed seeing Messi.
Netizens and nationalists across the PRC expressed their outrage online (… as CCP censors sat idle).
The Hong Kong Government released statements that it had repeatedly requested during the game that Messi take part, but he refused and said that the medical team advised against playing (Messi has stated that he did want to play, but unsurprisingly that detail has not been amplified within the Great Firewall). As an aside, does the Hong Kong government really have so little to do as to be monitoring a preseason exhibition game and timing how long each player plays? As Sergeant Hulka once said: Lighten up, Francis
On Friday, the Chinese City of Hangzhou canceled its planned match featuring the Argentina national team versus Nigeria (Messi is from Argentina and plays for the Argentina national team, but he was playing for a Major League Soccer team the week before). Hangzhou’s Sports Bureau posted to WeChat that they were cancelling the game “in view of the reason everyone knows.”
On Saturday, an exhibition game that was to be held in Beijing in March between Argentina and Ivory Coast was canceled. The Beijing Football Association announced: “Beijing does not plan, for the moment, to organize the match in which Lionel Messi was to participate."
One might be tempted to just see this as a sideshow, but of course Argentina’s new President, Javier Milei has been very critical of the Chinese Communist Party, going so far as to announce in December that Argentina will withdraw from BRICS. Since taking office, Milei softened his direct criticism of the PRC, but at Davos, Milei railed against socialism, and by extension, against Beijing.
I think we should view this manufactured outrage against Messi as an effort to coerce Milei and Argentina.
Reminds me of the Daryl Morey-Houston Rockets-NBA manufactured outrage of October 2019, when Sino-American relations were quite tense over a trade dispute and Beijing and Washington were hammering out the Phase 1 trade deal. As a reminder, that episode of manufactured outrage was over the manager of the Houston Rockets tweeting this logo… on a social media platform that Chinese citizens cannot access due to the CCP’s censorship:
The result: cancelations of NBA games across the PRC, the removal of NBA merchandise from store shelves and demands for apologies… with outrage piling upon outrage at how the Chinese people’s dignity had been injured by the actions of one sports figure.
The whole Messi incident looks just another example of Chinese Communist Party agitprop aimed at boosting Chinese nationalism and hatred of foreigners, just as the attack on Daryl Morey in 2019 was aimed at the same objectives.
Thanks for reading!
Matt
MUST READ
1. Fear and Ambition Propel Xi's Nuclear Acceleration
Chris Buckley, New York Times, February 4, 2024
China’s leader built up a nuclear arsenal, steeling for a growing rivalry with the United States. Now China is exploring how to wield its newfound strength.
Nineteen days after taking power as China’s leader, Xi Jinping convened the generals overseeing the country’s nuclear missiles and issued a blunt demand. China had to be ready for possible confrontation with a formidable adversary, he said, signaling that he wanted a more potent nuclear capability to counter the threat.
Their force, he told the generals, was a “pillar of our status as a great power.” They must, Mr. Xi said, advance “strategic plans for responding under the most complicated and difficult conditions to military intervention by a powerful enemy,” according to an official internal summary of his speech in December 2012 to China’s nuclear and conventional missile arm, then called the Second Artillery Corps, which was verified by The New York Times.
Publicly, Mr. Xi’s remarks on nuclear matters have been sparse and formulaic. But his comments behind closed doors, revealed in the speech, show that anxiety and ambition have driven his transformative buildup of China’s nuclear weapons arsenal in the past decade.
From those early days, Mr. Xi signaled that a robust nuclear force was needed to mark China’s ascent as a great power. He also reflected fears that China’s relatively modest nuclear weaponry could be vulnerable against the United States — the “powerful enemy” — with its ring of Asian allies.
Now, as China’s nuclear options have grown, its military strategists are looking to nuclear weapons as not only a defensive shield, but as a potential sword — to intimidate and subjugate adversaries. Even without firing a nuclear weapon, China could mobilize or brandish its missiles, bombers and submarines to warn other countries against the risks of escalating into brinkmanship.
“A powerful strategic deterrent capability can force the enemy to pull back from rash action, subduing them without going to war,” Chen Jiaqi, a researcher at China’s National Defense University, wrote in a paper in 2021. “Whoever masters more advanced technologies, and develops strategic deterrent weapons that can leave others behind it in the dust, will have a powerful voice in times of peace and hold the initiative in times of war.”
This article draws on Mr. Xi’s internal speeches and dozens of People’s Liberation Army reports and studies, many in technical journals, to trace the motivations of China’s nuclear buildup. Some have been cited in recent studies of China’s nuclear posture; many others have not been brought up before.
Mr. Xi has expanded the country’s atomic arsenal faster than any other Chinese leader, bringing his country closer to the big league of the United States and Russia. He has doubled the size of China’s arsenal to roughly 500 warheads, and at this rate, by 2035, it could have around 1,500 warheads — roughly as many as Washington and Moscow each now deploy, U.S. officials have said.
COMMENT – Ladies and Gentlemen, we have already entered a dangerous new nuclear age. After nearly two decades of dismantling nuclear weapons and countering proliferation after the first cold war, we find ourselves in a far more dangerous environment.
Moscow and Beijing are expanding and modernizing their nuclear forces at an alarming rate and those two Permanent Members of the UN Security Council have abandoned efforts to halt Iranian and North Korean nuclear proliferation (we should view those two once rogue regimes as new allies of the Sino-Russian entente).
The United States can barely muster the political consensus to modernize its own rapidly degrading nuclear deterrent, which forces allies to consider building their own nuclear arsenals.
I fear we are witnessing the slow motion collapse of non-proliferation and the fantasy of Global Zero, as countries respond to a new reality: Beijing, Moscow, Tehran and Pyongyang intend to modernize and expand their nuclear arsenals to coerce their neighbors.
2. Beijing’s Silence is Deafening
Logan Wright, Rhodium Group, February 2, 2024
China’s economic policymaking process appears broken, or at the very least impaired. The recent liquidation of Evergrande and the uncertainty over measures to support the equity market merely add to a growing list of pressing economic problems where Beijing has either punted, or is refusing to announce any actions they are actually taking. The fact that there has been no Third Plenum meeting on economic reform held, or even announced, marks another meaningful change from past practice. This is not normal, for China or for any government struggling with a burgeoning crisis of confidence, at home and abroad.
Two recent events offer insights into the state of China’s economic policymaking at present. This week’s decision by a Hong Kong court to force Evergrande, China’s largest property developer into liquidation, ended some uncertainty about the legal outcome of creditors’ claims but created even more uncertainty about Beijing’s intentions in managing the fallout in China’s property sector. Mainland courts may or may not recognize the Hong Kong court’s instructions to liquidate Evergrande’s onshore assets, including unfinished construction projects in which homes have already been sold. Completing those unfinished houses is supposedly Beijing’s top priority related to the property sector. Presumably it will be easier to complete construction if the corporate entity responsible is intact, rather than embarking upon the painstaking work of distributing those projects to already indebted local governments or other state-owned developers to finish. But it still remains unclear what Beijing wants to do, or who within China’s leadership is coordinating this policy response. Evergrande is unlikely to be only one of the major developers to eventually face liquidation after defaulting on its debt, unless Beijing has a more concrete plan for restructurings.
Second, last week’s saga related to a stabilization fund for the equity market revealed the limits of Beijing’s capacity to credibly communicate with financial markets. After a Monday State Council meeting in which support for the flagging stock market was clearly the major topic, Bloomberg reported on Tuesday some details of a 2 trillion yuan stabilization fund, involving the repatriation of offshore assets held by state-owned firms in order to channel more funding into onshore equities. Amidst initial market euphoria and further speculation concerning the Bloomberg report, the China Securities Regulatory Commission (CSRC) neither confirmed nor denied the story, but issued a statement reaffirming policymakers’ focus on financial market stability, including a pledge to increase “flows of medium and long-term funds” into the market. Then on Thursday, rumors that this plan had been rejected caused a rapid correction in equity markets. The CSRC then released another statement following a work meeting on Thursday and Friday pledging even more support for the equity market, but stopping short of promising a stabilization fund.
Investors were already very skeptical of the stabilization fund, fearing it was yet another case in which promises of policy support would fall empty. The CSRC’s silence strengthened such skepticism—if the Bloomberg report was accurate, why wouldn’t Beijing announce it and boost confidence? When markets were looking for clear messaging, Beijing maintained a deafening silence.
COMMENT – It is worth reading Logan Wright’s analysis in full, shortly after this was published Xi sacked the head of the China Securities Regulatory Commission (CSRC).
If I were to boil down Logan’s analysis to three words, they would be: loss of confidence.
A decade ago, or even five years ago, nearly everyone was confident that PRC Government leaders knew what they were doing with regards to the economy. Everyone assumed they were supremely competent… there was no problem they couldn’t solve and no obstacle they couldn’t overcome.
That is NOT the sense folks have today, it appears that Xi and his cadres simply cannot deal with the problems they face or overcome the obstacles in their path.
3. Inside the Censorship Scandal That Rocked Sci-Fi and Fantasy's Biggest Awards
Adam Morgan, Esquire, February 2, 2024
Last week, the Hugo Awards melted down over unexplained disqualifications. Insiders tell Esquire what really happened—and what it could mean for the future of literary awards.
A thousand miles west of Shanghai, on a vast plain between two mountain ranges teeming with giant pandas, it looks like an alien spacecraft has landed in the fourth-largest city in China.
Designed by Zaha Hadid Architects to resemble a star nebula, this is the 59,000-square-foot Chengdu Science Fiction Museum, constructed at lightspeed over the course of a single year to host the 81st World Science Fiction Convention, also known as WorldCon. For writers and readers of science fiction and fantasy, it's like the National Book Awards, the Academy Awards, and San Diego Comic-Con all rolled into one.
On Saturday, October 21st, 2023, thousands of people gathered here for panels, parties, and the annual Hugo Awards ceremony, which celebrates the best works of science fiction and fantasy published or released during the previous calendar year.
In Hollywood, a Hugo Award for best film or TV series may not carry the same cachet as an Oscar or an Emmy, but in bookstores from New York to Moscow, a bright Hugo Award badge on the cover of a novel can help it stand out. “We usually make a display in the store for the nominees and winners,” says Matthew Berger, co-owner of the Mysterious Galaxy Bookstore in San Diego. In their early days, the Hugo Awards recognized writers who have since become genre legends, like Isaac Asimov, Ursula K. Le Guin, and Frank Herbert; more recently, honorees have included modern masters like George R.R. Martin, Brandon Sanderson, and N.K. Jemisin.
COMMENT – I have to admit, the Chengdu Science Fiction Museum is pretty sick looking.
Unfortunately, Esquire didn’t really get to the bottom of what happened last fall at the Hugo Awards. Readers are left thinking that CCP intervention was not the cause of the authors being made ineligible, but readers don’t get a clear answer about what happened.
Probably worth further investigation.
4. China tells Ukraine to remove its firms from 'sponsors of war' list
Tom Balmforth, Pavel Polityuk and Liz Lee, Reuters, February 1, 2024
China demanded on Thursday that Ukraine immediately remove more than a dozen Chinese companies from a list of firms designated as "international sponsors of war", saying it wanted Kyiv to "eliminate negative impacts".
The remarks came after Reuters reported that China's ambassador in Kyiv had told senior Ukrainian government officials last month that the inclusion of the companies on the list could hurt bilateral ties.
"China firmly opposes the inclusion of Chinese enterprises in the relevant list and demands that Ukraine immediately correct its mistakes and eliminate negative impacts," a Chinese foreign ministry spokesperson told Reuters after the report was published. It did not specify what those impacts may be.
COMMENT – I hope the Ukrainian government officials let the PRC Ambassador know what also “hurts bilateral ties”: providing massive material and propaganda support to Russia for their illegal war to annex Ukraine.
5. In song and dance, Uyghurs forced to celebrate Lunar New Year
Mehriban, RFA, January 30, 2024
The pressure is part of Chinese attempts to assimilate Uyghurs into Han Chinese culture, experts say.
Authorities in Xinjiang are forcing Uyghurs to participate in upcoming Lunar New Year celebrations by learning Chinese dances and playing Chinese songs, state-run media reported, as part of the vast region is still recovering from a 7.1-magnitude earthquake.
The Jan. 23 quake that struck a remote northwestern part of Xinjiang killed at least three people and injured five others, and displaced more than 12,400 people in Uchturpan county in Aksu prefecture, next to Kyrgyzstan. The temblor was felt in Almaty, Kazakhstan, and Bishkek, Kyrgyzstan.
While news about the earthquake in China’s state-run media has been limited, there have been numerous reports about how Uyghurs across Xinjiang are observing the Chinese holiday that starts on Feb. 10, with celebrations lasting up to 16 days.
The mostly Muslim Uyghurs are ethnically and culturally distinct from the Han Chinese, the dominant ethnic group in the country, with their own language, food, culture and customs. Traditionally, Uyghurs have not celebrated the Lunar New Year.
And yet this move is the latest attempt by Beijing to portray the false image that Uyghurs embrace Chinese culture and that they live happily together with the Han Chinese ethnic group that dominates most of the rest of the country, activists and experts say.
“This is China's propaganda,” said Rune Steenberg, an anthropologist who focuses on Xinjiang and Uyghurs and who was in Almaty when the quake occurred. “China is attempting to convey that everyone respects Chinese culture, and that’s just propaganda.”
COMMENT – This what hyper-nationalism does.
6. The West Did Not Invent Decoupling—China Did
Agathe Demarais, Foreign Policy, February 7, 2024
Beijing has long sought to gain a free hand by untangling its economy from the West.
There is a story told among Kremlin watchers: Shortly after Western countries first imposed sanctions on Russia in response to its invasion and annexation of Crimea in 2014, Russian President Vladimir Putin summoned his economic advisors. His question was simple: How was Russia doing in terms of self-sufficiency for food? Not very well, came the reply. The country was dependent on imports to feed its citizens. Putin went pale and ordered that something be done, fearing that sanctions could curb Moscow’s access to food staples.
Fast-forward to Russia’s full-blown invasion of Ukraine in 2022, and Putin no longer had to worry about food. In only eight years, Russia had become almost self-sufficient, producing meat, fish, and even decent-quality cheese.
Russia’s bid for food self-sufficiency long predates the currently fashionable debate over economic decoupling—recently rebranded as de-risking—both of which entail curbing economic reliance on unfriendly states. Contrary to what the political discourse might suggest, Western countries did not invent these policies. As the Russian example demonstrates, countries at odds with Western democracies have long been pursuing a de-risking policy to shield themselves from their potential foes.
Compared to Russia, China has an even longer track record of reducing economic reliance on the West in technology, trade, and finance. If there is an inventor and world leader of decoupling and de-risking, it is by all accounts Beijing. Long before the United States imposed a flurry of controls on high-tech exports to China in recent years, Chinese leaders made technology the first pillar of their de-risking push.
COMMENT – Great quote Agathe: “If there is an inventor and world leader of decoupling and de-risking, it is by all accounts Beijing. Long before the United States imposed a flurry of controls on high-tech exports to China in recent years, Chinese leaders made technology the first pillar of their de-risking push.”
7. VIDEO – Carmakers Implicated in Uyghur Forced Labor
Human Rights Watch, February 1, 2024
COMMENT – Great work by Human Rights Watch uncovering this.
Authoritarianism
8. Xi's playbook for China is different from what U.S. thinks, scholars say
Ken Moriyasu, Nikkei Asia, February 7, 2024
Taiwan, tech and nuclear policies all related to domestic politics.
When Adm. Philip Davidson told Congress in March 2021 that China may take military action against Taiwan "in the next six years," 2027 became known as the "Davidson timeline." The words of the then-leader of the U.S. Indo-Pacific Command were perceived to be based on intelligence and dominated the discussions in Washington.
Last week, U.S. President Joe Biden's pick to be the next Indo-Pacom commander, Adm. Samuel Paparo, told Congress that the 2027 timeline is "nothing other than the 100th anniversary of the People's Liberation Army," and that the U.S. military, in general, always must be ready to respond.
9. “It’s Too Convenient to Say That Xi Jinping Is a Second Mao”
Nick Frisch and Chun Han Wong, ChinaFile, February 1, 2024
Nick Frisch: How important is ideology today? 10 or 15 years ago, Marxism in China was considered a bit passé, almost a joke.
Chun Han Wong: If you mean ideology like Marxist-Leninism, Party members have to be conversant with that, at least superficially. In 2018, on the [200th] anniversary of Karl Marx’s birth, Xi led a propaganda push to study the Communist Manifesto, Das Kapital, those early communist writings. People said, “Xi Jinping is leaning into the hardcore stuff.” He was, it’s true, the first leader in a long time to invest so much public effort in getting people to read such things. But in my experience, talking to people within the system, looking at the reading materials for their mandatory political study sessions, the people themselves are not necessarily ideological. They’re not studying it like academics, not engaging like a graduate student. That is not required. What is required is that people show their willingness to study. What really matters day-to-day is not so much Marx, but Xi Jinping Thought. That is the number one thing for these regular political study sessions that Party members must attend, whether ordinary SOE [state-owned enterprise] Party members or senior Politburo members.
Reading Xi Jinping Thought, there’s nothing essentially Marxist or Leninist about it. A lot of it is just about what makes China a strong country, and the things we must deliver to make China the great nation that we know it is. The student’s ability to regurgitate the mantras is key. Xi’s ideological emphasis is not so much making people good Marxists, it’s making people good cogs in the Leninist machine, showing willingness to participate in these rituals.
COMMENT – Chun Han Wong makes an important distinction. Marxism is an economic ideology that does not match the conditions Beijing faces today and Party cadres aren’t studying Marx in the same way their Soviet counterparts were 60 years ago.
But Leninism is a different story… Leninism is a political ideology (not an economic one) about how to organize a vanguard party, how that party should police itself from the center, how that party must control all aspects of society, and how to prevent splits and fractures.
Chun Han Wong should probably have added that Xi Jinping Thought is an ideology strongly colored by the individual who made Leninism what it became for the Chinese Communist Party: Stalin. Its Stalin’s Short Course on the History of the Bolsheviks which lays out a political ideology of constant revolution and mass organization that made “Leninism” what it became for both Mao and Xi.
Nate Frisch: What kind of legacy does Xi want to leave?
Chun Han Wong: Only he truly knows. I think you can take him at face value when he talks about things like the “China Dream” and the “Two Centenaries” goals [for certain policy achievements by the 100th anniversaries of the Party’s founding in 1921, and the PRC’s founding in 1949]. Often, these slogans are vague and amorphous goals, so you can never really fail, you can always redefine them.
Xi probably wants to be remembered as someone who restored China to its rightful place in the world, whatever that might mean in terms of concrete achievements. The general vibe—and he has already delivered on this part—is a China that gets global attention, a China that is recognized by governments around the world as an important political and economic power, and that is dealt with as such. You could even spin the perceived negatives of “wolf warrior” diplomacy as positives, because if the West is taking China seriously, then you know China is strong, because China is seen as a threat.
There are other issues where the legacy might be more mixed, domestic issues where Xi has set expectations of delivery and hasn’t quite gotten there. Poverty alleviation, anti-corruption—those are as close to being clear victories as he has.
Then there are other things that you can’t dress up despite best efforts, like the Xiong’an economic region [south of Beijing], which hasn’t really taken off. The Belt and Road Initiative is not exactly a failure, but is not the resounding achievement that Xi would have liked. It will persist, but the limits of these projects, the limits of Xi’s ambitions, are becoming apparent. Some things you cannot will into reality.
There is a saying that Mao Zedong achieved jianguo [建国, founding the new Chinese republic], Deng Xiaoping fuguo [富国, enriching China], and Xi has presided over qiangguo [强国, strengthening China]. If we say Xi’s objectives are for China to be economically powerful, militarily powerful, internationally respected, you can argue he’s done much of these three elements, especially the last two.
A major part of legacy is succession. How much more time does Xi want on the job? When will he feel satisfied he did his best? It’s a dynamic problem, it’s not just about what you achieved, it’s about whether you can find someone to carry forward your vision. Xi has seen himself what happens when succession is botched.
Then there is Taiwan. This is one of those things everyone has an opinion on, but only Xi himself can answer. We’ve heard many anecdotes from people who have been in meetings with him, talked to him about Taiwan. He seems to hold this issue more closely and passionately than his recent predecessors. The language he uses creates a sense of urgency. But the realities of the situation are difficult. There’s a reason why Mao Zedong didn’t do it. There’s a reason why Deng Xiaoping didn’t do it.
The gap in relative strength of militaries across the Taiwan strait is big and probably going to grow bigger [in Beijing’s favor]. The sense of identity among people on Taiwan is drifting far from being “Chinese” or identifying with the mainland. This drift is a trend you can’t really reverse without taking military and political control of Taiwan. It’s not something you can change by force of will. Many issues in Taiwan now are seen through the lens of Beijing influence, so the more Xi does, the more it’s perceived negatively. In this respect, I don’t think Xi and the Party are better positioned than before. It’s arguably worse. You could put some of this on Xi himself. Can you resolve that peacefully? It’s hard to see. Is the alternative plausible? If you use force to take Taiwan back, that’s jeopardizing your achievements for 1.4 billion people on the mainland. The conditions for a war of choice undertaken by Xi are, at this moment, hard to foresee. You could end up in a war by accident, the lesser option of seizing Taiwan’s outlying islands [closer to the mainland China coast], or a blockade, to take political control by force.
COMMENT – I tend to agree with one of his last statements: “The gap in relative strength of militaries across the Taiwan strait is big and probably going to grow bigger [in Beijing’s favor]. The sense of identity among people on Taiwan is drifting far from being “Chinese” or identifying with the mainland. This drift is a trend you can’t really reverse without taking military and political control of Taiwan.”
If Xi and his cadres believe that achieving the great rejuvenation of the Chinese nation means annexing Taiwan, then there is little chance that this can be achieved without direct military conflict.
There is one, relatively simple, way to avoid this outcome: PRC leaders could constrain their ambition and stop threatening their neighbor with a war of aggression.
10. Updates to Our Database of Arrests under the Hong Kong National Security Law
ChinaFile, January 9, 2024
11. What Will Newly Increased Party Control Mean for China’s Universities?
Sun Peidong, Daniel A. Bell, Geremie R. Barmé, Michael Szonyi, and David Moser, ChinaFile, February 5, 2024
In January, Radio Free Asia reported that the Chinese Communist Party is “taking a direct role in the running of universities across the country” by merging the presidents’ offices with their Party committees.
Ideological controls on universities have been tightening for more than a decade. In 2013, a leaked Party directive, Document 9, warned against threats to the Party’s rule from “mistaken views and ideas . . . public lectures, seminars, university classrooms, class discussion forums,” and in the media and on the Internet. Last year, the Party’s General Office renewed the warning with a notice ordering legal theorists and educators to “firmly oppose and resist erroneous Western views of ‘constitutional government,’ ‘separation of three powers,’ and ‘independence of the judiciary.’”
This latest move may be even more dramatic: Although all universities have Party branches and committees, the Party has never directly controlled administrative offices.
COMMENT – Given these developments, U.S. and other foreign universities need to re-evaluate their relationships with these institutions.
12. Not quite a revolution for China
Francesco Sisci, Settimana News, February 3, 2024
13. China Meets the U.S. to Discuss Fentanyl, But the Détente Has Limits
David Pierson and Olivia Wang, New York Times, February 2, 2024
Negotiations have resumed on restricting the flow of fentanyl into the United States. But Beijing may prove less cooperative on Iran and North Korea.
China and the United States are back at the negotiating table. Whether they can agree on much is another matter.
In Bangkok, China’s top diplomat last week discussed North Korea and Iran with President Biden’s national security adviser. Days later, in Beijing, officials restarted long-stalled talks on curbing the flow of fentanyl to the United States. And the White House says Mr. Biden plans to speak by phone with China’s leader, Xi Jinping, in the spring.
The developments point to a tentative détente struck by Mr. Biden and Mr. Xi at a summit near San Francisco in November — and both the potential and the limitations of that thaw in relations. Even as the world’s two superpowers are working to manage frictions, the diplomacy has also exposed the chasm at the heart of the tensions: how to define the relationship.
The Biden administration has maintained that the countries are strategic competitors, and that the meetings are crucial to ensuring that the rivalry does not veer into conflict. Chinese officials, however, reject that framing, seeing competition as code for containment. In the meetings, they have pushed a new catchphrase, the “San Francisco Vision,” claiming that Mr. Xi and Mr. Biden agreed at the summit to stabilize relations and put competition aside.
COMMENT – Maybe I’m just skeptical, but why does it require shuttle diplomacy to get the most control and surveillance obsessed country in the world to take action at limiting the production and export of materials that kill hundreds of thousands of Americans.
This is the same Chinese Communist Party that can erase all references to protests against its rule (try searching for 6/4 inside the Great Firewall, don’t be surprised when the police call you down to the station for tea… remember this article? China censored this photo of two athletes. Was it for a perceived Tiananmen massacre reference?).
Lin Yuwei and Wu Yanni after the 100-meter hurdles at the Asian Games.
Are we supposed to believe that the Ministry of Public Security lacks the capacity to surveil and prevent this kind of criminal activity inside the PRC and needs the investigative assistance of the DEA to help?!?
If the Chinese Communist Party were committed to stopping this flow of fentanyl (and the financial networks that enable it), they could do so within days, if not hours.
If the flow of fentanyl were something threatening the stability of the PRC’s political system, you could bet damn well that it would stop immediately.
I feel confident in asserting that Beijing is dragging its feet and we are being played for fools.
14. Hong Kong Pushes New Security Law to Root Out ‘Seeds of Unrest’
Vivian Wang and Tiffany May, New York Times, January 30, 2024
Warning of threats posed by spies, the city’s leader expressed confidence that the new law would enjoy public support. “They will love it,” he said.
The Hong Kong government will enact a long-shelved security law to curb foreign influence and expand the definition of offenses like stealing state secrets and treason, officials announced on Tuesday, in a move expected to further silence dissent in the once-freewheeling Chinese territory.
The proposed law would lay out five major areas of offenses: treason, insurrection, theft of state secrets, sabotage and external interference. Some of the definitions would echo mainland Chinese treatments of those offenses.
“Foreign intelligence organizations, the C.I.A. and British intelligence agencies have publicly stated that they are doing a lot of work against China and Hong Kong,” the city’s leader, John Lee, said at a news conference announcing the push. Internally, the city is also still facing “the seed of unrest,” he continued.
The law, he said, “is to protect us from attacks by foreign forces and by foreign countries.”
The proposal, known as Article 23 legislation, has long been a major political flashpoint in Hong Kong, a former British colony that was promised certain freedoms when it returned to Chinese control in 1997. The government first tried to enact it in 2003, but backed down after major protests by residents who worried that it would limit civil liberties. Since then, successive leaders put off attempts to revive the legislation, which is required by Hong Kong’s mini-constitution, wary of triggering further backlash.
COMMENT – Maybe Messi didn’t shake John Lee’s hand because John Lee is a thug and a bully who perceives any challenge to his rule as a foreign plot.
15. US Firms Want Hong Kong to Stop Talking About National Security
Rebecca Choong Wilkins, Bloomberg, January 30, 2024
US companies in Hong Kong want the once-freewheeling city to stop talking about national security even as they face growing geopolitical risks, according to the American Chamber of Commerce in Hong Kong.
Two-thirds of respondents to an annual business sentiment survey said they thought reduced rhetoric from both the US and Hong Kong on the topic of national security would help improve relations, according to the report published Tuesday. Tension in the US-China relationship is seen as the top source of business challenges over the coming 12 months, it said.
COMMENTS – U.S. companies in Hong Kong are living in a fantasy. Any rational C-Suite or Board of Directors would have already closed down shop and moved.
16. China Business Climate Survey Report
AmCham China, February 2024
US-China Relations: Nearly all respondents view US-China relations as crucial to their businesses. Around 30% expect US-China relations to improve in 2024, a notably higher level of optimism than in 2023.
Unequal Treatment: Although it varies by sector, overall, one-third of companies report being treated less favorably by the Chinese authorities than their local competitors. Meanwhile, despite significant improvement compared to last year, a majority (57%) of companies lack confidence that China will further open its markets to foreign firms.
Business Challenges Continue: The primary concerns of American companies continue to be US-China relations, China’s regulatory environment, and rising costs as well as China’s Cybersecurity Law and protecting intellectual property.
COMMENT – Above are three of the eight “Key Findings” from this report by AmCham China. I think they are pretty revealing.
It forced me to look up the definition of “denial” that psychologists use:
“Denial is a defense mechanism in which an individual refuses to recognize or acknowledge objective facts or experiences. It’s an unconscious process that serves to protect the person from discomfort or anxiety.” (from Psychology Today, here)
Environmental Harms
17. China Is Dominating the World’s New Coal Power Plant Pipeline
Bloomberg, February 5, 2024
China was home to the vast majority of the world’s new coal power plants last year as it sought to bolster energy security, even as many other governments push to phase out the fuel.
China accounted for 96% of new coal power construction, 81% of newly announced projects, and 68% of generators coming online, according to data released Tuesday by Global Energy Monitor. Beijing has massively expanded its world-leading coal fleet after a series of power shortages in 2021 and 2022.
COMMENT – According to the U.S. Energy Information Agency, coal-fired power plants (at least in the U.S.) have no mandatory retirement age and the handful of ones still operating in the United States are 45-50 years old and companies plan to retire most of the remaining ones in 2035, which would make them about 60 years old.
Let’s imagine that similar logic and financial incentives will drive decisions on the massive number of coal-fired power plants that the PRC is building today.
It seems reasonable to assume these new plants, an inventory that is vastly larger than the remaining coal-fired power plants in the U.S. and Europe, will be emitting huge qualities of carbon well into the 2080s.
It begs the question: even if Europeans and Americans make vast and costly cuts to their own carbon emissions, will it make any difference?
Screenshot from the interactive map of Coal-fired Power Plants operating, under construction, announced, permitted or pre-permit. Global Energy Monitor.
The screenshot above is admittedly hard to make out, so here is a side-by-side-by-side comparison, at the same scale, of the PRC, the EU, and the United States.
Red stands for “Operating,” Blue stands for “Under Construction,” and Green stands for “Announced,” “Permitted,” or “Pre-Permit.” And the size of the circle represents the amount of energy generation, the larger the circle, the more Gigawatts and the more carbon emissions.
Notice any differences?
Here’s another fascinating data set, an excel spreadsheet from the Global Energy Monitor. It provides a by country breakdown between 2000 and 2023 of *NEW* coal-fired power plants by Megawatts (MW) (here).
Megawatts added between 2000 and 2023
Total World – 1,570,513 MW
United States – 24,805 MW (zero after 2015)
Germany – 13,690 MW (zero after 2021)
United Kingdom – Zero
France – 474 MW
Japan – 30,958 MW
South Korea – 30,348 MW
Taiwan – 10,590 MW
Vietnam – 26,694 MW
Pakistan – 7,638 MW (almost all built by the PRC)
Indonesia – 44,867 MW
India – 193,017 MW
People’s Republic of China – 1,079,982 MW
The PRC alone accounts for over 68% of the entire world’s coal-fired power plants built over the last 24 years. Its annual construction of new coal-fired power plants often doubled or even tripled the total construction of new plants by the United States over the entire 24 years.
The next closest country was India and it constructed one fifth as much megawattage during the same period and since 2016 it has significantly reduced its pace of construction. In the seven years before the Paris Agreement, India constructed 122,911 MW (2010-2016). After Paris, India only constructed 41,248 MW between 2017 and 2023.
Beijing made much more modest reductions after the Paris Agreement. In the seven years between 2010 and 2016, the PRC built 383,552 MW worth of coal-fired power plants. After Paris, they built 265,038 MW from 2017 to 2023, while the rest of the world (including India) only constructed a total of 153,233 MW between 2017 and 2023.
Of that 1,079,982 MW constructed over the past quarter century, which will likely operate for the next 50 years, it is reasonable to assume that the PRC’s stock will emit far more carbon than all the power plants remaining in the rest of the world combined.
Foreign Interference and Coercion
18. China Is Quietly Expanding Its Land Grabs in the Himalayas
Anchal Vohra, Foreign Policy, February 1, 2024
As the world worries about an invasion of Taiwan, Beijing is methodically continuing its seizure of territory in Bhutan.
As the U.S. government has spent ever more of its time in recent years preparing to respond to any potential Chinese invasion of Taiwan, Beijing has been busy slicing away parts of the tiny Himalayan kingdom of Bhutan. Over the last few years, China has built massive infrastructure with hundreds of concrete structures, military posts, and administrative centers in the region of Beyul Khenpajong, some 12,000 feet in the northern Himalayan mountains. The so-called “hidden valley” is deemed sacred by Bhutanese, with the country’s royal family tracing its ancestral heritage to the area.
China’s blatant land grab of Bhutanese territory is just its latest move to control areas of significance in Buddhist culture, exploit a far less resourceful neighbor, and challenge its regional rival India in the Himalayas.
China’s expansion in the Beyul was first reported in Foreign Policy in 2021 by Robert Barnett, an expert on Tibet and the China-Bhutan border. Barnett wrote that while China had announced the settlement of a single village called Gyalaphug in the contested valley back in 2015, tens of miles of road and several key military buildings were in place in the Beyul and the neighboring Menchuma Valley by 2021.
He spoke to Foreign Policy from Paris last week and said that over the last two years, construction in the valley “more than doubled.”
In his 2021 report, Barnett and his team of researchers spotted 66 miles of new roads, a small hydropower plant, a communications base, five military or police outposts, and a major signals tower, among other edifices, in the Beyul and the Menchuma Valley.
China takes more land in Bhutan before expected border deal
John Pollock, Chatham House, December 1, 2023
After images reveal new Chinese building on its territory, Bhutan is closing on a border agreement with China that may alarm India, write John Pollock and Damien Symon.
19. China and India Compete for Leadership of the Global South
Manjari Chatterjee Miller, Council on Foreign Relations, February 1, 2024
20. Is China a winner from the Red Sea attacks?
The Economist, February 1, 2024
Six years ago a film titled “Operation Red Sea” became a huge hit in China. It was touted as the first in Chinese cinemas to focus on the exploits of the modern Chinese navy, which in recent years has overtaken America’s to become the world’s largest. The plot revolves around a naval special-forces operation to rescue a Chinese citizen taken hostage by terrorists in a Yemen-like Red Sea country. “This mission is a message to all terrorists that you will never harm a Chinese citizen,” intones the commanding officer. The Communist Party organised showings to whip up patriotic fervour. Officials said the film showed a China that was “taking on its responsibilities as a great power”.
America is wary of China’s growing global reach. But since mid-November, when Houthi rebels in Yemen began attacking shipping in the Red Sea with missiles and drones, American officials have been prodding China to show some of that great-power spirit by helping to resolve a real-life crisis in the region. During 12 hours of meetings on January 26th and 27th in Bangkok, America’s national security adviser, Jake Sullivan, tried to persuade China’s foreign-affairs chief, Wang Yi, that China’s influence could be used to stop the threat to a major artery of global trade. China, however, views its responsibilities differently. It does not want to flex muscle in the Middle East. China sees the region’s security as a quagmire of America’s making. It is exploiting an opportunity to talk up solidarity with the Arab world.
21. China, Norway call for ‘immediate ceasefire in Gaza’ as foreign ministers meet
Kawala Xie, South China Morning Post, February 6, 2024
22. US Official Urges Papua New Guinea to Reject Chinese Security Deal
Reuters, VOA, February 4, 2024
23. ‘Gutter-level’ talk: China-Philippines discord deepens over Taiwan
A. Anantha Lakshmi and Kathrin Hille, Financial Times, February 1, 2024
24. China Rebukes New Zealand for Flirting with Aukus Membership
Matthew Brockett, Bloomberg, February 1, 2024
25. Taiwan ally Guatemala mulls commercial ties with China
Sofia Menchu, Reuters, February 6, 2024
Human Rights and Religious Persecution
26. Elderly Uyghur women imprisoned in China for decades-old religious ‘crimes’, leaked files reveal
Jessie Lau, The Guardian, February 1, 2024
Hundreds of women sentenced for practices such as studying the Qur’an, dating back as far back as 60s and 70s, analysis of Chinese police files shows.
Hundreds of thousands of Uyghur women, including religious leaders, are estimated to have been arrested and imprisoned in Xinjiang since 2014, with some elderly women detained for practices that took place decades ago, according to an analysis of leaked Chinese police files.
There is growing evidence of the abusive treatment of the Uyghur Muslim population of the north-west Chinese region of Xinjiang, with their traditions and religion seen as evidence of extremism and separatism.
New analysis of leaked police files found more than 400 women – some more than 80 years old – were sentenced by Chinese police for wearing religious clothing and acquiring or spreading religious knowledge. Most were sentenced for studying the Qur’an, said researchers from the US-based Uyghur Human Rights Project, who used analysis of the files to extrapolate that hundreds of thousands of women were likely to have been detained, in total.
In 2017, Patihan Imin, 70, was sentenced to six years in prison. Her “crimes” included studying the Qur’an between April and May 1967, wearing conservative religious dress between 2005 and 2014, and keeping an electronic Qur’an reader at home.
Another woman, Ezizgul Memet, was charged with illegally studying scripture with her mother for three days “in or around” February 1976, when she was just five or six years old. She was detained on 6 July 2017 and sentenced to 10 years in prison.
The police files were initially published in 2022 by several media outlets, including the BBC, but this is the first time the treatment of Uyghur female religious leaders has been analysed by researchers. Previous testimony from women confined in camps in Xinjiang revealed they have allegedly been subjected to forced sterilisation, abortion, sexual assault and marriage by the Chinese government.
Other charges included wearing “illegal religious clothing”, purchasing or keeping religious books at home, attending “illegal religious gatherings”, and even organising a wedding without music – which is officially seen as a sign of religious extremism, the report said.
27. Carmakers Implicated in Uyghur Forced Labor
Human Rights Watch, February 1, 2024
BYD, GM, Tesla, Toyota, VW Risk Using Tainted Aluminum.
Global carmakers, including General Motors, Tesla, BYD, Toyota, and Volkswagen, are failing to minimize the risk of Uyghur forced labor being used in their aluminum supply chains, Human Rights Watch said in a report released today.
The 99-page report, “Asleep at the Wheel: Car Companies’ Complicity in Forced Labor in China,” finds that some carmakers have succumbed to Chinese government pressure to apply weaker human rights and responsible sourcing standards at their Chinese joint ventures than in their global operations, increasing the risk of exposure to forced labor in Xinjiang. Most have done too little to map their aluminum supply chains and identify links to forced labor.
28. Asleep at the Wheel: Car Companies’ Complicity in Forced Labor in China
Human Rights Watch, February 1, 2024
The car industry is fulfilling Chinese President Xi Jinping’s 2014 ambition to transform the country into “an automobile power.” Domestic and foreign manufacturers in China produced and exported more cars than any other country in the world in 2023. Chinese companies also produce and export billions of dollars of parts used by global carmakers, from electric vehicle batteries to alloy wheels. Many of the industry’s biggest brands, including BYD, General Motors, Tesla, Toyota, and Volkswagen, use China as a manufacturing and supplier base, a vital sales market, or both. Cars made in China are increasingly on the streets of Brussels, London, Mexico City, Sydney, and even New York.
But while the Chinese government has welcomed car companies’ investments on its own terms, it has so far shown hostility to the human rights and responsible sourcing policies many carmakers profess to apply across their businesses. Almost a tenth of the world’s aluminum, a key material for car manufacturing, is produced in the Xinjiang Uyghur Autonomous Region (Xinjiang or XUAR), a region in northwestern China, where the Chinese government is conducting a long-running campaign of repression against Uyghurs and other Turkic Muslim communities. Since 2017, Chinese authorities have perpetrated crimes against humanity in Xinjiang, including arbitrary detentions of an estimated one million people at the height of the crackdown, torture, enforced disappearances, mass surveillance, cultural and religious persecution, separation of families, sexual violence, and violations of reproductive rights, as well as subjecting Uyghurs and other Turkic Muslim communities to forced labor inside and outside Xinjiang.
Despite the risk of exposure to forced labor through Xinjiang’s aluminum, some car manufacturers in China have succumbed to government pressure to apply weaker human rights and responsible sourcing standards at their Chinese joint ventures than in their global operations. Most companies have done too little to map their supply chains for aluminum parts and identify and address potential links to Xinjiang. Confronted with an opaque aluminum industry and the threat of Chinese government reprisals for investigating links to Xinjiang, carmakers in many cases remain unaware of the extent of their exposure to forced labor. Consumers should as a result have little confidence that they are purchasing and driving vehicles free from links to abuses in Xinjiang.
Aluminum is used in dozens of automotive parts, from engine blocks and vehicle frames to wheels and battery foils. Carmakers accounted for approximately 18 percent of all aluminum consumed worldwide in 2021, according to the International Aluminum Institute (IAI), an aluminum industry group. Aluminum is particularly important to electric vehicles, with its light weight increasing the distance a car can travel before being recharged. The auto industry’s demand for aluminum was projected to double between 2019 and 2050, according to the IAI, with China, which produced almost 60 percent of global supply in 2022, poised to benefit from the increased demand.
29. China’s Xinjiang aluminium boom exposes global carmakers to forced labour
Edward White, Financial Times, January 31, 2024
Industrial Policies and Economic Espionage
30. China’s overcapacity a challenge that is ‘here to stay’, says US chamber
Joe Leahy, Financial Times, January 31, 2024
31. EU mum as solar industry time bomb ticks
Victor Jack, Politico, February 5, 2024
Brussels is considering aiding local producers, but didn’t announce anything in a Monday statement.
The EU is racing to save its ailing solar producers as the industry warns it has just weeks before it implodes.
Yet you might not have known such a crisis was at hand from the tone the European Commission took on Monday. The EU executive issued a muted and bureaucratic statement on the situation that anxious industry executives parsed for any semblance of a lifeline.
EU solar manufacturers say they face an existential crisis due to Chinese subsidies, which they blame for flooding the EU with dirt-cheap solar panels and creating a supply glut that is causing a wave of bankruptcies. Not everyone agrees, however, that Brussels should challenge China over its solar practices, given that it might ultimately restrict much-needed solar imports. Others wonder whether emergency cash wouldn't be wasted on a sector that may already be terminal.
32. EU mulls emergency aid for collapsing solar producers
Victor Jack and Camille Gijs, Politico, February 3, 2024
33. America Wanted a Homegrown Solar Industry. China Is Building a Lot of It.
Phred Dvorak, Wall Street Journal, February 6, 2024
34. China pledges more help for its ailing property market, as IMF forecasts economy will slow
Elaine Kurtenbach, Associated Press, February 2, 2024
35. China’s New Currency Playbook
Brad W. Setser, Council on Foreign Relations, February 5, 2024
36. China's economy is headed for slower growth, IMF says
Jack Stone Truitt, Nikkei Asia, February 2, 2024
37. China visa-free travel: relaxing entry restrictions adds up, with ‘additional stimulus’ eyed from more inbound trips
Ralph Jennings, South China Morning Post, February 6, 2024
38. U.S. Commerce Department Verifies More Chinese Trade Entities After Policy Shift
Ding Yi and Du Zhihang, Caixin Global, February 1, 2024
39. China's property downturn continues to drag down government spending
Tianlei Huang, PIIE, February 5, 2024
40. How Do You Turn Around a Bear Market? China Has One Answer
Weilun Soon, Wall Street Journal, February 2, 2024
41. China’s Investors Take Shots at State Media Spin as Stocks Fall
Bloomberg, February 2, 2024
42. WuXi Shares Lose $17 Billion on Fear US to Target China Biotech
Charlotte Yang, Bloomberg, February 1, 2024
43. Key China Bond Yield Hits Lowest in Over Two Decades as Easing Hopes Rise
Jiahui Huang and Fabiana Negrin Ochoa, Wall Street Journal, January 30, 2024
44. The Real Evergrande Reckoning Is for China’s Foreign Creditors
Jacky Wong, Wall Street Journal, January 30, 2024
45. Sino-Ocean Said to Tell Creditors Local Debt Payment Comes First
Bloomberg, January 29, 2024
46. Top U.S. Treasury Officials to Visit Beijing for Economic Talks
Alan Rappeport, New York Times, February 5, 2024
The Biden administration is dispatching a high-level delegation of Treasury Department officials to Beijing this week for a round of economic talks as the world’s largest economies look to continue engagement efforts that President Biden and his Chinese counterpart, Xi Jinping, agreed to pursue last year.
A Treasury official, speaking on the condition of anonymity because the trip has not been publicly announced, said that the two days of meetings would include “frank conversations” about China’s use of nonmarket economic practices like government subsidies. The U.S. officials also plan to discuss concerns about industrial overcapacity, which could flood international markets with cheap products.
They will also talk about ways to resolve sovereign debt burdens that have been weighing on low-income countries and preventing some of those countries from investing in sustainable development and climate initiatives. China is one of the world’s largest creditors and has faced international pressure to make concessions that would unlock a global effort to restructure hundreds of billions of dollars of debt owed by poor countries.
More broadly, the two governments will discuss the macroeconomic outlooks for their countries, whose economies are critical to the health of the overall global economy. The United States is proving to be the most resilient economy in the world. China, meanwhile, continues to be haunted by a financial industry that’s struggling to contain enormous amounts of local government debt, a volatile stock market and a crisis in its real estate sector.
COMMENT – We have made a big mistake… the Treasury Department is now the principal diplomatic face for the Sino-American relationship (true Jake Sullivan meets with Wang Yi consistently, but Treasury, not State, has taken over the relationship).
With the Secretary of State consumed with crises in the Middle East and Europe, the Administration has handed the China portfolio to Secretary Yellen and her team.
47. Chinese Investment into BRI Nations Hits Highest Since 2018
Bloomberg, February 4, 2024
48. Russia's Novatek sets up China office to market gas amid sanctions- sources
Chen Aizhu and Vladimir Soldatkin, Reuters, February 6, 2024
49. Shanghai plans faster offshore data transfer approvals for foreign firms
Xie Yu and Engen Tham, Reuters, February 7, 2024
Cyber & Information Technology
50. Apple’s revenue growth clouded by worries about China slowdown
Michael Acton, Financial Times, February 2, 2024
51. India’s Quiet Push to Steal More of China’s iPhone Business
Alex Travelli, New York Times, February 2, 2024
52. China tech is running to stand still in AI race
Robyn Mak, Reuters, February 2, 2024
China's technology giants are keeping up in artificial intelligence, but they may not be able to maintain their position for much longer. That's exactly the outcome that Washington is looking for.
Tencent's co-founder and CEO Pony Ma this week declared his company is "not too behind" first tier Western peers despite the United States' intensifying campaign to cut the People's Republic off from high-tech semiconductors, equipment and software. It underscores the notable progress the world's second-largest economy has made in generative AI.
China now has at least 130 large language models - machine-learning models that can recognise, comprehend and generate content using immense data sets - or 40% of the global total.
Search-engine operator Baidu, opens new tab says the capabilities of its Ernie 4.0 are on par with those of OpenAI's GPT-4, which powers ChatGPT. E-commerce group Alibaba, opens new tab asserts its Tongyi Qianwen 2.0 has "hundreds of billions" of parameters, making it one of the world's most powerful AI models by that metric.
One explanation is foresight. Chinese firms stockpiled AI chips ahead of tightening U.S. restrictions. Boss Robin Li at Baidu, for instance, recently revealed the company had "a substantial reserve of AI chips". Likewise, Tencent has "a pretty good inventory" of Nvidia, opens new tab's H800 chip, which will allow the social media and gaming giant to develop its model for "at least a couple more generations"; the microprocessor is now banned for export to Chinese customers.
Washington's sanctions have also forced Chinese companies to get creative. Workarounds include so-called clustering - or grouping - of more but less-powerful chips from Huawei and peers to train AI models. Some companies are repurposing graphic cards, opens new tab used for PC gaming and other components. On the software side, Chinese coders are coming up with algorithms that let them do more with less computing power.
It's a decent strategy for companies backed into a corner. The problem is that technology is developing rapidly: by the second quarter of this year, for example, Nvidia is due to release its next-generation H200 GPU, making Chinese stockpiles from 2023 - alongside accompanying memory chips and other components and hardware - outdated already.
It hammers home the urgency for China to find domestic alternatives. Huawei's most sophisticated AI processors are comparable to Nvidia's in terms of computing power but lag in performance. Even if Huawei develops a more advanced product, contract chipmakers like Taiwan's TSMC and South Korea's Samsung Electronics may not be allowed to manufacture them, while domestic outfits will lack the necessary equipment and tools to do so. The gap between China and the West's AI fortunes will soon become more visible.
COMMENT – Interesting perspective. Beijing’s tech companies could only stockpile what was available before the export controls tighten… as chip technology advances outside of the PRC, those stockpiles will become far less valuable.
Beijing’s counter move is to flood the market with legacy chips, undermining the revenue streams of foreign semiconductor companies that rely on sales from legacy chips to provide revenue to push the cutting edge of technology forward. Another counter move is to push into open-source chips (more on that below).
For Beijing, if they can’t have cutting edge technology, then they have incentive to make sure technology development grinds to a halt.
53. China bets on open-source chips as US export controls mount
Eduardo Baptista, Reuters, February 4, 2024
54. China on cusp of next-generation chip production despite US curbs
Qianer Liu, Financial Times, February 5, 2024
COMMENT – It’s hard to tell how close PRC semiconductor firms are to a breakthrough.
I tend to think that if Beijing were as close as articles like this suggest, then Chinese firms would be incentivized to keep their mouths shut, lest they invite the kind of tightening that would foil they plans.
On the contrary, the PRC has been telling everyone who will listen how ineffective the export controls are and they have had their surrogates in the United States parrot the same set of talking points: U.S. export controls are ineffective, they harm U.S. companies, and they spur the PRC on to work faster and harder.
One reason for this massive public relations campaign might be that Beijing would really like to get these export controls turned off because they are being effective.
As the old bomber saying goes: when the flak is heaviest, you know you are over the target!
Military and Security Threats
55. China had "persistent" access to U.S. critical infrastructure
Sam Sabin, Axios, February 8, 2024
China-backed hackers have had access to some major U.S. critical infrastructure for "at least five years," according to an intelligence advisory released Wednesday.
Why it matters: The hacking campaign laid out in the report marks a sharp escalation in China's willingness to seize U.S. infrastructure — going beyond the typical effort to steal state secrets.
The advisory provides the fullest picture to-date of how a key China hacking group has gained and maintained access to some U.S. critical infrastructure.
COMMENT – I raised this point last week, could we please use Obama’s EO 13694 please?
This is a bit like the Iranians, how often do we have to let the Chinese Communist Party hit our businesses, critical infrastructure, the Secretary of Commerce’s email account, etc. before we impose costs on their malign behavior?
56. Chinese Hacking Against U.S. Infrastructure Threatens American Lives, Officials Say
Dustin Volz, Wall Street Journal, January 31, 2024
57. Intel leaders warn of potential ‘cyber invasion’ of the U.S. by China
Maggie Miller, Politico, January 31, 2024
58. China's Cyberattackers Target US and Allied Militaries
Didi Kirsten Tatlow, Newsweek, February 5, 2024
59. ‘A race against time’: Taiwan strives to root out China’s spies
Helen Davidson, The Guardian, February 2, 2024
60. China, Russia and Iran to hold navy drills aimed at ‘regional security’, admiral says as Middle East tensions flare
Dewey Sim, South China Morning Post, February 6, 2024
Top Iranian naval official reportedly confirms joint exercise will be held before end of March and says other countries have been invited to take part. The news comes as US-led coalition launches new round of strikes on Iran-backed Houthi rebels in Yemen in response to Red Sea cargo ship attacks.
COMMENT – If we ever think we are going to get Moscow and Beijing’s help in restraining Tehran, we are deluding ourselves. Far more likely that Moscow and Beijing have signaled their willingness to support Iran’s defense and sovereignty from American and Israeli attacks.
61. ‘Nowhere to hide’: Chinese scientists develop game-changing military surveillance device for electronic warfare
Stephen Chen, South China Morning Post, February 6, 2024
62. Justice Dept. disrupts Chinese hack of hundreds of US networks
Maggie Miller and Joseph Gedeon, Politico, January 31, 2024
63. EU Parliament cyber chief to step down amid election hacking fears
Antoaneta Roussi, Politico, February 2, 2024
64. Chinese spies hacked Dutch defence network last year - intelligence agencies
James Pearson and Anthony Deutsch, Reuters, February 6, 2024
Chinese state-backed cyber spies gained access to a Dutch military network last year, Dutch intelligence agencies said on Tuesday, calling it part of a trend of Chinese political espionage against the Netherlands and its allies.
It is the first time the Netherlands has publicly attributed cyber espionage to China, as national security tensions grow between the two countries.
“It is important to ensure that espionage activities of this nature committed by China become public knowledge since this will help to increase international resilience to this type of cyber espionage,” Dutch Defence Minister Kajsa Ollongren said.
One Belt, One Road Strategy
65. China Strengthens Hold on Struggling Neighbor
Matthew Tostevin, Newsweek, February 1, 2024
66. With the US looking elsewhere, Uzbekistan and China quietly cement a regional alliance
James Durso, The Hill, February 5, 2024
Opinion Pieces
67. How existing laws can help the US recover technology stolen by China
Paul Dabbar and Ted Garrish, The Hill, February 1, 2024
68. Watching China in Europe—February 2024
Noah Barkin, GMF, February 1, 2024
69. China’s growth enigma
Joe Leahy, Financial Times, February 5, 2024
70. Evergrande's liquidation will not pay off for foreign investors
Benjamin Fanger, Nikkei Asia, February 6, 2024
71. Meta’s ad rebound may depend too much on China
Financial Times, February 2, 2024
72. China Is Locking Up Foreign Business Executives
Karishma Vaswani, Bloomberg, February 5, 2024
Beijing continues to lock up foreign executives without notice. It’s the wrong signal to send to the international community.
There is an assumption inherent in the world of international business that as long as you don’t break the law, life should be relatively uneventful.
That’s not always the case in China. Australian writer and blogger Yang Hengjun, who was detained during a visit to Guangzhou in 2019, received a suspended death sentence on Monday after years of intense negotiations between Beijing and Canberra that have come to naught. Australian Foreign Minister Penny Wong has called it a harrowing verdict.
COMMENT – What surprises me, is that this issue still seems to surprise business executives around the world. Traveling to the PRC is a bad idea.
73. Xi’s Shadowy 'National Team' Can't Help the Stock Market Rout
Shuli Ren, Bloomberg, February 5, 2024
China’s securities watchdogs are on high alert ahead of the Lunar New Year holiday that begins Friday. Selling pressure has intensified among traders who want to close their books before going on vacation. Retail investors are venting online with vehement passion, using the social media site of the US Embassy in Beijing as an unlikely venue. It was a nod to American exceptionalism: While the Chinese blue-chip CSI 300 Index has tumbled 6.7% this year, the S&P 500 has rallied by 4%.
With only three trading days left before the long break, the question now is whether the government’s elusive “national team” will intervene in a meaningful way.