North Korea Parties; PLA Rejuvenation; Bitcoin Banned?; Facebook And Bridgewater Have China Fever-Sinocism-09.10.17

Happy Sunday. I am experimenting with a weekend summary edition. This is far from a final format and I ran out of time this morning as I am running to get my kids to their first travel soccer game of the season.  Once I start charging for the full newsletter (early October is the current target) I will only produce a weekend issue for free readers. Comments/feedback/tips (Signal +13012460858) welcome. Thanks for reading.
1. A Quiet North Korea Weekend Ahead of More Stress And Sanctions

What Happened: The expected missile launch to mark Founder’s Day did not happen. Kim Jong-un threw a party.

Instead of Launching a Missile, North Korea Throws a Party – The New York Times:

“‘The recent test of the H-bomb is the great victory won by the Korean people at the cost of their blood while tightening their belts in the arduous period,’” Mr. Kim was quoted as saying. “He put forward the tasks for the scientists and technicians in the field of defense science to conduct scientific researches for bolstering up the nuclear deterrence of self-defense in the drive to attain the final goal of completing the state nuclear force.”

What’s Next: More sanctions are coming, US diplomats are busy, and Beijing may be tightening some North Korean screws.

Tillerson is working with China and Russia — very, very quietly – The Washington Post:

The Sino-American strategic dialogue about North Korea has been far more extensive than either country acknowledges. They’ve discussed joint efforts to stabilize the Korean Peninsula, including Chinese actions to secure nuclear weapons if the regime collapses.

The big idea driving Tillerson’s China policy is that the fundamentals of the relationship have changed as China has grown more powerful and assertive. The message to Beijing is that Xi’s actions in defusing the North Korea crisis will shape U.S.-China relations for the next half-century.

Chinese bank ban ‘threatens to tighten chokehold’ on trade with North Korea | South China Morning Post:

South Korea-based news website DailyNK also said four major Chinese state banks – Industrial and Commercial Bank of China (ICBC), Bank of China, China Construction Bank and Agricultural Bank of China – had banned North Koreans living in China from opening up new accounts and ordered existing accounts to be closed.

Reality Intervenes: Sanctions are unlikely to work, even with full implementation. Did President Trump again mock South Korean President Moon, a key US ally and a linchpin of any strategy against North Korea?

International Sanctions Against North Korea Are Being Subverted, U.N. Panel Finds – WSJ:

The draft report, prepared by the U.N.’s panel of experts on North Korea for the Security Council and reviewed by The Wall Street Journal, comes as the U.S. is urging the sanctions be strengthened in response to North Korea’s latest nuclear and missile tests. It reinforces longstanding U.S. complaints about shortfalls in compliance, which lead Washington to act on its own.

North Korea’s Trade Troubles Could Point to a Need for Cash – The New York Times:

“My best guess is that North Korea is receiving trade credits from those providing it with goods and services — that is to say, China,” said Steve Hanke, an economist at Johns Hopkins University who studies China’s financing of rogue regimes like North Korea and Venezuela…

The steady flow of Chinese goods may be a clue to why economic sanctions have had little effect on North Korea. While the sanctions may cut North Korea’s export income, it can still procure goods to keep its urban elites happy with a little help from Beijing.

Sanctions On North Korean Oil Imports: Impacts And Efficacy | Nautilus Institute for Security and Sustainability:

In this essay, Peter Hayes and David von Hippel analyze the impact of Chinese energy sanctions on the DPRK in response to its missile and nuclear testing.  They conclude: “The DPRK could quickly cut its non-military use by about 40% of its annual oil use with a variety of end use reduction and substitution measures; There will be little or no immediate impact on the Korean Peoples’ Army’s (KPA’s) nuclear or missile programs; There will be little or no immediate impact on the KPA’s routine or wartime ability to fight due to energy scarcity, given its short war strategy and likely stockpiling; The DPRK has the ability to substitute coal and electricity for substantial fractions of its refined product use, as well as its heavy fuel oil use (the product of oil refining) for heat production; The immediate primary impacts of responses to oil and oil products cut-offs will be on welfare.”

Fuji TV: Trump calls President Moon a “beggar” during phone call with Japanese PM : The Hankyoreh:

US President Donald Trump allegedly disparaged South Korean President Moon Jae-in as acting “like a beggar” with his calls for dialogue with North Korpea. The remarks were supposedly made in a telephone conversation with Japanese Prime Minister Shinzo Abe, the Japanese network Fuji TV reported on Sept. 7.

One Must Read: Evan Osnos went to Pyongyang to write this week’s New Yorker cover story.

The Risk of Nuclear War with North Korea | The New Yorker:

James Clapper, the former director of National Intelligence, who visited Pyongyang in 2014, told me, “The North Koreans are not going to give up their nuclear weapons. It’s a non-starter.” The American national-security community is now nearly unanimous on this point, but the government cannot say so openly, because that would cede leverage in a future negotiation, and raise the risk that other countries will try to follow North Korea’s example. “Whether it’s pressuring, threatening, negotiating, or trying to leverage China, everybody’s tried all of that—and it’s not working,” Clapper said…

To some in the Trump Administration, the gaps in our knowledge of North Korea represent an argument against deterrence; they are unwilling to assume that Pyongyang will be constrained by the prospect of mutually assured destruction. But, if the alternative is a war with catastrophic costs, then gaps in our knowledge should make a different case. Iraq taught us the cost of going to war against an adversary that we do not fully understand. Before we take a radical step into Asia, we should be sure that we’re not making that mistake again.



2. Xi’s PLA Corruption Crackdown Is About Power AND Building Military Fit For A Global Superpower

Get Smarter: Xi’s purging of the top ranks continues. The PLA has been rotten for years and it was nearly impossible for anyone clean to advance under Hu Jintao and Jiang Zemin.

A wholesale housecleaning is necessary to achieve Xi’s dream of the great rejuvenation but no should epxect purity. The corruption crackdown is definitely not fake but surely also involves some redistribution of interests and assets. Nationalism, fear and ideology can be effective binding agents but sometimes other incentives are needed too.

Go Deeper:

Sweeping change in China’s military points to more firepower for Xi | Reuters:

Taking into account officials who are likely to retire, as many as seven of the 11 spots on the military commission may be vacated, strengthening talk in Chinese political circles that the body may be streamlined.

China’s Central Military Commission finishes inspection – Xinhua:

Inspectors visited almost 1,000 military entities above regimental level, including theater commands, branches of military services, and military educational institutions.

Inspectors surveyed over 50,000 officers and soldiers and handled over 1,400 petitions and tip-offs, according to the commission.

The Propaganda Push: On Sunday major media all ran the third in a series of long Xinhua/PLA Daily pieces extolling Xi’s transformation of the military, “Great Transformation, Stepping Across History”—新华社、解放军报推出长篇综述:《伟大的变革 历史的跨越》中国军网, helpfully summarized in 80 seconds on the Sunday CCTV Evening News—新华社播发长篇通讯:伟大的变革 历史的跨越——以习近平同志为核心的党中央领导和推进强军兴军纪实之三_CCTV



3. Wang Qishan Gets A CCTV Evening News Trifecta Last Week

Why It Matters: Wang is back in the propaganda eye. It may mean nothing about the 19th Party Congress, but it certainly seems to dispel the rumors of serious illness. The September 6 Sinocism discussed Wang’s re-emergence in detail, as well the symbolism of the propaganda love for the Yao Yilin Symposium.

Go Deeper:

Wang Qishan on September 8 CCTV Evening News–王岐山在全国纪检监察系统表彰大会上强调 谦虚谨慎 再接再厉 向党和人民交上优异答卷_CCTV

Top graft-buster appeals for calm among supervisory officials – Xinhua:

Wang Qishan, head of the Communist Party of China (CPC) disciplinary body, has asked supervisory officials to remain calm and clear-headed.

Wang, head of the CPC Central Commission for Discipline Inspection (CCDI), made the remarks at a commendation conference on Friday.

Anti-corruption documentary focuses on use of inspections – Global Times:

China Central Television (CCTV) began airing the five-episode documentary, Sharp Sword of Inspection, on Thursday, with one episode to be shown a day. The first episode has received over 1 million views online since the broadcast.

The documentary was co-produced by the Central Commission for Discipline Inspection (CCDI) and CCTV.

China has released at least three political documentaries ahead of the 19th National Congress of the Communist Party of China (CPC), including Major-Country Diplomacy, Rule of Law in China and Carrying the Reform through to the End.

Grab The Popcorn: You can watch episodes of the “Sharp Sword of Inspection” at 专题片《巡视利剑》_CCTV, the propaganda folks have smartly realized that few people want to watch entire episodes of these political documentaries so each episode has a 4 minute synopsis version.



4. Is China Really Banning Bitcoin And Other Cryptocurrencies?

The Background: A report from Caixin about an order to shutdown virtual exchanges triggered a sharp selloff in Bitcoin and other cryptocurrencies. It is still clear if it really is a total ban as several of the exchanges say they have not yet received such an order.

China Steps Up Curbs on Virtual Currency Trading – Caixin Global:

The central government’s office overseeing internet financial risks has ordered local authorities to shut down virtual exchanges trading digital currencies with the yuan, a source close to the office told Caixin. The order will affect major Bitcoin platforms such as OKCoin, Huobi and BTC China.

“It means platforms facilitating trading between virtual currencies and legal tenders will not be allowed in China,” the source said. But the source added that the crackdown targets unauthorized trading at virtual currency exchanges, rather than Bitcoin and the underlying blockchain technology.

China bitcoin exchanges awaiting clarification on closure report – Reuters:

A spokeswoman for Beijing-based OK Coin said the platform has not received any notification from regulators.

Spokespersons at Beijing-based Huobi and Shanghai-based BTCC said they were still waiting for further official clarification.



5. Bridgewater And Its Founder Have China Fever

Background: The Wall Street Journal reports that Bridgewater is launching an investment fund in China and the New York Times reviews Bridgewater founder Ray Dalio’s new book. The China market is too big to resist, and after a 2015 bearish note leaked even Bridgewater is self-censoring to keep Beijing happy.

Bridgewater to Launch Big Investment Fund in China, Three Decades in the Making – WSJ:

Bridgewater Associates LP is poised to amass a huge investment fund in China, giving its founder, Ray Dalio, the kind of clout that has largely eluded Western financial firms in the world’s second-largest economy…

Since then, Mr. Dalio has repeatedly instructed Bridgewater’s hundreds of investment researchers to be careful about writing outright negative outlooks about China, reminding them that he is sanguine about its long-term prospects. He also urged researchers to be aware of how their writing could be perceived if it were leaked outside the hedge-fund firm.

In the first paragraph of a note to investors in July, Mr. Dalio wrote: “We assess the leadership in China to be skilled.” A note to clients Thursday said China is “squeezing the bubble beautifully” as it adjusts its economy…

China Fever: Ray Dalio thinks Wang Qishan will help unlock the “laws of the universe”.

Bridgewater’s Ray Dalio Spreads His Gospel of ‘Radical Transparency’ – The New York Times:

And, Mr. Dalio writes in his book, one of his close counselors, not only on China, but on big ideas about the wider world, is Wang Qishan, one of the most powerful men in China and the nation’s anti-corruption czar.

Every time Mr. Dalio goes to China, he meets with Mr. Wang. The two men, Mr. Dalio writes, discuss subjects as varied as artificial intelligence and the implications of Julius Caesar’s rise to power. Mr. Dalio, who refers to Mr. Wang as one of his heroes, said that his advice had helped in the planning for Bridgewater’s future.

“Every time I speak with Mr. Wang, I feel I get closer to cracking the unifying code that unlocks the laws of the universe,” Mr. Dalio writes. Such interactions, were “thrilling to me.”



6. Facebook Continues Its Long March To Launch Inside ChiComNet

Background: Mark Zuckerberg has been trying for years to launch in China, with little success. Allowing Facebook into the country would be a propaganda win for Beijing, with little downside. The PRC can say “look, our Internet is open to all who play by our rules”, while a censored, neutered version of a Facebook China service would not be competitive with Wechat and other Chinese services.

Facebook Taps Former Chinese Official to Woo Beijing on Access – WSJ:

Before LinkedIn, Mr. Shuai managed government relations at Chinese internet search giant Baidu Inc. The company is now leading an artificial intelligence laboratory set up by the Chinese government. Before joining Baidu, Mr. Shuai worked as an officer with China’s National Development and Reform Commission, a Chinese government agency with broad economic powers. In that role, Mr. Shuai was “in charge of the approval procedures of many national e-government projects and information security projects,” according to his LinkedIn profile.

Get Smarter: Facebook would be entering an ideological and regulatory minefield with significant possible blowback for its operations globally as no responsible regulator should avoid digging into any Facebook deal with Beijing. Just last week the PRC regulators rolled out more restrictions:

China wants to build a credit score that dings online chat group users for their political views — Quartz:

The rules, announced yesterday (Sept. 7), require internet companies to establish credit rating systems for chat group users, and provide services to them in accordance with their credit scores. Those who violate Chinese laws and regulations will see their credit scores lowered and their cases reported to authorities—exactly what many feared (paywall) would happen when China started pushing for the creation of a “social credit” system two years ago.



7. A Timely New Book On China, Japan and The US In Asia

Background: The Wall Street Journal excerpts Richard McGregor’s excellent new book Asia’s Reckoning: China, Japan, and the Fate of U.S. Power in the Pacific Century. I am working on getting an excerpt for Sinocism as well.

Why China Can’t Stop Hating Japan:

The real obstacle to a reconciliation between China and Japan lies in the way that their toxic wars over history have become caught up in both countries’ domestic politics, exacerbating their natural rivalry as Asia’s two great powers.

Go Deeper: McGregor’s previous book The Party: The Secret World of China’s Communist Rulers, published in 2012, is still a must-read for anyone trying to understand how Beijing works. I hope he updates it as the Party is much changed since Xi’s accession.



8. “China right now is Germany in 1930”

What They Are Saying: Steve Bannon is heading to Hong Kong to speak at the CITIC-owned bank CLSA’s annual conference. Expect him to discuss his views about economic and possibly kinetic war with China.

Next Stop for the Steve Bannon Insurgency: China – The New York Times:

“China right now is Germany in 1930,” Mr. Bannon said. “It’s on the cusp. It could go one way or the other. The younger generation is so patriotic, almost ultranationalistic.”..

For Mr. Bannon, who lived in Shanghai when he ran an online gaming company, the key to understanding China’s motives is to look at its history, specifically the Taiping Rebellion and the Cultural Revolution. “The whole thing is about control,” he said. “They think that by 2050 or 2075, they will be the hegemonic power.”

“We have to reassert ourselves because we have retreated,” he said. “We have to reassert ourselves as the real Asian power: economically, militarily, culturally, politically.”

Two Questions: Does the Ministry of State Security have tapes of Bannon from his Shanghai days, and how much is the PRC-owned bank paying Bannon for his talk?



9. One Geeky Thing

Xi Jinping’s series of important speeches is now keyword searchable in this new database on the People’s Daily Online site—习近平系列重要讲话数据库


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