DC Aligning For Tougher China Policy? ; Steve Bannon On China; Internet Freedom And The Wuzhen Conference; Bike Share Blowout - Sinocism 11.16.17
Good morning...I had some technical difficulties this morning and so apologize for the tardy newsletter, and the lack of commentary at the top. I will spare you the details other than to say I had to spend about an hour cutting and pasting as an automated service I rely on was down. A version of the planned commentary will be in the Friday weekly newsletter. Please excuse any typos.
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The Essential Eight
1. US Congress Increasingly Sees China As Strategic Competitor
Comment: This is not new but it really does feel like the US is at a tipping point towards a much tougher approach to China. I believe it was coming regardless of the winner of the 2016 presidential election and frankly President Trump has been far softer on China than expected, likely in part because of both the real North Korea crisis and Beijing's skillful manipulation of that issue. I expect the Administration to harden its position soon with the completion of the China strategic review and the eventual, inevitable disappointment with Beijing over North Korea.
For decades, U.S. policy has been to welcome the so-called peaceful rise of China, and I was onboard with that. During that time, the U.S. has both welcomed and enabled China’s rise by ensuring relative stability and order in East Asia and elsewhere, and promoting policies that welcomed China’s integration into the global economic and trading systems. But as ongoing developments in the South and East China Sea indicate, China’s rise isn’t always peaceful. U.S. policy towards China for decades has been based on the good-faith assumption that China would follow the rule of law and respect the sovereignty of other countries, but that just hasn’t happened.
For the sake of our own national security in the long term, I think it’s time for the U.S. to adopt a new policy on China, one that doesn’t shrink from China’s challenges, as Secretary Tillerson said. It’s time to wake up to the mounting risks and to counter China’s aggressive effort to push the U.S. out of East Asia. And it’s time to think about China’s non-market-based approach, particularly in those areas that adversely impact the ability of our military to field the best technology to keep the American people safe. In some ways, what we’re now embarking on has been termed a “Cool War” with China – not quite a Cold War, as we had with the Soviet Union throughout the latter half of the 20th century, but very serious nonetheless.
When a Chinese state-owned enterprise (SOE) gains control of US companies in sensitive industries, the report said, there is “an inherently high risk” it “will use the technology, intelligence and market power it gains in service of the Chinese state to the detriment of US national security”.
Therefore, the commission asserted that Congress should prohibit the acquisition of US assets by Chinese state-owned or state-controlled entities, including sovereign wealth funds.
It also said US government agencies, including the departments of homeland security, commerce and defence need to prepare and regularly update a list of “critical technologies or infrastructure” that would be unavailable to Chinese entities for acquisition or investment.
The 2017 report
That deal — between Goldman Sachs and China’s sovereign wealth fund, the China Investment Corporation — illustrates the deep divisions in Washington over China’s trade and investment practices, as well as the complexities of policing the flow of Chinese money into the United States.
On Wednesday, a week after some Trump administration officials praised the deal as one of many that would help American businesses, a congressional commission recommended that lawmakers consider prohibiting entirely the acquisition of United States assets by Chinese state-owned entities — a move that could stop buyers like C.I.C. from reaching major American deals.
Before delivering the speech, Mr. Trump appeared to be annoyed by criticism of his foreign policy, saying on Twitter that “the failing @nytimes hates the fact that I have developed a great relationship with World leaders like Xi Jinping, President of China.” He added that “these relationships are a good thing, not a bad thing. The U.S. is being respected again. Watch Trade!”
2. Still No Apparent Progress On North Korea
Comment: Nothing more on the Song Tao visit, either Xi did not agree to what Trump thinks he did or China's Ministry of Foreign Affairs is out of the loop (not as unlikely as some might think...)
The plan has been rejected by Washington for a number of reasons, experts said: partly because it would undermine South Korea’s defenses at a time when the threat is higher than ever, and potentially spook a key ally, partly because a similar idea was tried in the early 1990s and failed, and partly because it implies some kind of moral equivalence between the actions of the United States and those of North Korea.
The proposal also lets China off the hook, and plays into its attempts to portray the issue as solely a problem between headstrong governments in Washington and Pyongyang. Experts say the risks of backtracking are also asymmetrical: the United States might cancel its annual military exercises, but if North Korea reneged on its side of the deal in subsequent weeks or months, those exercises would be very hard to reschedule.
Despite concerns over North Korea’s advancing nuclear and missile programs, China remains the country’s largest trading partner and differs with the U.S. over the best way to handle Kim Jong Un’s reclusive regime, the U.S.-China Economic and Security Review Commission said in the report published Wednesday.
"To carry out mutual briefings after the national congress of political parties has been a standard practice for years between the CPC and North Korea's Workers' Party, as well as with political parties of socialist countries. So it's normal," Geng said when asked whether the trip was related to US President Donald Trump's recent trip to China...
"North Korea has received unprecedented pressure and may expect Song's visit to improve relations with China as well as help them get out of trouble, and the two sides may consider resuming the dialogue mechanism on the issue," said Jin Qiangyi, director of Yanbian University's Asia Research Center.
3. Steve Bannon On China As The Root Of Most Problems
Comment: China experts who have interacted with him tell me his China issues descriptions and prescriptions are somewhat incoherent, but his views are important given his influence.
Breitbart News Executive Chairman Stephen K. Bannon gave an address hosted by Citizen Power for China in Tokyo on Tuesday night, in which he talked about China’s aggressive agenda for the 21st Century and the working-class revolt against the elites in democratic societies around the world.
Bannon connected those two phenomena by bluntly stating the elites who seek to “manage the decline” of America and the Western world have personally profited from the rise of China. This alignment of interests led to a third element of the populist uprising: the loss of manufacturing jobs in the heartland, which unleashed a wave of despair that produced rising levels of substance abuse and rising working-class mortality rates.
4. History Of "The Quad" Concept Between The US, Japan, Australia and India
Tanvi Madan, director of The India Project and a fellow in the Project on International Order and Strategy in the Foreign Policy program at the Brookings Institution, has a very useful overview in The Rise, Fall, and Rebirth of the ‘Quad’ - War on the Rocks:
The quadrilateral is not a silver bullet. It is also not an indispensable platform that should exist just for its own sake. But it can develop into a significant one for four countries who want to ensure that a rules-based order will prevail in the Indo-Pacific region rather than a coercion-based one. The grouping can also help alleviate reliability concerns among participants by building trust and further habits of cooperation. This does not — and should not — mean jettisoning other cooperative mechanisms or engagement with other countries, but it can become an important way to share burdens in an Asia that is increasingly in flux.
5. Internet Freedom And The Wuzhen Conference
China will host the Fourth World Internet Conference from Dec. 3 to 5 in Wuzhen, east China's Zhejiang Province, according to Ren Xianliang, deputy director of the Cyberspace Administration of China
China was the year’s worst abuser of internet freedom for the third year running in 2017, according to an annual report from U.S.-based freedom-of-speech watchdog Freedom House.
As the ruling Chinese Communist Party held its 19th Party Congress, enshrining the "new era" ideology of President Xi Jinping into its founding document, the government began to write many of its censorship strategies into law, the group said in its annual report on China.
An official response to the Freedom House Report--China cyber watchdog rejects censorship critics, says internet must be 'orderly' - Reuters:
Ren Xianliang, vice minister of the Cyberspace Administration of China (CAC), said the rapid development of the country’s internet over two decades is proof of its success and that it advocates for the free flow of information...
“We should not just make the internet fully free, it also needs to be orderly... The United States and Europe also need to deal with these fake news and rumors” Ren told journalists without elaborating....
6. New Report China's Exploitation Of Software Vulnerabilities
Not really a surprise given how other intelligence agencies exploit these flaws, but seems a bit disconnected from the official discourse on cyber-governance.
Earlier research based on the last two years of vulnerability reporting illustrated that China’s National Vulnerability Database (CNNVD) was generally more aggressive in capturing up-to-date information for software vulnerabilities than its U.S. counterpart (NVD). In this research we examine exceptions to this general rule and discover a broader role for the Ministry of State Security (MSS) in vulnerability reporting than was previously known.
CNNVD is essentially a shell for the MSS; it has a website but appears to be separate from the MSS in name only.
We have identified at least two examples of vulnerabilities with CNNVD publication delays that we believe were likely influenced by the MSS.
Even though CNNVD beats NVD to publication 43 percent of the time, for vulnerabilities exploited by malware linked to Chinese APT groups, CNNVD was first to publish for only three percent of those.
7. Bike Share Bubble May Be Bursting
Much of the cash from the deposits is unaccounted for, and tens of thousands of used bikes are not much of an asset.
Bluegogo, once valued at US$140 million after raising US$58 million and expanding to San Francisco and Sydney, holds tens or even hundreds of millions of dollars in deposits from its approximate 15 million users, which many now fear cannot be refunded.
The service took a US$99 deposit in the US to begin borrowing the dockless bikes, while China-based users had to cough up around US$15.
It’s been a bad day for bike rental schemes in China. After Bluegogo’s devastating disintegration, the bike rental company that made its fame with “tuhao” gold bicycles Coolqi has its head office surrounded by users (in Chinese) unable to withdraw deposits from their mobile phone app. Coolqi has set up an offline refund office which is guarded by security personnel in Beijing’s Tongzhou District.
A year after its foundation and having raised RMB400 million (US$58 million) in venture funding at a RMB1 billion (US$140 million) valuation, Chinese bike sharing start-up Bluegogo has collapsed, with its founder nowhere to be found and perhaps up to RMB1 billion worth of user deposits unaccounted for.
After months of reports that the Beijing-based start-up was having liquidity problems and unable to repay user deposits, new pictures and reports surfaced today showing an empty Bluegogo office and personal accounts of overdue payment to vendors. Bluegogo’s founder Li Gang has reportedly been in a unspecified foreign country for “some time”, according to local media reports.
BlueGoGo founder writes an apology letter from an undisclosed overseas location-小蓝单车CEO公开信：拜客出行接手 尽快解决所欠工资|小蓝|李刚_新浪科技_新浪网
8. The New York Fed Thinks The RMB Resembles A Floating Currency
Comment: Or maybe the rate fixers have gotten smarter?
China’s currency is looking more like its overseas peers nowadays, although its fluctuations in daily trading sessions continue to be "unusually low," according to an analysis conducted by Federal Reserve Bank of New York staff.
The official morning "fix" for the yuan, which sets the mid-point for its permitted fluctuations that day, has become "quite responsive to market forces," John Clark at the New York Fed wrote in a paper posted on the bank’s website. It now largely passes through movements in the dollar-yuan exchange rate over the previous day, the study concluded from a statistical analysis.
Business, Economy, Finance And Trade
China banking on home-grown system to keep financial crises at bay | South China Morning Post The “macro prudential assessment” (MPA) system is the result of Beijing’s efforts to learn from the 2008 global financial crisis after conventional monetary policy frameworks failed to prevent it. Speaking at the annual Caixin conference on Thursday, 47-year-old Yin Yong, who holds a Master of Public Administration from Harvard University, said the reason traditional regulatory systems failed was because they were “limited and fragmented”.
China central bank adviser expects less forceful deleveraging in 2018 - Reuters “Currently, our financing deleveraging has achieved obvious results. Next year, we will continue to deleverage, but the deleveraging will not be as forceful as this year,” central bank adviser Sheng Songcheng said at a finance forum in Beijing. “I expect M2 growth to pick up somewhat next year. It cannot be as low as this year,” Sheng said. // Comment: Is he on message, or speaking out of school, as this does not jibe with official statements so far, even if it does jibe with reality?
Military Drills Help China’s Best Bank Toughen Up Its Staff - Bloomberg The boot camp ethos would seem laughably bizarre if it weren’t for this: Bank of Taizhou is being called China’s most profitable lender and has delivered industry-beating loan margins since at least 2013. The little-known bank is achieving these results by employing a lending model from Germany to scrutinize its borrowers, the thousands of entrepreneurial industries ranging from small equipment makers to plastic molding companies in the southeastern coastal province of Zhejiang.
New Rules Released on Policy Banks to Enhance Risk Control - Caixin Global The special rules for supervision and management measures apply to the country’s three giant policy lenders – the China Development Bank (CDB), the Export-Import Bank of China (EximBank) and the Agricultural Development Bank of China (ADB) – according to Zhou Minyuan, head of the China Banking Regulatory Commission's policy banks supervision department.
Few banks seen queuing for China's red carpet invite - Reuters In theory, foreign banks will be allowed to take larger stakes in their Chinese commercial peers - currently capped at 20 percent - while investment banks will be able to take control of their securities joint ventures. In practice, a combination of well-entrenched local companies and an opaque regulatory regime means global banks will move only very cautiously to exploit the new rules, bankers and lawyers said. // Comment: Was this change originally agreed to as part of the negotiations for the US-China Bilateral Investment Treaty during the Obama administration?
Why China Bond Selloff Isn't Luring Back the Biggest Holder - Bloomberg Banks are facing a rapid slowdown in savings, thereby limiting the firepower they have to use, partly due to a crackdown on wealth management products. At the same time, they are being encouraged to shift more of their funds into loans in order to maintain a steady economic expansion.
Property Tax Touted as Cure for Market’s Ills - Caixin Global Huang Qifan, a vice chairman of the NPC’s Financial and Economic Affairs Committee, said at the Caixin summit: “Generally speaking, this is an important reform arrangement for a healthy and sustainable housing market. You won’t have to wait for 10 years or 20 years. The government will start levy the tax in the next few years.” // Comment: Huang Qifan is 65, once rumored for a big job in Beijing, did not make the 19th Central Committee, career looks over. Given his time in Chongqing he should consider himself lucky if he can retire safely.
China's Outbound Investment Plunges as Irrational Deals Curbed - Bloomberg China’s non-financial outbound investment slumped to $86.3 billion in January to October, plunging 41 percent from a year earlier, as projects in some industries dried up.
China's `Hard Bones' Reform-Drive Seen Leaving Expansion Intact - Bloomberg Economists surveyed by Bloomberg estimate real gross domestic product growth of 6.4 percent next year, down from a projected 6.8 percent this year. Just how much debt-slashing goes on next year matters far beyond China, according to Goldman Sachs analysts led by chief Asia economist Andrew Tilton.
Actress Zhao Wei and husband face class action from hundreds of investors after China market ban | South China Morning Post Last week, the CSRC barred Zhao, and her husband Huang Youlong, as well as the owner of Zhejiang Sunriver Culture, the target company in the takeover deal, from China’s securities markets for five years, for “seriously misleading the market”, according to a filing by Sunriver to the Shanghai Stock Exchange.
As U.S. Debates Ending Electric Car Tax Credit, China Aims to Expand Sales - The New York Times The politics in Washington have not explicitly pushed carmakers to prioritize China. But the dueling approaches have added to a growing consensus among auto executives — even in the United States, where General Motors and Ford are planning to build more electric vehicles — that China will lead the world in the fast-growing sector.
China Reforms Held Back by Fear of Instability, PBOC Researcher Says - Caixin Global Xu Zhong, director general of the research bureau of the People’s Bank of China, called on policymakers to step out of their comfort zone and confront the challenges. Xu warned that an excessive focus on stability will cause hesitation in pushing ahead with reforms and delays — a situation that could eventually lead to a “big crisis.”
Earnings at Some U.S.-Listed Chinese Microlenders Taper - Caixin Global The Chinese government has been roping in the booming sector, and analysts say that has in part slowed the growth and profitability of microlenders in the country. Investor enthusiasm for U.S.-listed Chinese microlenders has recently fizzled somewhat too, with the latest listing of Ppdai in New York pricing its shares below the indicative price range rising a mere 10% in its debut.
More SOEs to be included in reform plan - People's Daily Online China has included another 31 State-owned enterprises (SOEs) in a pilot mixed-ownership reform scheme, an official with the country's top economic planner said Wednesday. The third round of the mixed-ownership reform program will involve both centrally and locally administered SOEs, according to Meng Wei, spokesperson for the National Development and Reform Commission.
Politics, Law And Ideology
Senior China minister says some officials practice sorcery - Reuters Some senior officials in leadership positions had “fallen morally”, their beliefs straying from the correct path, wrote Chen Xi, the recently appointed head of the party’s powerful Organisation Department that oversees personnel decisions. // 陈希：培养选拔干部必须突出政治标准 -- Chen's article lays out the criteria to use in choosing cadres for promotion; proper political stance is key. Chen, a Politburo member, is also the head of the Central Party School. Normally that job goes to the standing committee member who is the first secretary of the central secretariat. That person is Wang Huning. So why did Chen get the Party School job? One version says Wang did not want it, and not taking it may allow him to keep is role as head of the Central Policy Research Office. Another is that having the head of the Organization department also oversee the key training school for officials makes a lot of sense given the more intense focus on correct political views
深入理解我国社会主要矛盾转化的重大意义--理论-人民网 社会主要矛盾转化是制定党和国家大政方针、长远战略的重要依据 // Comment: Deputy Head of The Central Party School Li Junru in the Thursday People's Daily on the significance of the change in the principal contradiction
Seeking a Panacea: the Party-State’s Plans for Artificial Intelligence (Part 2) | ccpwatch At present, China is building a 21st-century Panopticon beyond anything that Bentham could have imagined.
Foreign and Military Affairs
On Thursday morning, the president sent another tweet saying, “You’re welcome. go out and give a big Thank You to President Xi Jinping of China who made your release possible.”
Xi’s Globalist Vision Encounters Suspicion in His Own Backyard - Bloomberg Over five days in Vietnam and Laos, Xi played two seemingly disparate roles: defender of global commerce and torchbearer for international communism. While the trip presented China as an alternative to a more inward-looking U.S., it also showed the region’s ambivalence to embrace Beijing’s worldview.
开启中国与世界共创美好未来的新征程--观点--人民网 Long 11.16 front page People's Daily piece by 国纪平 "Guoji Ping" on Xi's diplomacy post 19th Party Congress, starting with his Asia trip
China not to change determination to deepen strategic cooperation with Saudi Arabia -- Xi - Xinhua Xi made the remarks in a phone conversation with Saudi King Salman bin Abdulaziz Al Saud
十九大精神进军营:苦练打赢本领 锤炼胜战精兵--军事--人民网 "The Spirit of the 19th Party Congress Enter The Barracks"-- People's Daily on PLA study of the 19th
Joint Statement between the Government of the People's Republic of China and the Government of the Republic of the Philippines 13. Both sides note that the situation in the South China Sea has become generally more stable as a result of joint cooperative efforts between China, the Philippines, and other ASEAN Member States. Both sides welcome the implementation of the consensus between President Xi Jinping and President Rodrigo Roa Duterte to establish a Bilateral Consultation Mechanism on the South China Sea as a way to manage and prevent incidents at sea, enhance maritime dialogue and cooperation, and pursue a stable growth of bilateral relations. Both sides agree to strengthen maritime cooperation in areas such as marine environmental protection, disaster risk reduction, including possible cooperation in marine scientific research, subject to further consultations.
China develops a catapult for planes - China Daily The device, known as an electromagnetic launch system, or electromagnetic catapult, was designed by Chinese engineers to assist planes taking off from aircraft carriers. The system has been tested with J-15 carrier-borne fighter jets, according to Rear Admiral Yin Zhuo, director of the People's Liberation Army Navy's expert consultation committee. He said on China Central Television recently that J-15s have made "thousands of takeoffs" using the electromagnetic launch system.
Panama president to make historic visit to China - Global Times Panama President Juan Carlos Varela Rodriguez will visit China and inaugurate his country's embassy in Beijing five months after diplomatic relations were established. The visit, which begins on Thursday, will provide business opportunities for the two countries, experts said on Wednesday.
Will China Scuttle ExxonMobil’s South China Sea Gas Project With Vietnam? | The Diplomat Last week, the prospect of Beijing again threatening Hanoi may have been suppressed after ExxonMobil delayed its launch announcement. Yet should the Blue Whale project move forward, there may come a time when Hanoi is again threatened by Beijing over drilling rights in the disputed South China Sea.
Taiwan authorities should abandon hostile mentality: mainland spokesman - Xinhua Ma Xiaoguang, spokesman for the Taiwan Affairs Office of the State Council, made the remarks when answering a question about a Shanghai-based Taiwan native who was elected delegate to the 19th National Congress of the Communist Party of China (CPC). Lu Li-an, an English literature professor from Fudan University who was born and raised in Taiwan, was deprived of her household status by Taiwan authorities after she attended the CPC National Congress as a CPC member in October.
Tech And Media
Alibaba Reassigns Entertainment Unit Head to Run Strategic Investments - Caixin Global Yu Yongfu, 41, will step down Dec. 1 as chairman and chief executive officer of Alibaba’s Digital Media and Entertainment Group and assume the new position leading Alibaba’s foreign investment activities. Before he became chief of the entertainment business in October 2016, Yu held several senior positions with Alibaba following a career in investing.
LeTV's new Q3 numbers paint grim reality for the company - TechNode LeTV—which has recently changed its name to New Leshi as a symbolic new beginning—did not manage to shake off the numbers that came with its former name. According to the company’s released earnings, LeTV’s revenue in the first three quarters of 2017 amounted to RMB 554 million which is 91.76% less than the same period last year when the company made RMB 6.73 billion. The company had a net loss of 1.15 billion: at the same period last year, their profit was RMB 209 million
Tencent Leads $400M Round In Chinese Robot Maker Ubtech At $4B Valuation – China Money Network Chinese humanoid robot maker Ubtech Robotics is raising a US$400 million series C round led by tech giant Tencent Holdings Ltd. with participation from investors whose identities are unknown at this moment. The Shenzhen-headquartered company has been raising this round at least from six months ago, and the final numbers may still change, according to people familiar with the matter.
Baidu rolls out the Raven H, its first AI smart speaker - Mashable The Raven H is the first product in Baidu's upcoming AI plan, following its acquisition in earlier this year of Beijing-based smart home startup, Raven.
Watch Pharrell Sing an (Awkward) Song In Honor of Chinese E-Commerce - Video - Creativity Online Williams sang with Chinese-Canadian megastar Kris Wu, who appeared on a hit show called "The Rap of China," China's first hip-hop singing contest. Their duet, written by Wu and Williams, is called "Double Eleven Day," which is the official name of Alibaba's shopping event because it takes place on Nov. 11, or 11/11.
Society, Art, Sports, Culture And History
University Professor Suspended for Suggestive Texts - Sixth Tone The online accusations first appeared Tuesday on a social media account that posts information about students in Chengdu, the capital of Sichuan province. The article’s author, a CDUT graduate student, shared screenshots of conversations between Liu, who taught in the School of Marxism, and female students over the last year. // Comment: Marxist lecher; he clearly has not been paying attention in political education class....
Chinese reporter sacked for posing for pictures at scene of fatal accident | South China Morning Post One image, which showed Ling smiling as she held up her media badge and made a V for victory sign in front of burnt-out vehicles, prompted a flurry of criticism from web users. // Comment: 18 dead
Energy, Environment, Science And Health
China lists combustible ice as new mineral variety - Xinhua "China has succeeded in mineral prospecting and trial mining, both underwater and in the ground," Ju Jianhua, head of the mineral reserves department of the Ministry of Land and Resources (MLR), said Thursday at a press conference.
Food And Travel
U.S. wilderness becomes new magnet for Chinese tourists - Xinhua According to the National Travel and Tourism Office (NTTO) at the U.S. Department of Commerce, in 2016 there were 2.97 million arrivals from China, making China the fifth largest source country in international visits to the United States. Of those arrivals, 1.2 million (about 41 percent) visited national parks and/or monuments. The "America Wild: National Parks Adventure" film garnered 1 million views in October on Youku, a Chinese YouTube-like service platform, just four months after its digital debut, Tom Garzilli, chief marketing officer with Brand USA, told Xinhua
Beijing to build rental houses on 1,000 hectares rural land - Xinhua Beijing will allocate 1,000 hectares of collectively-owned rural land for construction of public rental housing in the next five years, local authorities said Thursday. Long-term rental will be encouraged with a single tenancy term no longer than ten years, according to the city's urban planning, land and resources commission and housing and development commission.