Liu He will be in DC next week. I have offered to host him for an interview at the new Sinocism HQ but so far there has been response.

I understand that the White House did in fact announce his visit before he had been formally invited. That was likely an organizational screwup but I would not excuse Liu for thinking it is a sign of President Trump's eagerness to find a deal quickly.

Trump just announced on Twitter that his meeting with Kim Jong Un is set for June 12 in Singapore. I think we should expect some meeting between Trump and Xi while he is in the region:

Donald J. Trump@realDonaldTrump

The highly anticipated meeting between Kim Jong Un and myself will take place in Singapore on June 12th. We will both try to make it a very special moment for World Peace!

May 10, 2018

Thanks for reading.

The Essential Eight

1. Liu He's DC Trip A Sisyphean Task

Very high on Liu's agenda, I hear coming directly from Xi himself, is a request that the US lighten the punishment against ZTE. Even if the US accedes to this ask the point has been made once again to Xi and the Party that the US has too much of a technological stranglehold and so the efforts to de-Americanize China's IT stack will only accelerate. Given that there is no credible prospect of turning back from this technological arms race will some of the more hawkish people in the Trump Administration argue now is the time to cripple Huawei as well, in order buy the US as much time as possible?

China Draws Up a Shopping List of American Goods to Avoid Trade War - WSJ $$:

Chinese officials expressed willingness to work with the U.S. to reduce the trade gap during last week’s talks, but they didn’t agree to the U.S. demand that China cut its trade advantage by $200 billion by the end of 2020. Last year the U.S. ran a $375 billion merchandise trade deficit with China and a $337 billion shortfall when counting services...
U.S. negotiators went into the first day of talks with low expectations, thinking they would walk out if the talks didn’t go well, according to people familiar with the matter. But the Chinese negotiators led by Mr. Liu told them that Beijing takes U.S. concerns seriously and recognizes the deficit is a priority for Washington. The goodwill made U.S. officials “feel very good,” one of the people said.
On the second day of talks, the focus was on how to bring down the bilateral deficit. The Chinese side didn’t agree to the targets set by the Americans. The U.S. dismissed a Chinese proposal to lift export controls on U.S. technology goods and services. Still, both parties agreed to keep talking...
China is negotiating under an approaching deadline for additional tariffs as part of a U.S. allegation that China forces U.S. companies to transfer their technology to Chines partners. A comment period on a U.S. proposal to levy tariffs on $50 billion in Chines goods ends May 22, the same date that the U.S. Treasury is scheduled to propose stiff restrictions on Chinese investment in U.S. high technology.

China won't change stance on trade talks with U.S.: China commerce ministry | Reuters:

Commerce ministry spokesman Gao Feng said during a regular briefing the United States and China are currently preparing the next round of discussions. A U.S. trade delegation visited Beijing last week for talks but left without significant progress in resolving an escalating trade dispute between the world’s two largest economies.
“The United States must put away its threatening stick. China’s position has not changed and will not change,” Gao said. He said China opposed protectionism and unilateralism in trade relations.

US-China trade tensions increase after import delays - FT $$:

Industry executives said Chinese officials had not cited bilateral trade friction for any of the delays, which have been caused by more stringent environmental checks and quarantine procedures. Products affected by the new inspections include Lincoln cars — exported from the US by carmaker Ford — pork, apples, logs and pet food.

China set to trim 2018/19 soybean imports as trade row boosts prices | Reuters:

China will cut its soybean imports for the first time in 15 years in 2018/19, the agriculture ministry forecast on Thursday, as a trade spat with the United States pushes pig farmers in the world's top buyer to seek cheaper proteins.
In its first predictions for the upcoming crop year which starts in October, the Ministry of Agriculture and Rural Affairs said soybean imports were expected to dip 0.3 percent to 95.65 million tonnes.
That would be the first decline since 2003/04, according to data from the United States agriculture department.

ZTE’s Operations Shutdown Stymies Major Phone Customers - WSJ $$:

Telstra Corp. said its move to axe ZTE was a “difficult but necessary step given ZTE’s decision to cease major operating activities.” ZTE was the eighth biggest smartphone vendor in Australia, well behind other vendors, according to Canalys.
AT&T Corp., one of ZTE’s biggest U.S. distributors, said in a statement that it is still carrying ZTE phones but is “evaluating the effects of the government order.” Rob Shuter, chief executive of MTN Group Ltd., one of Africa’s biggest telecommunications operators, this week told investors the company was assessing the impact and contingency planning given its “exposure to ZTE in our networks.”

2. Is Water the Achilles' Heel of China's Great Rejuvenation?

中外对话 chinadialogue | china and the environment:

In this report, Charles Parton argues that the scarcity of water in the north of China threatens social and economic stability, before then detailing why a holistic approach to resolving the problem is needed...

Some key stats:

» China has 20% of the world’s population but only 7% of its water.
» 80% of the water is in the south, but 64% of the farmland and >50% of the people are in the north.
» Accepted definitions of water stress/scarcity and acute scarcity are respectively 1,700m3 /1,000 m3 /500m3 per person per year for all uses, direct and indirect.
» Total planned water use in 2015 of 620 billion m3 or about 445 m3 per person per year. (12th FYP statistic) In 2012 there was a 50 billion m3 shortfall. (MWR) Water usage to be held to below 670m3 per person by 2020.
» From 2000-2009 total water reserves dropped 13% (12th 5YP statistic)

Page 1 People's Daily Thursday on the battle against pollution. water pollution of course is a huge problem--书写绿水青山新画卷（在习近平新时代中国特色社会主义思想指引下——新时代新作为新篇章）人民网:

今年，水污染防治加快推进。将全面落实“水十条”重点任务，对水环境问题突出和落实滞后地区开展专项督查。国控水质断面Ⅰ至Ⅲ类水质比例达到68.4%以上，劣Ⅴ类断面比例控制在7.3%以下，化学需氧量、氨氮排放量同比下降2%。

3. CIA Director Nominee Comments on China

Too bad the CIA recently lost so many assets in China, for which Jerry Lee appears to have been charged. Talk about the wrong time to go blind in the upper echelons of the PRC, just when Xi was rising to power...I wonder if Beijing sees some value in the growing public and political concerns about CCP influence overseas, as that distracts at least public and political energy from the much bigger threat, which is Chinese espionage operations?

It is also noteworthy that Senator Rubio is in the vanguard of legislators sounding the alarm about the PRC.

At Haspel Hearing, Rubio Raises Growing Threat Posed by China - Press Releases - U.S. Senator for Florida, Marco Rubio:

China's rise as a global power. CIA has a very important role in monitoring China's rise as the global power. China's efforts to diminish U.S. influence not only in the pacific, but all around the world. China's unfair trade practices, and China's overt and illicit efforts to steal U.S.. technology and knowhow and intellectual property. We, with the support of this committee, are raising our investment on each of these hard targets. We have incredible expertise on China at the agency. It is a very strong team. I am very proud of our analysts. It is a subject that a week doesn't go by that either the president asks for an expert briefing or Secretary Mattis asks for someone to come over and brief him on China issues. We have a good program, but your more general point is that we have to do more and we have to invest more.

4. More Reasons For Hollywood To Self-Censor To Please The Party

China Quarterly Box Office Tops North America for First Time - Caixin Global:

Domestic movie theaters earn $3.14 billion at the box office in the first quarter
China’s take for the period exceeds the North American box office total by 42%
The high revenue of the China market was largely down to a historic February that smashed the worldwide monthly box office record for a single market thanks to popular domestic blockbusters during the weeklong Lunar New Year holiday.
The five top-grossing films during the first quarter were all domestic productions, led by action movie “Operation Red Sea.” In recent years, it has become the norm for only domestic movies to be released during the holiday.

5. Dead Souls

Chinese filmmaker stuns Cannes Film Festival with documentary revealing horrors of Mao’s gulags || South China Morning Post:

Clocking in at more than eight hours, Wang Bing’s latest outing, Dead Souls, is probably one of the longest films to have taken a bow at the Cannes Film Festival, where it premiered on Wednesday, in two parts, with an hour-long intermission in between. The work’s length is, in a way, a reflection of Wang’s own odyssey in completing the documentary.
Based on interviews and footage he gathered over 13 years, Dead Souls reconstructs the pain and suffering of those condemned to “re-education” – a euphemism for hard labour – in a gulag in northwestern China at the start of Mao Zedong’s Anti-Rightist Campaign, in 1957.

‘Dead Souls’ Review: A Momentous History of Chinese Re-Education Camps – Variety:

An eight-hour-and-15-minute documentary is not something you walk into lightly, especially when its subject is the imprisonment and slow-motion murder of human beings. But Wang Bing’s “Dead Souls” is a powerfully sobering and clear-eyed investigation that justifies its length through the gravity and presence of its testimony. Wang, like Claude Lanzmann in “Shoah,” isn’t just making a historical documentary; he’s using oral memoir to forge an artifact of history. “Dead Souls” has its longueurs, and it may not be as staggering a work as “Shoah” or Solzhenitsyn’s “The Gulag Archipelago,” but it does just what a movie that’s this long should: It uses its intimate sprawl to catalyze your view of something — in this case, how the totalitarianism of the 20th century actually worked. (One is tempted to say: quite well.)

Trailer:

6. Boosting Domestic Demand

Beijing Set to Launch New Policies to Boost Domestic Demand - China Banking News:

A meeting of the Chinese politburo convened on 23 April pointed to the need to “integrate the acceleration of structural adjustments and ongoing expansion of internal demand,” as well as maintain stable macro-economic operation.
According to analysts the meeting signals a shift from the previous focus upon infrastructure and real estate investment for driving domestic demand, towards a focus on consumption upgrades and investment in high-end manufacturing.
The local authorities for a number of Chinese provinces, including, Fujian, Guangdong, Yunnan, Hebei and Henan, have all recently unveiled plans for further expanding and upgrading “information consumption” within their respective jurisdictions.

7. Youth Credit System

This sounds like a digital dang'an, an upgrade of a system that has been in place for decades to varying degrees of efficacy depending on the Era. Will Marxist knowledge and adherence to socialist core values be included as criteria?

China develops youth credit system for building high-trust society - Xinhua:

The project is based on a five-year guideline to build a database and develop credit-rating criteria, incentives, and services for young people by 2020. The efforts have been led by the Central Committee of the Communist Youth League of China (CYLC), National Development and Reform Commission (NDRC), and the People's Bank of China.
A campaign to communicate policies on the credit system was launched Thursday. Lectures, contests and other events will be held in 300 universities and colleges in 100 cities across the country, according to officials attending the launch.
"The youth credit system is a comprehensive project," said Chen Hongwan, an NDRC official. "Dossiers will be created to carry good credit records of trustworthy young individuals, who will be favored or receive incentives when applying for student or startup loans or when looking for a job."

2018年“诚信点亮中国”全国巡回活动在北京启动 :

2018年“诚信点亮中国”全国巡回活动启动仪式暨青年诚信建设推进会议10日在北京师范大学举行。国务院研究室原主任、北京师范大学青年诚信建设研究中心主任魏礼群主持启动仪式。
作为青年信用体系建设的重要工作之一，2018年“诚信点亮中国”全国巡回活动旨在提升和增强青年诚信意识和信用理念，在青年群体中形成建设诚信社会的思想共识，引导青年参与诚信建设，助力诚信社会建设。

8. 10 Year Anniversary of Wenchuan Earthquake

Precious but Precarious: Wenchuan’s Second Families - Sixth Tone:

In the months and years after initial rescue and humanitarian aid efforts gave way to reconstruction, the Chinese government made a rare exemption to the one-child policy, allowing and even encouraging parents whose children were killed or left disabled to get pregnant again, even performing reverse sterilizations.
The first children resulting from this new policy were born in 2009, and on April 24, 2018, a local paper reported that Beichuan’s 1,000th post-earthquake baby had been born. There are no available figures on just how many of these children there are throughout the region, but in Piankou, Duan Benju, who works at the local primary school as the dorm monitor for the girls who board there, knows of at least 10 such families in the town — just one of hundreds affected. That Piankou was left structurally intact is a testament to the fact that not all of the quake’s devastation was visible.

After-Shocks of the 2008 Sichuan Earthquake | by Ian Johnson | The New York Review of Books:

Probably the most dubious example of this was in the town of Beichuan, which was one of the centers of the earthquake. Its ruins were not torn down or rebuilt but reinforced and left as an aestheticized freak show for visitors—a town in what scholars have called a “fixed stage of collapse.” One of its special features is the Earthquake Science Experience Center, where movies of earthquakes are shown. Opened in 2016, it is located directly beneath the site of the ruined Beichuan High School—a graveyard of hundreds of children.
Besides entertainment, visitors are encouraged to “work energetically for the country’s prosperity and glory.” The government’s heroism is emphasized, with Communist Party officials praised for working for the public good despite their personal losses.
The state’s dominance is reflected in Beichuan’s memorials. Over the years, locals have tried to put up their own small places of remembrance, but only government memorials are allowed. Most locals refuse to visit them because they get so much tourist traffic. Instead, the bereaved burn incense or put flowers at the site of their loved ones’ demise—but these are quickly cleaned away by the authorities. It is little wonder that a local teenage girl told a team of visiting Chinese and foreign researchers that “the city is rebuilt, we are finally settled and life takes up its course again, and yet people haven’t found peace and serenity.”

Business, Economy, Finance And Trade

China Tells Banks to Go Digital For Inter-Province Bills - Caixin Global New rules issued by the China Banking and Insurance Regulatory Commission (CBIRC) on Wednesday will phase out paper bills of exchange for what’s known as inter-province transactions and force banks to move to an electronic trading system. Lenders are also being required to improve internal controls and monitoring of their bills of exchange business at both branch and head office level to reduce the risk of fraud. The CBIRC said the regulations were being introduced to “standardize the bills of exchange business of banking institutions, effectively guard against risk and improve the quality and efficiency of service providers.”

China's Banking Authority Grabs 3 Trillion Financial Records to Shore up Control - China Banking News Speaking at the inaugural conference of the Alliance for Financial Stability with Information Technology (AFS-IT) in Hong Kong, Dr Fan Wenzhong, director general of CBIRC’s international division, said that the commission is focusing upon the use of information technology to enhance regulatory control. “By the end of 2017 the cumulative collection of banking financial institutions’ accounting records, transaction data, and various types of management data amounted to nearly 3 trillion records, covering 2,755 legal entities in 711 first-tier branches,” said Fan according to a report from the South China Morning Post.

China Is Said to Probe Funds' Risk Controls as Defaults Rise - Bloomberg $$ The China Securities Regulatory Commission’s investigation will include whether individual firms’ funds are shuffling high-risk bonds between them, said the people who asked not to be named as the discussions aren’t public. One suspicion is mutual-fund companies may be motivated to beautify their holdings to avoid a mass withdrawal by investors, the people said.

Disaggregating the Fall in China's Current Account Surplus Since 2007 | Council on Foreign Relations Because imports fell so much relative to its GDP, China’s manufacturing surplus stayed between 6 and 8 percent of its fast rising GDP—and continued to rise relative to the GDP of its trading partners—for most of the post-crisis period. It then dipped in 2016, thanks to the stimulus. (Look at the ECB’s big report [PDF]—Chinese import volumes lagged its GDP growth) China’s manufacturing surplus thus remains one of the largest in the world (measured relative to its GDP), not all that different from Germany’s to be honest. It just is offset by very large commodity imports, and a decent deficit in travel.

China April producer inflation picks up for first time in seven months | Reuters The producer price index (PPI) rose 3.4 percent in April from a year ago, accelerating from a 17-month low of 3.1 percent in March, the National Bureau of Statistics (NBS) said on Thursday. On a month-on-month basis, it declined 0.2 percent...The consumer price index (CPI) rose 1.8 percent from a year earlier, just below expectations and slowing from March’s 2.1 percent. On a month-on-month basis, it dipped 0.2 percent.

China credit spreads near 2-year highs on default worries - FT $$ An LGFV has never defaulted on a publicly traded bond in China’s domestic market, but the trust loan defaults are viewed as a possible harbinger of other credit events as China tightens regulation of local borrowing as part of a campaign against financial risk.

Why Ford’s Big China Wager Is Faltering - WSJ $$ “There is a saying: Distant water cannot slake an immediate thirst,” said Shang Yongwei, a Ford salesman in Dalian, in northern China. “Ford does not understand Chinese consumers, who love new things.” Ford was also the most complained-about auto maker in China last year according to the China Consumers Association, logging 850 complaints for poor customer service and quality problems.

住建部约谈12城负责人定调楼市走向_区域_宏观频道首页_财经网 -Ministry of Housing and Urban-Rural Development calls in officials from 12 cities to emphasize they need to stand firm with their real estate restrictions

Politics, Law And Ideology

NPCSC Solicits Public Comments on Draft Amendment to Criminal Procedure Law (Trial in Absentia Procedures Translated) – NPC Observer Adding new procedures for trials in absentia. According to the explanation, the Communist Party sought to establish such a scheme to facilitate its anti-corruption efforts—in particular to punish those suspects or defendants who have fled the mainland, thus physically beyond its reach. Article 24, which adds a new chapter on procedures for trials in absentia, is translated in full below. The NPCSC Legislative Affairs Commission wrote in the explanation that it will conduct further research on the scope of cases where these procedures may be used, article 24 might thus be subject to substantial revision before the amendment is passed.

Anbang Founder Wu Xiaohui Sentenced to 18 Years - Caixin Global The court confiscated 10.5 billion yuan ($1.65 billion) of Wu’s assets, and said his political rights would be suspended for four years.

Public Shaming of Drug Users in Guangdong: "Drug-Related Crimes in Family" Painted on Houses | What's on Weibo The local authorities in a village in Huilai county, in the east of Guangdong province, organized a remarkable anti-drug campaign earlier this week; a team of Huilai law enforcement was ordered to go out and spray the words “Drug-Related Crimes in Family” (涉毒家庭) on the houses or doors of households where one or members have faced drug-related charges.

Xinjiang bares 11 busted cases of extremist content online - Global Times An article published on the Xinjiang internet illegal information reporting center's public WeChat account on Thursday said the suspects were found spreading information through text, pictures, audio and video online on violence, terrorism and separatism, and rumors, fake news, insults and defamatory statements, before they were punished by Xinjiang local public security authorities.

Foreign and Military Affairs

An Accounting of China's Deployments to the Spratly Islands | Asia Maritime Transparency Initiative Satellite imagery from April 28 reveals the first confirmed deployment of a military aircraft, a Shaanxi Y-8, on China’s base at Subi Reef in the Spratly Islands. The Y-8 was designed as a military transport aircraft, but some variants are used for maritime patrol or signals intelligence. This should be particularly concerning to the Philippines, which has about 100 civilians and a small military garrison on Thitu Island just 12 nautical miles away.

China's Advanced Weapons Systems | U.S.-CHINA Economic and Security Review Commission The report examines five categories of China’s advanced weapons systems (counter-space, unmanned systems, maneuverable reentry vehicles, directed energy and electromagnetic railguns) and artificial intelligence applications for national defense. The report also assesses the implications of China’s advanced weapons programs for the United States and its allies and provides recommendations.

Re-Orienting American Sea Power for the China Challenge- Ryan D. Martinson & Andrew S. Erickson Beijing does not want war. Conflict would jeopardize four decades of progress and risk derailing the “great rejuvenation” of the Chinese nation. Beijing has carefully avoided armed conflict, even with much weaker states. Witness China’s feeble response to Indonesia’s use of force against Chinese fishermen in 2016. Consider China’s restraint in the face of Vietnamese assaults on oil rig HYSY-981 in 2014. China certainly does not want a conflict with the United States. Moreover, great power wars do not ignite because of incidents at sea, especially in the nuclear age. This is one of the key lessons of the Cold War, where U.S. and Soviet forces regularly “scratched paint” on, above, and below the sea. Therefore, America and its allies can and should embrace a higher tolerance for risk.

Malaysia may renegotiate some deals with China- Mahathir | Reuters The 92-year-old told a news conference he supported China’s Belt and Road initiative (BRI) but said Malaysia reserved the right to renegotiate terms of some agreements with Beijing, if necessary.

Cheney on Threats to U.S.: 'I Think the Chinese Long-term Are the Most Serious, Have the Most Capability' | Breitbart “My concern is, I sense that there are several rising at once,” Cheney said. “We say it’s the Russians, or it’s the Chinese. I think the Chinese long-term are the most serious, have the most capability, and have made some phenomenal gains economically, which they’re now converting to better military capability, and so forth.”

辽宁海事局连发警告:11-18日部分海域执行军事任务_网易新闻 Liaoning maritime affairs bureau issue warnings about military activities in the Bohai and Yellow Seas. China's second carrier going out for sea trials?

Hong Kong, Macao

Hong Kong’s tycoons: handing over power in troubled times - FT $$ The first generation of billionaires like Mr Li were trusted advisers to Communist leaders such as Deng Xiaoping as they sought expertise and capital during the “reform and opening up” of China’s economy in the 1980s and 1990s. In today’s far richer, more powerful China, President Xi Jinping has little need to take advice from second-generation Hong Kong tycoons.

Tech And Media

Alibaba Cloud's FY2018 results inspire optimism · TechNode Investment bank and financial services company Morgan Stanely has increased Alibaba Cloud’s (阿里云) valuation from $39 billion to $68 billion. It said it expects the cloud computing company’s revenue to reach $28.5 billion in 2024.

Former Wanda Exec Jack Gao Launches Smart Cinema in China – Variety Jack Gao, the former senior VP at Dalian Wanda and former interim head of Legendary Entertainment, has reemerged as the head of a company that could massively expand the Chinese box office. Gao is set as CEO of Smart Cinema, which will stream new-release movies to hundreds of millions of mobile devices in China within the theatrical window. Revenues will be considered as part of box-office earnings.

Inside Huawei headquarters in Shenzhen, China CNBC gets a PR tour. Did they take burner electronics in with them?

China's Didi apologizes after killing of passenger raises safety fears | Reuters The young woman passenger was killed in Zhengzhou city last week, turning a spotlight on passenger safety as ride-sharing giant Didi Chuxing, which is valued at $50 billion, looks to make a big push outside China’s borders.

Society, Art, Sports, Culture And History

China to Target Religious Activities of Foreign Nationals With Revised Rules - RFA The State Administration of Religious Affairs began consultations this week on rules relating to foreigners who practice their religions on Chinese soil. Existing regulations from 1991 already bar Chinese citizens from attending temporary religious gatherings organized by foreign religious groups, while foreign religious organizations are banned from any venue not previously authorized for religious purposes.

Energy, Environment, Science And Health

Reserve to investigate illegal car race across 'sea of death' - ECNS Authorities at a national reserve in a desert in northwest China's Xinjiang Uygur Autonomous Region have vowed to investigate an unapproved race involving 10 SUVs in the protected zone. A fleet of vehicles and outdoor enthusiasts from Sichuan entered the Lop Nur Wild Camel National Nature Reserve, also called the "sea of death," on April 24 for a four-day and four-night trip.

Education

Ministry of Education Bans the Idolization of China's Top Gaokao Scorers | What's on Weibo Stories of the top achievers of China’s national exams can no longer be propagated by state media; the emphasis should shift to the average, harmonious student.

Liu He's DC Trip A Sisyphean Task; Is Water …

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