Trade talks; NBA's poisoned China chalice

Hi everyone, I am under the weather and so today’s issue is a bit shorter and in a different format than usual.

China is back from the holiday Tuesday and I expect the newsletter should be back to normal as well tomorrow.

PRC Vice Minister Liao Min is in DC leading deputy-level trade talks in advance of Liu He’s arrival for the talks this Thursday and Friday. Today’s White House statement on the upcoming talks said:

The two sides will look to build on the deputy-level talks of the past weeks. Topics of discussion will include forced technology transfer, intellectual property rights, services, non-tariff barriers, agriculture, and enforcement.

Bloomberg reported over the weekend another version of the story that the Chinese are narrowing the scope of the trade talks:

In meetings with U.S. visitors to Beijing in recent weeks, senior Chinese officials have indicated the range of topics they’re willing to discuss has narrowed considerably, according to people familiar with the discussions.

Vice Premier Liu He, who will lead the Chinese contingent in high-level talks that begin Thursday, told visiting dignitaries he would bring an offer to Washington that won’t include commitments on reforming Chinese industrial policy or the government subsidies that have been the target of longstanding U.S. complaints, one of the people said.

Will President Trump accept a lesser deal? His proxies say no, but no one in this town other than Trump has any idea what he will do. There are pressures on both sides that show the logic of an armistice-like deal that includes a standstill on new tariffs, more agricultural purchases, and yet another framework for negotiators to work towards a President Trump-General Secretary Xi meeting, this time at the APEC meeting in Chile November 16-17. Will that happen? I have no idea, and am not really looking forward to all the tweets, leaks, scoops and volatility over the next few days…

Hong Kong is still smoldering with no solution in sight. Last week the local authorities pushed through an anti-mask law using the Emergency Regulations Ordinance. Reuters explains:

Under the Emergency Regulations Ordinance that was tabled in 1922, a relic of the British colonial era, the laws grant the city’s chief executive the power to “make any regulations whatsoever” on “occasions of emergency or public danger”.

The legislation allows “censorship” of publications including the media, arrest, deportation, detention, seizure of property, and authorizes the entry and search of premises. While Friday’s move involved only the mask ban, Lam did not rule out taking further action if the situation continued.

This is how perception if not also the substance of the rule of law ends.

I do not always agree with Jamil Anderlini of the Financial Times but think his depressing column over the weekend is very much on point. In Beijing will have its revenge on Hong Kong he writes that:

The Chinese phrase qiu hou suan zhang [秋后算账] is literally translated as “to balance the books after the autumn harvest”. But in common parlance it means “to take revenge when the time is ripe”. China’s leaders use the aphorism to discuss the problem of Hong Kong…

The conclusion Beijing has drawn from the past four months of rage is the only one possible in an authoritarian — increasingly totalitarian — system: they were far too soft last time around. When the moment is right, they must act ruthlessly to punish Hong Kong.

Just as in China in the aftermath of 1989, Hong Kong’s education system will be overhauled to promote “patriotic” narratives; “unreliable” civil servants and judges will be purged; news outlets will be muzzled; all business figures, including multinational companies, will be expected to display loyalty to the motherland. The internet will probably be censored. Mass arrests are likely. This is a best-case scenario, predicated on the protests ending now — which is unlikely.

Which brings us to the NBA’s descent into the whirlpool of hurt Chinese feelings, global discourse control, separatism and the risks from and to free speech to and from any business with PRC interests.

Daryl Morey, General Manager of the Houston Rockets, the team that brought Yao Ming to the NBA and one that is wildly popular in China, tweeted his support for the Hong Kong protests. Then the gates of commercial hell opened for him, the Rockets and the NBA.

The NBA issued different statements in English here and in Chinese on Weibo, with the Chinese one much heavier on the pandering. Then Joe Tsai, executive Vice-Chairman of Alibaba and owner of the Brooklyn Nets, issued a statement:

As a Governor of one of the 30 NBA teams, and a Chinese having spent a good part of my professional life in China, I need to speak up.

What is the problem with people freely expressing their opinion? This freedom is an inherent American value and the NBA has been very progressive in allowing players and other constituents a platform to speak out on issues.

The problem is, there are certain topics that are third-rail issues in certain countries, societies and communities.

Supporting a separatist movement in a Chinese territory is one of those third-rail issues, not only for the Chinese government, but also for all citizens in China…

I will continue to be an outspoken NBA Governor on issues that are important to China. 

NBA Commissioner Adam Silver addressed the mess in Tokyo earlier today. He is in a very difficult spot and I am sympathetic to his comments, as reported here by Kyodo News:

"There is no doubt, the economic impact is already clear," he said. "There have already been fairly dramatic consequences from that tweet, and I have read some of the media suggesting that we are not supporting Daryl Morey, but in fact we have."

"I think as a values-based organization that I want to make it clear...that Daryl Morey is supported in terms of his ability to exercise his freedom of expression."..

"What I am supporting is his freedom of political expression in this situation," he said.

"I am also supporting Joe Tsai. I realize, as I said again, these are complex issues they don't lend themselves easily to social media. I can't ultimately run the NBA based on trying to satisfy everyone on Twitter."

"For those who choose also to engage, they'll see that we are dealing with a complex set of issues. And I will just add that the fact that we have apologized to fans in China is not inconsistent with supporting someone's right to have a point of view."

The NBA has leverage in China, if it works as a united front. PRC fans, sponsors, web sites and broadcasters can shun one team, but they can not and will not shun an entire league. Do you really think those fans are going to be satisfied watching CBA games? There would be a social stability cost to banning the NBA in China. I am serious.

This NBA episode may backfire on Beijing here in the US as there is bipartisan outrage. That said, given the DC news cycle Commissioner Silver will likely remain much more worried about CCP Commissars than the US Congress.

The broader context for this crisis is that the CCP has long pushed to increase its “international discourse power 国际话语权“, and as with many things its efforts have intensified under Xi. The idea is that China’s share of international voice is not commensurate with its growing economic, military and cultural power and that the Party should have much more control over the global discussion of all things Chinese, in any language, anywhere.

The Party is taking at least a two-track approach to rectifying this problem. On the one hand it is launching, buying, co-opting and coercing overseas media outlets. On the other it uses the power of the Chinese market to co-opt and coerce global businesses, their executives and other elite voices. The Global Times summed up the second track nicely:

The biggest lesson which can be drawn from the matter is that entities that value commercial interests must make their members speak cautiously. Chinese consumers are not overly sensitive. Wherever it is, touching a raw political nerve is extremely risky. Morey has neither the IQ nor the EQ to talk about political topics. He will become an example of clumsiness on some MBA courses.

In an interesting bit of timing, the latest episode of the US comedy show “South Park” is called “Band in China”. The punch line, on Twitter:

The full episode is available for free on the Comedy Central web site here.

The reaction from the CCP? South Park is now banned in China.

James Palmer at Foreign Policy sums up the challenge:

It will take political power in the United States to counter political power wielded by China. For U.S. companies to stop appeasing Chinese censorship, corporate decision-makers are going to have to believe that the reputational and political costs of doing so outweigh the damage done to their interests in China. That’s going to take concerted action from members of the public elsewhere in the world—boycotts, protests, public anger—and a shift in mood that makes giving in to China seem shameful or weak for CEOs among their corporate peers instead of forward-looking and pragmatic. The Communist Party’s political power can be checked, in part, by open democratic discussion of the power of Chinese money.

But it will also need targeted effort from politicians who say they care. That may mean dragging executives to testify about their decision, forcing more public embarrassment. It may mean threatening the government contracts and cozy tax breaks that firms often rely on. And ultimately, it may mean forcing tough decisions on firms about whether they can be in China at all.

I am not optimistic. Are you?

Thanks for reading.