Trump blinks over investment and export restrictions; Xi meets Mattis; Moral hazard meets corruption investigation hazard; TV/Film star tax fun, Social credit system going global?

Good afternoon from Sinocism. Here are the top things I am watching about China today:

  • President Trump backed off from the harshest of threatened investment restrictions, but no one should assume this fight is done;

  • Xi Jinping appears to have given US Secretary of Defense Mattis another clear warning about PRC “red lines” when it comes to territorial claims. The South China Sea fait accompli appears complete and there is little the US or other claimants can do about it;

  • Caixin reports that a local government in Hunan threatened banks with corruption investigations if they did not keep the loan tap flowing to the local government financing vehicles. The bankers still said no, for now…

I still think the recent Central Foreign Affairs Work Conference (CFAWC), as I discussed in Tuesday’s newsletter, deserves more attention.

Former Australian Prime Minister (and current Asia Society Policy Institute President and Sinocism subscriber) Kevin Rudd analyzed the CFAWC in a speech on June 26 to the Lee Kuan Yew School of Public Policy at the National University of Singapore. The full speech is online, and here are some excerpts that caught my eye:

First, the press reporting of the conference asserts the absolute centrality of the party to the country’s foreign policy mission. This is not entirely new. But the emphasis on the role of the party is much stronger than before. In the recent past, the country’s international policy establishment, like its econocrats, have seen themselves, and have been seen by the Chinese political establishment, as a technocratic elite. That is now changing in foreign policy as much as it has already changed in economic policy…

There is a second element to the June 2018 Conference which grows out of the first. It is Xi’s deeply Marxist, dialectical-materialist view of history based on permanently evolving “contradictions” between what dialecticians call thesis, antithesis and synthesis. In Xi’s view, this in turn gives rise to defined “laws” of historical development which are both prescriptive and predictive.

This may sound like old-fashioned Marxism. That’s because it is. The intellectual software of generations of Chinese leaders has been shaped by this conceptual framework for interpreting and responding to what they define as scientific, objective reality. And Xi Jinping belongs to that tradition. Remember he has already convened special study sessions of the politburo on understanding both dialectical and historical materialism in the past.

First, that there is nothing random about what is unfolding in the world today. Second, these reflect certain immutable laws of political and economic development. Third, the business of Chinese foreign policy is to use this dialectal prism to understand precisely what is happening in the world today, why it is happening and what to do about it. And fourth, applying these disciplines to the current period, it means that the global order is at a turning point with the relative decline of the US and the West, with this coinciding with the fortuitous national and international circumstances currently enabling China’s rise.

In other words, what is being said here is that China now has the wind at its back. Of course there are formidable obstacles ahead. But a dialectical analysis of history causes China to conclude that the forces of reaction facing the US and the West are greater. Just as the contradictions operating domestically within the US and the West (in their particular political systems) are greater as well. Which in turn renders China’s overall domestic and international circumstances much better by comparison in the emerging contest between the two. All of which, again in this view, pushes towards a new historical synthesis more in China’s (and Chinese socialism’s) favour…

The future of the global order is now in a state of some flux. In part induced by the recent posture of the United States. In part induced by the rise of China. China it seems has a clear script for the future. It’s time for the rest of the international community to do the same.

The speech is worth reading in its entirety.

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 The Essential Eight

1. Trump blinks over investment and export restrictions

Statement from the President Regarding Investment Restrictions - The White House

After reviewing the current versions of FIRRMA with my team of advisors—and after discussing them with many Members of Congress—I have concluded that such legislation will provide additional tools to combat the predatory investment practices that threaten our critical technology leadership, national security, and future economic prosperity. Therefore, upon enactment of FIRRMA legislation, I will direct my Administration to implement it promptly and enforce it rigorously, with a view toward addressing the concerns regarding state-directed investment in critical technologies identified in the Section 301 investigation...

To further ensure a robust defense of American technology and intellectual property, I have also directed the Secretary of Commerce to lead an examination of issues related to the transfer and export of critical technologies. Through this review, we will assess our Nation’s export controls and make any modifications that may be needed to strengthen them to defend our national security and technological leadership. Additionally, I have directed the Secretary of State, the Secretary of the Treasury, the Secretary of Defense, and the United States Trade Representative to engage with our allies and partners to support their efforts to combat harmful technology transfer and intellectual property theft.

Comment: But this directive to the Commerce Secretary is just another indication the door to much tougher controls is open, and the President could once again change his mind. 

White House Retreats From Plans for Strict Limits on Chinese Investment - WSJ $$:

The White House opted for a less confrontational approach with the U.S. economic rival and closer cooperation with Congress. The strategy was hotly debated within the administration for several days leading up to the decision, said administration officials.

Among the factors in Mr. Trump’s decision: his own reservations about discouraging investment in the U.S. and his pique with a Wall Street Journal article reporting that the administration was moving toward a crackdown on China, the officials said.

China experts say the White House decision to back away from a fight on investments and U.S. exports could provide an opening for renewed negotiations. With a July 6 deadline for tariffs approaching, prominent U.S. business executives are trying to ease the way for new discussions between Treasury Secretary Steven Mnuchin and China’s top economic envoy, Liu He.

Among those urging talks is former Treasury Secretary Henry Paulson, who used to be Mr. Mnuchin’s boss at Goldman Sachs Group Inc. and meets regularly with Mr. Liu. Blackstone Group Chief Executive Stephen Schwarzman is also acting as a back channel between the two governments, said people familiar with the discussions.

Bloomberg - Mnuchin Wins a Round in the White House Battle Over China: 

Most of President Donald Trump’s top advisers had decided by Monday to recommend he invoke emergency powers under an obscure 1977 law to block China from acquiring U.S. technology companies and their intellectual property. But by Tuesday evening, Mnuchin had forged an about-face, according to two people familiar with the deliberations.

Secretary of State Mike Pompeo provided a key assist, four people familiar with the matter said, siding with Mnuchin out of his own concern that an escalating trade war with China could hurt U.S. efforts to persuade North Korea to give up its nuclear weapons...

On Monday, the Dow Jones Index fell more than 500 points following news reports that the Trump administration planned to invoke Ieepa. On Tuesday, the House passed a bill that would strengthen Cfius and expand its scope, allowing the panel to scrutinize more deals. Together, the two developments helped Mnuchin persuade the president to abandon the Ieepa approach.

New York Times - Trump Backs Softer Restrictions on Chinese Investment: 

In a meeting last week with China’s president, Xi Jinping, American corporate executives urged him to send one of his most trusted advisers, Wang Qishan, to the United States for talks. But with the United States and China so far from a compromise, such a visit appears unlikely in the near term, people familiar with the deliberations said.

Comment: Wang is no dummy, the sides are too far apart. But if and when he appears publicly in the middle of the US-China trade talks then that may be a good signal that there is at least a reasonably decent short-term salve...and that is why I doubt we will see him in this role any time soon...

South China Morning Post - Liu He has an unenviable task as China’s point man in trade talks with US – but he’s not leaving:

The agency he heads – the General Office for the Central Financial and Economic Affairs Commission – is and will remain the sole body leading the talks, according to a source in Beijing with knowledge of the matter, who declined to be named because he is not authorised to speak publicly about it.

The powerful commission is directly headed by Xi, with Liu in charge of the general office that runs its daily operations...

Economics professor Yuan Gangming from Tsinghua University said that although the negotiations had not been successful, it was not because of Liu.

“We’ve seen progress after each round of talks, but China cannot deal with Trump when he does not keep his word,” Yuan said.

Marco Rubio Accuses Trump of 'Backtracking' on China - Newsweek:

“If in fact President Trump is now backtracking on tough limits on Chinese investment, it is a VERY BIG MISTAKE,” tweeted Rubio, who unsuccessfully challenged Trump for the 2016 Republican presidential nomination. “#China is strategically buying up U.S. companies specializing in cutting edge technology. What they don’t steal from us they buy away from us.”


 2. Xi meets Mattis

Xi meets with U.S. Secretary of Defense - Xinhua:

The Pacific Ocean is vast enough to accommodate China and the United States, as well as other countries, the president said.

China and the United States should promote the development of bilateral ties based on the principle of mutual respect and win-win cooperation, Xi said.

"When we see common interests between China and the United States, we do not shy away from differences," the president said.

"Our stance is steadfast and clear-cut when it comes to China's sovereignty and territorial integrity," Xi said, adding that "any inch of territory passed down from ancestors can not be lost while we want nothing from others."

As an important part of bilateral relations, Xi said military relations have maintained a sound development momentum in recent years.

"It has long been known that the real experts on military affairs do not want to employ military means to solve issues," said Xi.

The meeting was the top item on the 6.27 CCTV Evening News 习近平会见美国国防部长 with Xi's original comments about territory:

在看到中美存在共同利益的同时,我们也不回避双方之间存在的分歧。在涉及中国主权和领土完整问题上,我们的态度是坚定的也是明确的,老祖宗留下来的领土一寸也不能丢,别人的东西我们一分一毫也不要。

South China Sea Issue Dispute Thwarts Common Ground in Mattis-Xi Meeting - WSJ $$:

Mr. Xi had pledged more than three years ago that China wouldn’t militarize the islands, but has since expanded military facilities there, including building airstrips and ports, and recently installed surface-to-air and antiship missiles.

In a positive vein, aides said the two sides pledged to hold more talks, and Gen. Wei accepted an invitation by Mr. Mattis to visit him at the Pentagon.

The two sides also reiterated their positions on a denuclearization agreement for the Korean Peninsula, and Mr. Mattis’s aides said China appears to “encourage and support” the Afghan-led peace process in Afghanistan.

The senior defense official said the disagreements between the two countries needn’t define the military-to-military relationship. “We can manage these areas of disagreement,” the official said. “We don’t want to fight.”

China will not tolerate US military muscle-flexing off our shores | Liu Xiaoming | Opinion | The Guardian:

Peace, like air and sunshine, is hardly noticed when people are benefiting from it. But no one can live without it. China respects and supports freedom of navigation in the South China Sea according to international law. But freedom of navigation is not the freedom to run amok. For those from outside the region who are flexing their muscles in the South China Sea, the advice is this: if you really care about freedom of navigation, respect the efforts of China and Asean countries to safeguard peace and stability, stop showing off your naval ships and aircraft to “militarise” the region, and let the South China Sea be a sea of peace. - Liu Xiaoming is China’s ambassador to the UK


3. Tightening real estate controls 

Comment: Tough times to continue for real estate developers. The golden era is over and is not coming back...

Use Dollar Bonds to Repay Debt, Developers Told - Caixin Global

The statement highlights the growing concerns about debt defaults in China after many companies turned to issuing foreign debt as tighter domestic controls have closed off fundraising channels at home.

In a statement published Wednesday on its website, the National Development and Reform Development (NDRC) told Chinese real estate developers to commit in writing to using funds raised through U.S. dollar-denominated offshore bonds to refinance their maturing bonds to avoid defaults.

Developers should also refrain from investing the funds in domestic and foreign real estate projects or using them to bolster their cash flow, the commission said.

Bloomberg - China Considers Banning Short-Term Dollar Bond Sales: 

China is slowing approvals for offshore bonds and considering whether to ban short-dated issuance in dollars, according to people familiar with the matter, moves that would reduce financing options for the debt-laden developers that sit at the center of the nation’s economy.

The National Development & Reform Commission is weighing a ban on the sale of dollar bonds with tenors of less than one year, said the people, who asked not to be named because they’re not authorized to speak publicly. The regulator is already restricting offshore issuance quotas for Chinese companies, people said.

Bloomberg - China Escalates Crackdown on Property Speculation in 30 Cities: 

China escalated a crackdown on property speculation, saying it is embarking on a six-month campaign in 30 cities to root out violations in the housing market.

The special campaign will target unlicensed real estate agencies, developers’ violations and false advertising, according to a statement Thursday from the housing ministry. Cities including Beijing and Shanghai will be involved in the six-month operation starting early July, according to the statement, which said that officials will focus on rent manipulation, postponement of sales by developers to fetch higher prices and non-compliant loans to fund down-payments.

Policy Lender Denies Reports It Stopped Shantytown Support - Caixin Global:

China Development Bank (CDB) says that while some local governments have gotten more cautious about taking on debt to support shantytown redevelopment projects, the policy lender has not halted loans to support them, contradicting multiple media reports. “China Development Bank has been strictly implementing the country’s policies on shantytown renovations,” the bank said in a statement to Caixin on Monday.

Investing in Chinese Stocks—投资大中华地区股市: Over 3 Days, 3 Cities Shutdown Commercial Purchases of Homes; A First in China:

On June 24th, Xi’an announced that it would suspend the purchase of houses by enterprises and institutions in the restricted purchase area. This is the first case in the country. Following the footsteps of Xi'an, Changsha and Hangzhou quickly released similar policies on the 25th and 26th.


4. Moral hazard meets corruption investigation hazard

Local Officials Threaten Banks Reluctant to Keep Lending - Caixin Global

Keep the loans coming or we’ll report you for corruption.

That’s what officials from the central Chinese city of Changde recently told local banks reluctant to continue lending to local government financing vehicles (LGFVs), Caixin has learned from multiple sources.

Specifically, the officials threatened that the Changde government would report information about alleged misconduct at the banks to the local anti-corruption watchdog, Caixin has learned...

At Friday’s meeting, several high-ranking city officials in Changde, which has the third-largest economy in Hunan province, told local banks that the city’s LGFVs will not repay any debts due this year if the banks refused to extend or renew the loans, according to minutes of the meeting circulated among financial institutions.

The officials also demanded that the banks lower the interest rates on LGFV loans to the benchmark rates set by the central bank, the minutes showed. In addition, they threatened government action against any bank reluctant to cooperate with the government on defusing debt risks, including reporting the issues to the local anti-graft agency.

The banks argued against the officials’ demands, an unnamed source with knowledge of the matter told Caixin.

Interesting that the banks apparently still said no, and that this leaked. The Changde officials must be very nervous now, wondering when the CCDI will come for an inspection that will undoubtedly find all sorts of problems they have... hooliganism dies hard…

Bloomberg - Qinghai Bond Rollercoaster Month Shows China Local Debt Woes: 

In an interview with Bloomberg News on Wednesday, Ye Shenggui, head of financing at state-owned Qinghai Provincial, said that it plans to repay the notes with the help of its cash reserves onshore and bank loans. Ye said he doesn’t expect the Qinghai government to let the company fail on its debt repayments given it’s the largest state-owned enterprise in the province.


5. TV/Film investigations coming

Odds this will be used to force even more political correctness in the industry?

Curtain Falls on Celebrities’ Shady Tax Deals - Caixin Global:

The tax and film regulators on Thursday vowed to stop stars from evading taxes and to curb what they described as unreasonable rates of pay in the movie industry. They also took a swipe at the celebrity culture that has developed around China’s big screen, complaining that many films were “distorting social values” by “misleading the youth into blindly chasing after stars.”

The proposals have not yet been formally published, but the official Xinhua News Agency carried a report of the plans that was posted on the website of the State Administration of Taxation (SAT). The article said that drawing up fake, or “yin and yang,” contracts to falsify income declarations and other tax evasion practices were pushing up production costs, damaging quality and undermining the health of the country’s film and television industry...

The changes are being made in response to a scandal that erupted last month when popular former TV presenter Cui Yongyuan posted contracts on the Internet allegedly showing that high-profile actress Fan Bingbing had received a hidden payment of 50 million yuan ($7.57 million) for starring in a film in addition to her main taxable fee of 10 million yuan. The payment was detailed in a second contract, according to Cui, who is embroiled in a long-running row with renowned director Feng Xiaogang.

Announcement on web site of State Administration of Taxation - 中宣部等部门联合印发《通知》 治理影视行业天价片酬“阴阳合同”偷逃税等问题 


6. US airlines still ignoring Beijing over "Taiwan, China" order

China shuns U.S. request for talks on airline website dispute over Taiwan | Reuters:

China has rejected U.S. requests for talks over how U.S. airlines and their websites refer to Chinese-claimed Taiwan, according to sources, including a U.S. official, adding to tensions in a relationship already frayed by a major trade dispute.

China has demanded that foreign firms, and airlines in particular, begin referring to Taiwan as Chinese territory on their websites, along with Hong Kong and Macau, a move described by the White House in May as “Orwellian nonsense”.

Numerous non-U.S. carriers, such as Air Canada, Lufthansa and British Airways have already made changes to their websites, according to Reuters checks.

But several U.S. companies, including Delta Air Lines and United Airlines, were among carriers that sought extensions to a May 25 deadline to make the changes. The final deadline is July 25.

Comment: I am flying to Beijing on United not long after the deadline...hope the flight does not get messed up. But if Beijing starts interfering with US carriers who do not comply expect US landing rights for Chinese carriers to be targeted


7. New study documents the efficacy of PRC public diplomacy 

AidData | Ties That Bind: Quantifying China's public diplomacy and its "good neighbor" effect:

Ties That Bind offers new and comprehensive detail on the nature and impact of Chinese public diplomacy in the region most important to its strategic interests: East Asia and the Pacific (EAP).  There is a growing consensus that Beijing has dramatically increased the volume and sophistication of its public diplomacy efforts under President Xi Jinping. Yet there has historically been a lack of quantifiable data to assess the scope and downstream consequences of these activities.  To this end, AidData, in collaboration with the Asia Society Policy Institute (ASPI) and the Center for Strategic and International Studies (CSIS), has assembled new data on Chinese public diplomacy programs in East Asia and the Pacific from 2000 through 2016. This first-of-its-kind report quantifies multiple aspects of China's public diplomacy—financial, cultural, exchange, and elite-to-elite diplomacy—across 25 countries to assess how it is received by foreign publics and leaders and determine whether it is meeting Beijing’s objectives

The Australian on the study - Beijing billions poured into aid for Asia-Pacific: 

Twenty-five Asia-Pacific countries including Australia received more than $US48 billion in diplomacy and aid funding from China from 2000 to 2016, US government-funded research has found.

The study, funded by the State Department, found the nations were more likely to vote with Beijing in international forums if they received aid or opaque infrastructure financing from China that benefited political elites.

“Throughout the three country studies, we have also seen that Beijing is successfully converting its public diplomacy tools into steadily growing influence, particularly with political elites and somewhat less so with the general public,” the authors concluded.


8. Social Credit System to go global?

Social Credit | Australian Strategic Policy Institute | ASPI - Dr. Samantha Hoffman:

China’s ‘social credit system’ (SCS)—the use of big-data collection and analysis to monitor, shape and rate behaviour via economic and social processes1—doesn’t stop at China’s borders. Social credit regulations are already being used to force businesses to change their language to accommodate the political demands of the Chinese Communist Party (CCP). Analysis of the system is often focused on a ‘credit record’ or a domestic ranking system for individuals; however, the system is much more complicated and expansive than that. It’s part of a complex system of control—being augmented with technology—that’s embedded in the People’s Republic of China’s (PRC’s) strategy of social management and economic development.2 It will affect international businesses and overseas Chinese communities and has the potential to interfere directly in the sovereignty of other nations..

As businesses continue to comply, the acceptance of the CCP’s claims will eventually become an automatic decision and hence a norm that interferes with the sovereignty of other nations. For members of the public on the receiving end of such changes, the CCP’s narrative becomes the dominant ‘truth’ and alternative views and evidence are marginalised. This narrative control affects individuals in China, Chinese and international businesses, other states and their citizens.

The Daily Beast - ZTE Could Help Chinese ‘Institutes’ at Western Schools Become Surveillance Hubs :

Research conducted by The Daily Beast reveals that ZTE has also been working for more than a decade with the Confucius Institutes—a soft-power arm of the Chinese government, already embedded on more than 100 U.S. college campuses. The two organizations have hosted each other’s visiting delegations, sponsored joint events, and ZTE has provided equipment and training for the Confucius Institutes in countries from Cuba to Zambia. ZTE even co-founded one Confucius Institute.


Business, Economy, Finance And Trade

China fulfills WTO accession commitments on IPR protection: white paper - Xinhua China has fulfilled its commitments on intellectual property rights (IPR) protection, says a white paper titled "China and the World Trade Organization" released by the State Council Information Office Thursday.--Full text: China and the World Trade Organization 

The Right and the Wrong Ways to Adjust the U.S.-China Trade Balance | Council on Foreign Relations - Brad Setser The right way to account for the sales of U.S. firms in China is to add the profits U.S. firms earn on their “in-China” sales to U.S. exports, not their gross sales. That’s how the BEA does it (see table 1.3 in the international transactions data set) when they calculate the bilateral current account balance with China. It turns out that the results of the correct adjustment for FDI income just aren’t all that impressive—U.S. firms earned about $13.5 billion on their $200 billion plus in Chinese sales (total investment at historical cost in China as of end-2016 was $92 billion, which no doubt underestimates the real total a bit).

China Think Tank Warns of Potential ‘Financial Panic’ in Leaked Note - Bloomberg Bond defaults, liquidity shortages and the recent plunge in financial markets pose particular dangers at a time of rising U.S. interest rates and a trade spat with Washington, according to a study by the National Institution for Finance & Development that was seen by Bloomberg News and confirmed by a NIFD official. The think tank warned that leveraged purchases of shares have reached levels last seen in 2015 -- when a market crash erased $5 trillion of value. "We think China is currently very likely to see a financial panic,” NIFD said in the study, which appeared briefly on the Internet on Monday, before being removed. “Preventing its occurrence and spread should be the top priority for our financial and macroeconomic regulators over the next few years.”

China Shares Sink to Lowest Since March 2016 as Yuan Declines - Bloomberg: The benchmark retreated for a fourth straight day, sliding 0.9 percent to end the session below 2,800 points for the first time in two years. It’s now down 22 percent from a January peak. The yuan fell 0.36 percent to 6.6260 per dollar as of 5:10 p.m. local time, heading for its weakest level since November. Stocks in Shenzhen also declined.

Comment: But is the RMB really dropping due to concerns about China's economy and/or PBoC policy?  Robin Brooks, Chief Economist at the Institute of International Finance, and former Chief FX Strategist at Goldman Sachs is not convinced, as he explained on Twitter yesterday and today:

Robin Brooks@RobinBrooksIIF

Recent RMB weakness: (i) the RMB often sees erratic moves, so recent weakening is not unprecedented or a regime change; and (ii) the trade-weighted RMB (blue) has been appreciating for the last year, so I see this more as a right-sizing of what arguably was an overshoot. pic.twitter.com/497VoiEe6G

June 27, 2018
Robin Brooks@RobinBrooksIIF

To put in perspective what an outlier the RMB is year-to-date, chart shows REER changes since end-2017. The RMB is pretty much the only major currency that has risen in real effective terms this year. China's neighbors and trading partners (TWD, KRW, SGD, THB) have all fallen. pic.twitter.com/olEa9o5dTL

June 27, 2018
Robin Brooks@RobinBrooksIIF

China's RMB: recent moves up in $/CNY fix (grey) are way more than can be justified by Dollar strength, and trade-weighted RMB (blue) has fallen as a result. But RMB is just correcting previous strength -- it's still up for 2018 -- so this is a "storm in a teacup." pic.twitter.com/gUZLbBmYuA

June 28, 2018
Robin Brooks@RobinBrooksIIF

China's RMB: let's suppose that recent RMB weakness is retaliation for rising trade tensions. Is RMB a credible negotiating tool? No! RMB down in 2015/6 sparked devaluation fears and capital outflows (blue), which could restart. China has a domestic constraint on its RMB policy. pic.twitter.com/iAiHaieUN6

June 28, 2018
E-Commerce Platform for Steel to Forge Hong Kong IPO - Caixin Global Shanghai-based Zhaogang.com, whose name literally means “looking for steel,” connects customers with steel manufacturers and related suppliers. The company filed an IPO prospectus to the Hong Kong Stock Exchange on Tuesday, but didn’t disclose the debut date nor how much it plans to raise. “We firmly believe that in the current trillion-yuan steel industry, the time is ripe for the emergence of a massive e-commerce platform with a strong brand name, a national footprint, and integrated services and standardized product offerings,” said Wang Dong, the company’s founder and CEO.

Steelmaker Overstated Assets by $270 Million - Caixin Global Shanghai-listed Fushun Special Steel Co. Ltd. has acknowledged making “accounting errors” on three straight years of financial statements that inflated its net assets by more than 1.77 billion yuan ($269.4 million) by the end of 2016. The admission, which arrived five months after Fushun Special had its shares suspended from trading for fabricating inventory data, undermines the restructuring of its parent company, Dongbei Special Steel Group Co. Ltd., which emerged from bankruptcy last year thanks largely to a bailout from a private steelmaker.

PBoC Filings Reveal Big Picture for Planned Digital Currency - CoinDesk The Digital Currency Research Lab at the People's Bank of China has filed more than 40 patent applications so far – all as part of an aim to create a digital currency combining the core features of cryptocurrency and the existing monetary system.

In Europe's east, a border town strains under China's Silk Road train boom | Reuters When cargo trains from China began arriving at the Polish border town of Malaszewicze almost a decade ago, they were considered a novelty - able to ship laptops and cars to Europe in as little as two weeks, but extremely infrequent, with one service a month. However a surge in the number of trains over the past year, fueled by Beijing’s plans to grow trade along ancient Silk Road routes to Europe, has left authorities scrambling to meet demand that has ballooned to as many as 200 locomotives a month.

Worsening trade row deepens chill felt by Chinese dealmakers seeking to do U.S. takeovers | Reuters So far this year, Chinese companies have spent just $1.6 billion on U.S. assets, down almost 80 per cent from the year-earlier period, according to Thomson Reuters data. By contrast the amount China has spent on European assets has risen 39 per cent from last year to $45.1 billion. “We are now focusing on Europe-bound deals and having U.S. deals on hold. The trade war between China and U.S., if not short-term, will be a mid-term thing and will take some time to conclude,” said Lin Feng, founder and CEO of Chinese investment and advisory firm DealGlobe.

One man is responsible for most of the fireworks used in America: Mr. Ding. - Washington Post Roughly 70 percent of all Chinese fireworks entering the United States come here under the control of a Chinese businessman who has used his influence to raise prices and block competitors, leaving many U.S. executives fearful of losing access to their most important Fourth of July inventories.

Gut Punch for Global Funds Buying China Stocks for First Time - Bloomberg Stocks in Shanghai have tumbled 13 percent in dollar terms since MSCI Inc. added so-called A shares at the start of the month. Only equities in Argentina and Namibia have performed worse. Worries about a slowing economy, tightening liquidity and possible trade war are plaguing the world’s second-largest stock market, while a suddenly tumbling currency is only adding to foreign investor losses.

China's banks embrace Communist Party committees in risk crackdown - Reuters China's listed mid-tier and regional banks will face added pressure to curb risky activities following the formal establishment of Communist Party Committees at the lenders, bankers and analysts say. China's 40 listed banks have announced changes to their articles of association to add the committees, with 26 making announcements after the start of the year. Many specified that the organisations would be consulted before corporate strategy is agreed upon.

China unveils new negative list for foreign investment - Global Times The new negative list will take effect on July 28. The negative list identifies areas that are restricted or have not been fully opened to foreign investors. And the number of specific areas restricted to foreign investors was reduced to 48 items from 63 items in the 2017 version. In the financial sector, the maximum shareholdings of foreign investors in securities, securities investment fund management corporations, futures and insurance companies will be allowed to expand to 51 percent from the current less than 50 percent. The cap imposed on foreign investors will be cancelled in 2021, according to the statement. With regard to the automobile industry, foreign investors in special vehicles and new energy vehicles are no longer subject to the shareholding limit. The limit on foreign investment imposed on commercial vehicles will be cancelled in 2020, and caps on passenger cars will be abolished by 2022.

China central bank to keep policy neutral, liquidity reasonably ample | Reuters The People’s Bank of China (PBOC) will guide reasonable growth of money supply, credit and total social financing, the bank said in a statement after a second-quarter meeting of its monetary policy committee. The central bank will pay close attention to global and domestic economic and financial changes and make sound assessment of economic conditions and fine-tune policy in a preemptive manner, it said.

 

Politics, Law And Ideology

Researching China’s Sacred Leader | China Media Project the genie of hype and triumphalism will not be so easy to coax back into the lamp. Hype, after all, is at the heart of Xi Jinping’s leadership in the so-called “New Era” — and of the manufacture of legitimacy by the Chinese Communist Party of which he is “core.” In recent days, even as the chatter over Liu Yadong’s remarks was fresh, we had further illustration of just how deeply the atmosphere of worship surrounding Xi Jinping is affecting scholarship in China. This came in a notice posted by the Shaanxi Academy of Social Sciences to its official website, calling for submissions for new research projects dealing with the “Great Teaching of Liangjiahe (梁家河大学问)

Chinese firms cash in on Xinjiang's growing police state - AFP: Already one of the most policed places on earth, Xinjiang saw security spending balloon "nearly 100 percent" last year, totalling more than 58 billion yuan ($9 billion) -- twice its spending on healthcare -- according to Adrian Zenz, a China security expert at Germany's European School of Culture and Theology. "In 2017 alone, the region spent nearly as much on domestic security as in the six years of 2007 to 2012 combined," he said. Much of the vast increase in security spending appears to have been financed by debt, either through deals with private firms providing the equipment or borrowing by local governments... for Chinese companies like Shenzhen-listed Hikvision, the world's largest supplier of surveillance equipment, Xinjiang's booming security apparatus is a major windfall.

Global Times - Xinjiang Muslims attend sinicization training to maintain social stability:  More than 70 religious leaders from Northwest China's Xinjiang Uyghur Autonomous Region attended a four-month training in Beijing, vowing to introduce the experience of sinicizing Islam to the region troubled by religious extremists.

RFA - Xinjiang Rapidly Building Crematoria to Extinguish Uyghur Funeral Traditions:  Authorities in northwest China’s Xinjiang Uyghur Autonomous Region (XUAR) are rapidly constructing crematoria staffed by dozens of security personnel, according to local officials, amid concerns over the eradication of ethnic Uyghur funeral traditions.

Dui Hua Human Rights Journal: The Resurgence of Big-Character Posters and Switching Tactics of Criminalization The latest available statistics from China Law Yearbook shows that 576 individuals were arrested for endangering state security in 2016, a significant drop from 1,105 in 2012. However, this decline is no cause for celebration. As the big-character poster cases show, individuals previously charged with inciting subversion are now more likely to be prosecuted for picking quarrels and provoking troubles. The number of endangering state security cases alone does not give a comprehensive picture of the scale of suppression of dissent in China.

China Sentences U.S. Football Player to Four Years in Prison | AP A Chinese court sentenced former American football player Wendell Brown to four years in prison Thursday for being involved in a bar fight, a punishment his lawyer and an activist called excessive. Brown, a native of Detroit who played for Ball State University in Indiana, had been teaching American football in southwest China when he was arrested in September 2016 and later charged with intentional assault. He has denied hitting a man at a bar and said he had raised his arms in self-defense after being attacked.

CPC Central Committee posthumously honors 7 "outstanding members" - Xinhua The honored late members include academics, officials, and a military pilot. Zheng Derong, who was born in 1926 in northeast China's Jilin Province and died this year, was lauded as an important pioneer and founder of the research of sinicization of Marxism.

 

Foreign and Military Affairs

U.S. Charges Chinese University Tied to Army With Export Scheme - The New York Times An indictment filed in federal court in Boston charged China-based Northwestern Polytechnical University (NWPU), along with Shuren Qin, a Chinese national living in Wellesley, Massachusetts, who was arrested last week. The indictment also charged LinkOcean Technologies, a Chinese company headed by Qin, whose clients, according to prosecutors, include Chinese research institutes and the naval warfare branch of the People's Liberation Army.

Huawei Boss Slams 'Ignorant' Rubio on Research Restrictions | Light Reading 

China's hypersonic military projects include spaceplanes and rail guns | Popular Science As President Trump tries to garner enthusiasm for an undefined U.S. "Space Force", China has been making steady progress in its own space and military operations, including advances in 3D printing, energy storage, scramjet test platforms, and intercontinental ballistic missiles (ICBMs)

Chinese Behavior in Siberia Sparks Local Anger Against Beijing—and Moscow - Jamestown  Anger is rapidly growing among people east of the Urals against the Russian federal center for giving China enormous economic access to the region. Locals charge that these business arrangements are benefitting only the oligarchs and the Russian state. Moreover, their resentment encompasses Beijing for the arrogant ways in which Chinese companies have behaved on Russian territory, frequently ignoring the interests of local people and violating Russian law with a sense of complete impunity.//  Comment: All that water in Siberia...access to it could certainly help mitigate CHina's water crisis in Northern China.

China’s water wars | East Asia Forum 

China-Africa defense, security forum opens in Beijing - China Military Representatives from 50 African countries and the African Union discussed China-Africa defense and security cooperation at a forum which opened in Beijing Tuesday. The China-Africa Defense and Security Forum, the first of its kind, was hosted by China's Ministry of National Defense. Participants are scheduled to discuss topics including the security situation in Africa and Africa's independent capacity-building in security. They will also visit China's land, navy and air forces.

China to set up new courts to solve B&R disputes - People's Daily Online 

Singaporeans should be aware of China's 'influence operations' to manipulate them, says retired diplomat Bilahari, Singapore News & Top Stories - The Straits Times 

Yan Xuetong on the Bipolar State of Our World | China Media Project Once the bipolar system is established, there will be a real question of whether the concept of “the West” as it is now used in international relations will be applicable. “The West” was originally a geographic concept, later it became a cultural concept, and in the wake of the Cold War it became a political concept. The present [process of] bipolarization has meant that Western countries and developing countries alike are experiencing internal splits, and the remaking of political strength will very possibly not happen any longer along Western and non-Western lines, but along ideological lines. . . . When Western countries no longer influence international politics in a unified manner, the political concept of “the West” will no longer objectively suit the study of international relations.

Woes of China's Online Lending Platforms Worsen, People's Daily Issues Investor Warning - China Banking News Figures from Wangdai Zhijia (网贷之家) indicate that as of 26 June a total of 19 online lending platforms have me with difficulties since the start of the  month, for a near doubling compared to May, while nine platforms have suspended operations completely. Yu Baicheng (于百程), Wangdai Zhijia’s head of research, said to The People’s Daily that the main reason for the increase in difficulties experienced by online lending platforms was heavier regulatory pressure – in particular strict regulation of online asset management as well as offline regulatory breaches.

Sponsorship of China’s political advertising in the U.S.: The example of Tung Chee-hwa — Jerome A. Cohen | 孔傑榮(柯恩) 

A North Korean defector paid smugglers to get her family out. China sent them back. - The Washington Post 

Australia bans covert foreign interference in politics - AP 

 

Taiwan

US names career diplomat Brent Christensen as unofficial envoy to Taiwan | South China Morning Post

‘Fake news’ Chinese journalist is refused entry by Taiwan | AFP 

 

Tech And Media

China must stop fooling itself it is a world leader in science and technology, magazine editor says | South China Morning Post With the world’s two largest economies embroiled in an escalating trade dispute, the comments made by Liu Yadong, editor-in-chief of Science and Technology Daily, which comes under the supervision of the Ministry of Science and Technology, were unexpected“The large gap in science and technology between China and developed countries in the West, including the US, should be common knowledge, and not a problem.” Liu said. “But it became problematic when the people who hype [China’s achievements] … fooled the leadership, the public and even themselves.” //  Transcript of his comments from S&T Daily site 科技日报总编辑刘亚东:除了那些核心技术,我们还缺什么? 

【专题报道】亟待攻克的核心技术-中国科技网 The special section in S&T Daily on the core technologies China lags in...according to Liu this project was in the works long before the US Commerce Department sanctions that threatened to kill ZTE...in his speech Liu makes the point that the ZTE case was actually positive event for China as it destroyed any illusions about tech independence and should serve to focus the country on redoubling efforts to create world-class indigenous technology

Baidu sues former high-level research engineer for breaching non-disclosure and non-compete agreements after joining ByteDance · TechNode 

Why recent updates to WeChat's Subscription Account change everything · TechNode 

Who Offers the Best Chinese-English Machine Translation? A Comparison of Google, Microsoft Bing, Baidu, Tencent, Sogou, and NetEase Youdao · Yiqin Fu 

Technological entanglement | Australian Strategic Policy Institute | ASPI - Elsa Kania Despite frequent allusions to a race—or even an ‘arms race’—in artificial intelligence (AI), US leadership and China’s rapid emergence as an AI powerhouse also reflect the reality of cooperation and engagement that extend across the boundaries of strategic competition.1 Even as China and the US, the world’s emergent ‘AI superpowers’,2 are increasingly competing in AI at the national level, their business, technology and research sectors are also deeply ‘entangled’ through a range of linkages and collaborations. 

 

Society, Art, Sports, Culture And History

A debate over the word for ‘grandmother’ in Shanghai schools exposes a linguistic and political rift in China — Quartz

Education

University of Michigan receives $2.5M for new chair in Tibetan Buddhist Studies - Lion's Roar 

Chinese Plagiarism Watchdog Accused of Plagiarizing American NGO - Sixth Tone Retraction Watch, a U.S.-based non-profit that records retractions of academic papers, has accused a Chinese anti-plagiarism website of copying its database. Ivan Oransky, co-founder of Retraction Watch and a professor at New York University, told Sixth Tone that his team established their database at the end of 2016 as a reference for scholars. It includes papers retracted from journals all over the world for reasons such as plagiarism, doctored images, and faked peer reviews. Earlier this month, he noticed that a Chinese company called iPlagiarism maintained a database that was suspiciously similar.

Anti-Black Racism Dominates Online Discussions over 'Privileged' Exchange Students in China | What's on Weibo In the same week that a short video exposing the dorm disparity between Chinese and foreign students went viral, another issue has sparked controversy regarding overseas students in China. This time, Chinese bloggers and social media users show their discontent with another type of alleged “internationalization” at Chinese universities – Jinan University in specific. The controversy was triggered by a Weibo post published on June 24, in which a female netizen claimed that Jinan University was “forcing female students to participate in [cultural] ‘exchange’ activities with black exchange students.”