US-China tariffs and tech investments; RMB value; Xinjiang re-education camps get legal papering; PRC reactions to US pressure; Apple's Tim Cook is in China as Bloomberg doubles down on hardware hack story

I am on the hunt fo happy news but am having a hard time finding any. Some of the big issues today include:

• The US Treasury will expand review of foreign investments into US companies, with China of course as the focus;

• US Treasury Secretary Mnuchin says the value of the RMB is part of trade discussions. The US should be careful what it wishes for, an unmanaged RMB would probably be a lot lower against the USD;

• The US Congressional-Executive Commission on China issued its 2018 Annual Report;

• The Xinjiang legislature issued revised rules "legalizing" re-education camps;

• Today is National Day in Taiwan and President Tsai's speech is worth a read;

• Bloomberg is doubling down on its hardware hack story as Apple CEO Tim Cook visits China.

For readers in DC there are two interesting events tomorrow, Thursday October 11:

1. Conference - 8th Annual Jamestown China Defense and Security Conference - Jamestown 

2. China’s Turbulent Aircraft Sector: Challenges, Opportunities and Prospects | Center for Strategic and International Studies 

It is hard to believe that the one year anniversary of the launch of the subscription version of Sinocism is next Tuesday October 16. For all of you who signed up to an annual subscription when I launched, thank you. If your credit card has changed/expired since then please update it in your account settings (account--payment settings--update) before 10.16. If the account cancels and you have to resubscribe you will no longer have access to the charter rate of $118/year I offered for the first month. 

Thanks for reading.

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The Essential Eight

1. US-China 

Trump repeats threat of more tariffs if China retaliates on trade | Reuters:

“China wants to make a deal, and I say they’re not ready yet,” Trump said. “I just say they’re not ready yet. And we’ve canceled a couple of meetings because I say they’re not ready to make a deal.”

When asked whether he was ready to levy new taxes in case of retaliation from China, Trump said, “sure, absolutely.”

He added that the current U.S. trade imbalance with China means “they’ve already retaliated.”

In New Slap at China, U.S. Expands Power to Block Foreign Investments - The New York Times:

The Trump administration said it would begin reviewing foreign investments in American companies more broadly, initiating new powers that give the United States greater authority to block Chinese and other foreign transactions on national security grounds.

The expanded review system, which the administration plans to announce on Wednesday, is aimed primarily at preventing China from capturing American technology by buying, investing or partnering with United States companies.

Rand Paul calls for national security review of Broadcom-CA merger - Axios:

Senator Rand Paul (R-Ky.) on Wednesday called for a federal national security review of Broadcom's proposed $19 billion acquisition of Computer Associates Technologies (CA) during a Senate hearing on homeland security.

The bottom line: Sources tell Axios that neither Broadcom nor CA asked for a review of their transaction by the Committee on Foreign Investment in the U.S., but that some within the defense and energy communities have been agitating for a CFIUS review anyway. Paul's public call might move the needle.

Comment: All about the China connection

Chinese finance ministry official says 'optimistic' on trade war breakthrough | Reuters:

“Currently the ball is in their court. But personally I’m a little bit more optimistic,” Zhou Qiangwu, Associate Counsel of the Finance Ministry’s department of international affairs, told Reuters on the sidelines of the annual IMF and World Bank meetings in Bali.

“The talks are still going on, via different channels. The cancellation (of official trade talks) is only one of them,” said Zhou, although he did not elaborate and said he was unsure when the next formal negotiation would take place.

China trumps Russia in counterterrorism threat to U.S.: FBI Director | Reuters:

“China in many ways represents the broadest, most complicated, most long-term counterintelligence threat we face,” Wray said. “Russia is in many ways fighting to stay relevant after the fall of the Soviet Union. They’re fighting today’s fight. China’s is fighting tomorrow’s fight.”

The US trade war against China is bound to fail: panellists | South China Morning Post:

That was the overwhelming message from keynote speakers at the South China Morning Post’s China Conference in Kuala Lumpur...

Still, some, such as Alibaba Group executive vice-chairman Joe Tsai, warned the dispute was veering towards becoming a “cold war or geopolitical war started by the United States”.

Comment: NBA team owner Joe Tsai saying the US started this is a bit rich...

China is dramatically cutting US oil imports, analyst says - CNBC:

U.S. crude oil may not have been on China's tariff list but regardless, it stopped importing in August, according to Bimco, a shipowners association.

"Chinese buyers, led by the world's top tanker charterer Unipec, were rumored to have stayed away and this new data proves it," says Bimco's chief shipping analyst, Peter Sand.

Chinese traders have returned to purchasing U.S. crude oil in October but there is little visibility as to how much, Bimco says.

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2. Would China devalue the RMB and dump US Treasuries?

Mnuchin warns China on currency devaluations | Financial Times $$:

Steven Mnuchin said in an interview with the Financial Times that the Treasury monitored currency issues “very carefully” and noted that the Chinese renminbi had fallen “significantly” during the year, adding that he wanted to discuss the currency with Beijing as part of trade talks.

He acknowledged there were several drivers behind the falls in the renminbi, including the country’s own economic issues.

“As we look at trade issues there is no question that we want to make sure China is not doing competitive devaluations,” he said ahead of meetings of the G20, IMF and World Bank in Bali, Indonesia. 

Comment：What exactly does the US want? If China stops managing the RMB and loosens capital controls then in the current domestic and global environment a significant and overshooting depreciation would be a very high probability outcome. Or does the US want China to keep managing RMB, but just in the way the US approves?

China taps brakes on outbound investment, betrays capital flow fears | Reuters:

China is suspending approvals for a niche overseas investment product in Shanghai known as the QDLP scheme and urging license holders, such as JPMorgan Asset Management and Aberdeen Standard Investments, to be “low profile” in marketing it, sources said...

The window guidance, targeting one of a handful of overseas investment channels for mainland investors, signals Beijing’s renewed worries over capital outflows as a rapidly-escalating Sino-U.S. trade war hurts its economy and the yuan currency

Beijing Struggles to Keep Its Currency On Course - WSJ $$:

The strength of the dollar, higher tariffs on Chinese imports to the U.S., and slower Chinese economic growth have all weighed on the yuan in recent months. While a weaker yuan could help offset some trade pressure on Chinese exporters, it could also encourage Chinese residents and businesses to place their capital abroad into safer havens, weakening the currency further...

Mr. Trump has long maintained that China manipulates its currency, keeping it deliberately weak to gain an edge in global trade, even though the Treasury Department’s reports since his election haven’t labeled China a currency manipulator. In fact, in recent years, China has spent more of its efforts keeping the yuan from falling too much.

The Unknowable Fallout of China’s Trade War Nuclear Option - The New York Times - Andrew Ross Sorkin:

And it is worth remembering that Beijing’s endgame is not necessarily to ensure the financial health of its country this year or the next. If China were to suffer short-term pain to gain a real and lasting advantage over the United States — or at least not lose any advantages it does have — it might be willing to struggle a bit today.

“The negotiation between the two great powers isn’t about how many soybeans or Boeing airplanes they buy by the end of the year,” said Kevin Warsh, a former governor of the Federal Reserve. “We are at a pivotal moment in history. The actions of the U.S. and Chinese governments in the next 12 months will set the course for the relationship of the two great powers of the 21st century.”

BUT

“Treasuries sales in a sense are easy to counter, as the Fed is very comfortable buying and selling Treasuries for its own account,” wrote Brad W. Setser, a senior fellow for international economics at the Council on Foreign Relations. “I have often said that the U.S. ultimately holds the high cards here: The Fed is the one actor in the world that can buy more than China can ever sell.”

Russia, China, and (the Absence of ) Global Funding of the U.S. Fiscal Deficit… | Brad Setser - Council on Foreign Relations:

So the odds are Russia moved a portion of its reserve to China…

Russia, remember, reduced its reported U.S. Treasury holdings by about $80 billion. The (imperfect) transactional data shows over $30 billion in Russian sales too, indicating that Russia did a bit more than just shift its funds to an offshore custodial account. The true fall in Russia's holdings is almost certainly somewhere between the current reported custodial holdings and the stock implied by looking at the TIC transactional data.

Remember this revelation from Hank Paulson's book about the 2008 financial crisis? Paulson: Crazy Putin Pushed China To Dump Fannie Bonds And Crush The U.S. Financial System:

The Russians made a "top-level approach" to the Chinese "that together they might sell big chunks of their GSE holdings to force the U.S. to use its emergency authorities to prop up these companies," Paulson said, referring to the acronym for government sponsored entities. The Chinese declined, he said. 

I know it seems as crazy now as it did then...Russia and China seem much closer now than they were in 2018. How might another financial crisis approaching the one in 2008 play out today, given the current state of US-China relations? 

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3. PRC reactions to US pressure

This is a topic I am trying to explore in more depth. I have to say I find Dr. Jin Keyu's piece very much in line with what I am both hearing and what I believe is the most likely reaction.

Opinion: China Stands to Gain From Trump’s Trade War - Caixin Global - Jin Keyu:

Yet, in China’s view, what the U.S. is really reacting to is not only the specifics of its trade policy, but also its overall development model and its aspirations to become a major global power — aspirations that are not out of reach. In fact, the Chinese believe, Trump’s trade war effectively proves that China has become a real and present threat to American hegemony.

Whether this is true or not is irrelevant; what matters is Chinese perception. Whereas in the past, when only a few conservatives warned of U.S. attempts to “contain” China, virtually everyone in China now buys into this narrative, including a growing number of young people...

The real danger is that rising nationalism could embolden a contingent of the Communist Party, known in China as the New Left, that denounces capitalism and its Western proponents, and calls for a return to the Maoist socialist order of 40 years ago.

Comment: This is what Global Times editor in chief Hu Xijin has also been publicly worrying about, as I noted in yesterday's newsletter. 

On the positive side, it is likely to produce the political cohesion needed to implement structural reforms that shift the economy away from trade and manufacturing and toward domestic consumption. As different interest groups and factions unite against a common foe, President Xi Jinping will gain even more political capital, facilitating the shift from export-led economic growth to a trade-neutral model. Tax cuts and the redistribution of wealth toward households are also possibilities.

This article on page 7 of the Wednesday People's Daily is published under the name 钟轩理，the pen name for 中宣部理论局 the Theoretical Bureau of the Central Propaganda Department. It basically argues that China has done lots of things to make the world a better place yet it is being wrongfully treated by the United States – the biggest bully in the world. - 泾渭由来两清浊--观点--人民网 

China refutes US claim it 'really rebuilt' China - China Daily:

Foreign Ministry spokesman Lu Kang told a news briefing on Wednesday that China owes its tremendous achievement in development to the correct leadership of the Communist Party of China and the path of socialism with Chinese characteristics, and to the country's unwavering efforts in pushing forward reform and opening up, as well as the diligence and wisdom of the Chinese people.

The claim by US leaders that attributes China's achievement to the US is not only a betrayal to the truth, but also logically untenable, Lu said.

VP Pence's remarks on a simplified version US-China history in his speech last week were not helpful:

When our young nation went searching in the wake of the Revolutionary War for new markets for our exports, the Chinese people welcomed American traders laden with ginseng and fur.

When China suffered through indignities and exploitations during her so-called “Century of Humiliation,” America refused to join in, and advocated the “Open Door” policy, so that we could have freer trade with China, and preserve their sovereignty.

When American missionaries brought the good news to China’s shores, they were moved by the rich culture of an ancient and vibrant people. And not only did they spread their faith, but those same missionaries founded some of China’s first and finest universities.

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4. US Congressional-Executive Commission on China 2018 Annual Report

Rolled out with an OpEd in the Wall Street Journal by the co-chairmen of the commission. 

China Grows More Repressive - WSJ - Marco Rubio and Chris Smith:

China’s domestic repression is directly related to its international aggression and global political influence operations, and therefore connected to vital U.S. national interests. Beijing’s increasingly aggressive government has sought to shape global norms on development, trade, the internet and even human rights in its image. It is actively seeking to use its economic power to influence global perceptions of its authoritarian model.

American policy makers are now re-examining the flawed assumptions that drove U.S.-China relations for decades, as evidenced by Vice President Mike Pence’s major policy speech on China last week. We must recognize that our commitment to the promotion of universal principles, the rule of law and human dignity is the foundation upon which our relationships and partnerships depend.

We must not forget that the expanding scope of domestic repression in China also directly affects an increasing number of Chinese citizens, stirring resentment, dissent, and even activism among them. At the heart of the CECC’s 2018 annual report is this enduring truth: Pressing for China’s adherence to universal standards advances not only American national security, economic interests and moral values, but also the aspirations of Chinese citizens eager for peace, freedom and political reform.

Mr. Rubio, a Republican, is a U.S. senator from Florida. Mr. Smith, a Republican, represents New Jersey’s Fourth Congressional District. They are, respectively, chairman and co-chairman of the Congressional-Executive Commission on China.

The US Congressional-Executive Commission on China 2018 Annual Report, just released today--PDF 

Senator Rubio will be speaking on some of these topics at the October 24  Mark Palmer Forum: China’s Global Challenge to Democratic Freedom at the Hudson Institute in DC. The forum has quite the speaker list. 

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5. National Day Speech in Taiwan

Facing Chinese Pressure, Taiwan’s President Tsai Seeks ‘Survival Niche’ | The Diplomat:

As intermittent rain fell on the crowd assembled in front of the Presidential Office in Taipei, Tsai began her remarks by acknowledging the “dramatic changes in the international political and economic situation” over the past year. For Taiwan, a major part of those changes involves what Tsai called “China’s unilateral diplomatic offensive and military coercion.” Though Tsai did not go into specifics, China has enticed two of Taiwan’s diplomatic allies — Burkina Faso and El Salvador — to switch their recognition to Beijing in the past year, as well as conducting a pressure campaign to force foreign companies to refer to Taiwan as part of China on their websites.

Tsai also spoke at length about the issue of “foreign powers” – which she left unnamed – “infiltrating and subverting our society.”

Full text of President Tsai Ing-wen's National Day address 

Beijing not a fan of her comments-国台办：任何挟洋自重、升高对立的行径，只能自取其辱-新华网: 　

新华社北京10月10日电　针对台湾当局领导人“双十讲话”中涉及两岸关系方面的言论，国台办发言人马晓光10日应询表示，台湾当局领导人的讲话充斥着“两国论”分裂谬论和针对大陆的对抗思维，暴露出配合西方反华势力遏制大陆的险恶用心。如此充满敌意的挑衅言论，进一步证明民进党当局是两岸冲突的制造者，台海和平稳定的破坏者，只会进一步恶化两岸关系，将台湾带向更加危险的境地。

马晓光指出，大陆和台湾同属一个中国、台湾是中国一部分的法理事实，是任何人、任何势力都改变不了的。任何挟洋自重、升高对立、妄图破坏两岸关系、改变台湾地位的分裂图谋和行径，只能自取其辱，绝不可能得逞。

Taiwan shifts gears as China poaches diplomatic allies | Financial Times $$:

Taiwan is trying to strengthen relations with influential democracies, as the country struggles to defend its international space against a diplomatic onslaught from China.

Taipei is seeking to build a web of ties that might help soften the blow if one day the number of its diplomatic allies — now 17 — drops to zero.

The government of President Tsai Ing-wen has engaged in dialogue with unofficial representatives of the US, UK, Germany, France, Japan, Australia and New Zealand, emphasising shared threats emanating from China to a host of pragmatic co-operation projects.

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6. "Re-education camps" now enshrined by Xinjiang legislature

China legalises use of ‘re-education camps’ for ‘religious extremists’ in Xinjiang | South China Morning Post:

China’s far-western Xinjiang region has revised its legislation to allow local governments to “educate and transform” people influenced by extremism at “vocational training centres” – a term used by the government to describe a network of internment facilities known as “re-education camps”...

Chinese officials had earlier denied the existence of such arbitrary detention and enforced political re-education bases, but said some citizens had been sent to vocational centres for minor criminal misdemeanours.

The revision, issued by the regional legislature, recognises the use of such centres as part of the government’s efforts to eliminate “religious extremism”, which in recent years have also included a massive security crackdown in Xinjinag and sweeping restrictions on Islamic practices.

“Governments above the county level can set up education and transformation organisations and supervising departments such as vocational training centres, to educate and transform people who have been influenced by extremism,” the revised legal clause says.

The revised rules - 《新疆维吾尔自治区去极端化条例》公布施行 

Sinocism's new intern Adam Wu as done a comparison of the key changes in the revisions, available here on Google docs

China Law Translate has already translated the Decision to Revise the "Xinjiang Uighur Autonomous Region Regulation on De-extremefication 

Both the website of Xinjiang propaganda department 天山网 and the Communist Youth League are sharing an article that was initially published on a Wechat official account before the national holiday, in which the author claims that the current reeducation campaign in Xinjiang is an ideological emancipation movement that frees people from religious extremism and gender bias, and the western watchers are hypocrites who don’t genuinely care about the people in Xinjiang at all - 新疆大地，一场思想解放运动正在上演 

Hu the Uniter: Hu Lianhe and the Radical Turn in China’s Xinjiang Policy - Jamestown:

Recent analysis of the shift in CCP policy toward Xinjiang has tended to focus on the role of regional Party boss Chen Quanguo, who has overseen the dramatic securitization of China’s far western region (China Brief, 21 Sept 2017). Yet ethnic and frontier governance is a multi-ring circus in China, with a competing matrix of functional bureaucracies and policy options [2]. While it is difficult, if not impossible, to tease out every factor affecting policy, the emergence of Hu Lianhe portends a significant shift in both the institutional and policy direction emanating out of Beijing, and suggests that what is happening in Xinjiang is the leading edge of a new, more coercive ethnic policy under Xi Jinping’s “New Era” (新时代) of Chinese power, one that seeks to accelerate the political and cultural transformation of non-Han ethnic minorities.

China launches anti-halal campaign in Xinjiang | Reuters:

The capital of China’s Xinjiang region, home to the mostly Muslim Uighur minority, has launched a campaign against halal products to stop Islam penetrating secular life and fuelling “extremism”.

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7. National SOE meeting

Beijing directs state firms to ‘perform like normal enterprises’ after trade partners’ complaints | South China Morning Post

Beijing has set fresh guidelines for state-owned enterprises (SOEs), a target of recent complaints by China’s major trading partners, by advising the companies to operate like normal business entities and to continue to cut excessive steel and coal production capacity.

The directives mark a departure for the government from a previous policy of making the state behemoths “bigger and stronger” in favour of a softer tone, just weeks after trade ministers from the US, EU and Japan – in an obvious swipe at China – jointly blamed SOEs for market distortions.

Vice-Premier Liu He, President Xi Jinping’s top economic aide, said at an SOE conference on Tuesday that it was “utterly important” to increase the vitality of state firms as “individual market players”.

In addition, the conference concluded it was necessary to respect the authority of SOEs’ boards of directors to make “significant decisions” pertaining to “personnel and compensation”.

Securities Daily on the meeting - 全国国有企业改革座谈会在京召开 六方面扎实推进国有企业改革 - 证券日报 

Hao Peng, the author of this article on the front page of the October 10 edition of Study Times, is the party secretary of State Council’s state-owned assets supervision and administration commission. He argues that SOEs need to be reformed and they are still indispensable in China’s economic system, and that they will always need to listen unswervingly obey and follow the Party --鹏发表署名文章：筑牢迈向世界一流企业的“根”和“魂”－国务院国有资产监督管理委员会 :

更加深刻领会习近平总书记关于国有企业强“根”固“魂”重要论述，始终坚定不移听党话跟党走 .. 

习近平总书记强调，国有企业是中国特色社会主义的重要物质基础和政治基础，关系公有制主体地位的巩固，关系我们党的执政地位和执政能力，关系我国社会主义制度。强调国有企业贡献不容否定、作用不可替代，决不能把国有企业搞小了、搞垮了、搞没了。 

争作维护核心的表率，牢记央企姓党，当好基本队伍，始终在政治立场、政治方向、政治原则、政治道路上同以习近平同志为核心的党中央保持高度一致，不断增强“四个意识”，始终做到“两个坚决维护”.

Comment: Seek truth from facts...Temper your excitement until we see what they actually do…

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8. Bloomberg doubles down on hardware hack story

New Evidence of Hacked Supermicro Hardware Found in U.S. Telecom - Bloomberg:

A major U.S. telecommunications company discovered manipulated hardware from Super Micro Computer Inc. in its network and removed it in August, fresh evidence of tampering in China of critical technology components bound for the U.S., according to a security expert working for the telecom company.

The security expert, Yossi Appleboum, provided documents, analysis and other evidence of the discovery following the publication of an investigative report in Bloomberg Businessweek that detailed how China’s intelligence services had ordered subcontractors to plant malicious chips in Supermicro server motherboards over a two-year period ending in 2015.

Appleboum previously worked in the technology unit of the Israeli Army Intelligence Corps and is now co-chief executive officer of Sepio Systems in Gaithersburg, Maryland. His firm specializes in hardware security and was hired to scan several large data centers belonging to the telecommunications company. Bloomberg is not identifying the company due to Appleboum’s nondisclosure agreement with the client. Unusual communications from a Supermicro server and a subsequent physical inspection revealed an implant built into the server’s Ethernet connector, a component that's used to attach network cables to the computer, Appleboum said.

Republican senator seeks briefings on reported China hacking attack | Reuters:

Senator John Thune said in letters made public on Tuesday to the company’s chief executives that he had sought staff briefings by Oct. 12 from the three companies. “Allegations that the U.S. hardware supply chain has been purposely tampered with by a foreign power must be taken seriously,” Thune wrote.

The companies did not immediately comment on Tuesday on Thune’s letter. All have denied the report, published by Bloomberg Businessweek on Thursday.

NSA cybersecurity head can't find corroboration for iCloud spy chip report - Appleinsider: 

Speaking at a U.S. Chamber of Commerce event, NSA Senior Advisor Rob Joyce was put on the spot about the allegations the Chinese government tampered with servers produced by Supermicro, which were allegedly used by Apple, other major tech companies, and various government organizations. Joyce's comments suggest he disbelieves the entirety of the report, through checking via his own sources. 

In response to Wall Street Journal reporter Dustin Volz's query on the allegations, Joyce advised "What I can't find are any ties to the claims in the article," adding "We're befuddled." While noting he has considerable access to intelligence, he has yet to find any corroboration on either the initial story's allegations, nor with a second connected story pertaining to a major telecommunications provider in the U.S.

Comment: Whatever the truth, is the damage already done, both to Supermicro and to any prospects for avoiding the expensive and painful removal of much of the US high-tech supply chain from the PRC?

Meanwhile, Tim Cook is in China this week-- Shanghai Party chief talks with Apple CEO Tim Cook - SHINE:

Cook expressed his gratitude for the city’s support and its services. He said Shanghai is an innovative city that has so much vitality and has its own charms and attraction.

It’s Apple’s privilege to become a part of Shanghai’s development, witnessing the city’s tremendous ongoing change. Apple has great faith in Shanghai’s future development, and it will keep increasing its investment in the city, expand the cooperation, and continue to support its economic and social development.

But Caixin says Chinese consumers are not excited about the new iPhones—New iPhone XS Gets Lukewarm Reception - Caixin:

Apple retailers and resellers in China reported lackluster sales of the new iPhone XS and XS Max devices, citing high prices. Some said they are seeing record low sales while others said they have to offer discounts to lure buyers.

Apple launched the latest XS series Sept. 12 in the United States with prices ranging between $999 and $1,449 depending on size and storage capacity. The larger iPhone XS Max, with a price starting at $1,099, is the most expensive model ever offered by Apple…

An executive of a provincial-level iPhone retailer said his company sold 2,200 new XS devices as of Oct. 8, about a 10th of the sales of the iPhone X during the similar period after its release last year. Some retailers have offered discounts for the new model to boost sales, the executive said.

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Business, Economy, Finance And Trade

China's Neighborhood Cash Drop Pumps $500 Billion Into Economy - Bloomberg As part of its efforts to support a slowing economy, the government said this week that it is speeding up the construction of 15 million new homes to replace substandard dwellings nationwide. That program has so far pumped 3.2 trillion yuan ($463 billion) into the economy, by replacing older buildings with shiny new tower blocks...Now, by accelerating the so-called shanty-town redevelopment program while curbing the cash handouts that have accompanied it, the government is trying to boost stimulus while avoiding a bursting of property bubbles nationwide.

China Banking News - Beijing Withdraws from Monetary Compensation Policy for Shantytown Overhauls  An executive meeting of China’s State Council held on 8 October called for the “cancellation as soon as possible of monetised settlement policies in municipalities and counties where commercial housing stock is insufficient and there is upward pressure on housing prices.” The State Council first proposed an increase in the monetised settlement ratio in May 2017 for those municipalities and counties where commercial residential housing stock was ample, as part of efforts to ensure that the target of 6 million shantytown renovations could be met by the end of that year.

China Could Cut Taxes by 5 Trillion Yuan over 5 Years, Enterprise Income Tax Set to Fall to 20%: State Media - China Banking News “Starting with the real needs of China’s economic development and hopes to improve the lives of the masses, implementing even larger scale tax-reduction and fee-reduction measures is the necessary choice and endogenous requirement for driving domestic demand, expanding consumption and increasing investment – especially private sector investment,” said Zhang Yiqun (张依群), in an article from Securities Daily that was republished by the People’s Daily. Huang Zhilong (黄志龙), chair of the Suning Finance Macro-economic Research Center, said that regulators could confirm a tax reduction of as much as five trillion yuan over the next five years, in order to give a clear signal on tax policy to enterprises.// Comment: But if they cut taxes while also improving enforcement and compliance will everyone really see a tax cut? Local governments desperate for cash are getting much more aggressive in tax collection

Xi demands efforts to improve disaster prevention, build Sichuan-Tibet railway - Xinhua  Xi Jinping, general secretary of the Communist Party of China Central Committee, on Wednesday called for efforts to improve the country's capability of safeguarding against natural disasters and fully launch the planning and construction of the Sichuan-Tibet railway. Xi, also Chinese president and chairman of the Central Military Commission, made the remarks at the third meeting of the Central Committee for Financial and Economic Affairs. He is also head of the committee.// The Wednesday CCTV Evening News report on the meeting  习近平主持召开中央财经委员会第三次会议强调 大力提高我国自然灾害防治能力 全面启动川藏铁路规划建设 Interesting that the third meeting of the Central Committee for Financial and Economic Affairs focused on these topics, at least in the official reports of the meeting, and not all the building economic and trade pressures? Part of the propaganda strategy to make it appear everything is fine?

Chinese leaders urge more efforts to promote mass entrepreneurship, innovation - Xinhua China will channel more energy into mass entrepreneurship and innovation to push forward high-quality development, said Premier Li Keqiang. Li made the remarks in a written instruction to the opening ceremony of the national mass entrepreneurship and innovation week, held Tuesday in Chengdu, southwest China's Sichuan Province.

补短板：当前深化供给侧结构性改革的重点任务（经济形势理性看）-人民网 This article by the deputy director of the central financial and economic affairs commission argues that China currently should be focusing on “increasing the lengthen of the shortest plank” in its supply side structural reform.// 韩文秀 - 作者为中央财经委员会办公室副主任 --把补短板作为当前深化供给侧结构性改革的重点任务，具有很强的现实针对性和深远的战略意义。补短板是优化供给结构和扩大有效需求的结合点，是保持经济平稳运行和推动经济高质量发展的结合点，也是发展经济和改善民生的结合点。

China's $4.3 Trillion Local Debt Woes Have a Feedback Loop: HSBC - Bloomberg But reluctance to include implicit debt in official numbers creates a “vicious cycle,” according to HSBC, in which the government refuses to up its local government debt swap quota for fear of increasing its explicit debt burden. Investors then doubt the government’s seriousness about reducing local debt, which leads to more lending to LGFVs. “Thus the market concludes that there is not much regulatory risk to continuing to lend to LGFVs,” they said. “Such lending adds even more implicit debt to the government, which has the effect of making its debt swap quota even smaller relative to its real debt level. And the cycle starts all over again.”

IMF Warns of Growing Risks to China’s Financial Stability - Caixin However the decrease in land sales has not been evenly spread across the country. According to the China Index Academy, land sales in first-tier cities such as Beijing and Shanghai fell in the first three quarters, while those in smaller cities surged. From January to September, the value of land transactions in first-tier cities dropped 24%, while it increased by 8% in second-tier cities and by 37% in third- and fourth-tier cities

New Income Tax Law Could Roll Back Welcome Mat for Expats - Caixin China is already a relatively expensive place for taxpayers earning Western-level salaries, and that won’t really change with the new code. That says foreigners earning above 420,000 yuan per year, equal to about $60,000 at the yuan’s current value, will be subject to a 30% tax rate that won’t change from the old code. People earning above 660,000 yuan per year, equal to about $95,000, will pay even higher rates of 35%, or 45% at most. Both foreigners and Chinese earning less than the 420,000 yuan should see some actual tax relief, underscoring the fact that Beijing is most concerned about providing relief to locals in the nation’s fast-growing middle class.

The Battery Boom Created a New Lithium Superpower in China - Bloomberg Ganfeng’s share of refined lithium output has jumped from about 6 percent in 2013 to an estimated 11 percent this year, according to Roskill Information Services Ltd. It accounts for about a quarter of battery-grade lithium hydroxide, the material that’s now most sought after by automakers, the researcher’s data shows.

PBoC Op-Ed Pushes Use Case for Yuan-Pegged Crypto Stablecoins - CoinDesk China should increase its research efforts on the topic of stablecoins and consider backing domestic institutions issuing yuan-pegged cryptocurrencies, a researcher from the People's Bank of China (PBoC) argues. The comments come in an op-ed piece published Tuesday by CN Finance, a bi-weekly magazine and a mouthpiece of the Chinese central bank, and co-authored by Li Liangsong, PBoC researcher and a professor from China's Fudan University.

China's About to Sell Dollar Bonds in Middle of a Trade War - Bloomberg The $3 billion issuance of five-year, 10-year and 30-year securities, due Thursday, follows a jump in yields on benchmark Treasuries, and a slump in the yuan against the dollar thanks in part to China’s deepening trade-war with the U.S. While the Ministry of Finance hasn’t identified a purpose for the sale, underwriters had long expected a follow-up to last year’s $2 billion deal to help build out a benchmark yield curve for Chinese offshore borrowers.

China Is Said to Plan Big Expansion of Too-Big-to-Fail Rules - Bloomberg Regulators led by China’s central bank will initially shortlist at least 50 of the country’s largest lenders, insurers and brokerages as possible SIFIs, said the people, asking not to be identified because the matter is private. Firms that receive the designation will be subject to extra capital requirements, and may face additional rules on leverage, risk exposure and information disclosure, the people said. Regulators currently consider about 20 banks to be systemically important, one of the people said.

Trump trade war: How $US1 move is making millions for BHP and Rio - Sydney Morning Herald Ill winds aren’t supposed to blow anybody any good but the US trade conflict with China and its reimposition of sanctions on Iran appear to be producing significant windfalls for some key commodity producers. In the past month both BHP and Rio Tinto’s share prices have spiked almost 12 per cent as iron ore, metallurgical coal and oil prices have risen markedly. Copper, while well below its highs earlier in the year, has also risen about 7 per cent while metallurgical coal prices rose 6 per cent just last Monday.

Separation of business license, permit urged - Gov.cn The State Council fully affirmed the pilot project in the Pudong New Area of Shanghai, and urged the spread of its success on a larger scale. According to the circular, the separation between business licenses and permits will be applied nationwide, in a bid to substantially reduce institutional transaction costs for enterprises, bring the market’s vitality into full play, speed up the work on administration streamlining, and create a law-based, international and convenient business environment.

 

Politics, Law And Ideology

One Year of #MeToo: How the Movement Eludes Government Surveillance in China | The New Yorker A number of self-organized grassroots networks have sprouted up to provide resources and rapport for women through social media and chat groups, where censorship is easier to elude. Many organizers use the encrypted app Signal to chat and GitHub to share files; they don’t do many media interviews and often conceal their identities. The groups provide advice, hook women up with legal support, or point them toward mental-health counselling. Mostly, they listen.

China disappeared Interpol’s chief. The world can’t pretend it’s business as usual. - The Washington Post The right to a fair trial is elusive even for ordinary criminal suspects in China. In high-profile, political cases such as Meng's, there are no rights — no real opportunity to contest one's detention or to present a legal defense before an impartial court. Meng can expect to be held until he is coerced into confessing, then given a summary trial and handed a harsh prison sentence. However, don't expect Meng ever to be held accountable for the countless people, including rights activists, whose arbitrary detention, torture and mistreatment he oversaw in China's Ministry of Public Security.

China’s Communist Party to limit local government inspections | Reuters In a notice posted by Xinhua, the General Office of the Communist Party’s Central Committee said grass-roots officials had become prone to bureaucratic thinking as a result of excessive supervision and inspection. The constant need to comply with central government inspections and assessments also led local officials to choose form over substance when it came to implementing policies, and normal operations were being disrupted, it said. The notice said central government organs would no longer be permitted to launch their own inspections without the authorisation of the State Council, China’s cabinet. 中共中央办公厅发出《通知》 剑指督查检查考核中的形式主义官僚主义 

中央纪委国家监委公开曝光五起涉黑涉恶腐败和“保护伞”典型案例—中央纪委国家监委网站 CCDI/NSC release details on 5 "example" cases from the crackdown on organized crime and their official "protectors"

辩护园地-童之伟：保障公民人身自由应重点制约侦查权  Law professor Tong Zhiwei’s take on the unlimited power of Chinese police

 

Foreign and Military Affairs

China Focus: Chinese Premier's visit to Tajikistan, Netherlands, Belgium to intensify cooperation - Xinhua Chinese Premier Li Keqiang will attend the 17th meeting of the Council of Heads of Government of the Shanghai Cooperation Organization (SCO) in the Tajikistan city of Dushanbe, pay official visits to Tajikistan and the Netherlands, attend the 12th Asia-Europe Meeting (ASEM) summit in Brussels and pay a working visit to Belgium, from Oct. 11 to 19. Li's upcoming visit will be of great importance in underlining cooperation among SCO members, the Asia-Europe partnership and Chinese relations with Tajikistan, the Netherlands and Belgium, according to Foreign Ministry officials at a press briefing on Tuesday

China, Angola agree to promote ties as presidents meet in Beijing - Xinhua Chinese President Xi Jinping held talks with visiting Angolan President Joao Lourenco in Beijing Tuesday, agreeing to continue developing bilateral ties. Xi said he is glad to see the second visit to Beijing in about a month by Lourenco, who came to attend the 2018 Beijing Summit of the Forum on China-Africa Cooperation (FOCAC) in early September. Xi said the success of the summit has injected vigor and opportunities into the development of China-Africa and China-Angola ties, calling on the two sides to work together to actively and quickly promote the development of ties.

China’s Nuclear Diplomacy in the Middle East | The Diplomat At the sixth ministerial meeting of the China-Arab States Cooperation Forum in 2014, President Xi Jinping gave a speech identifying his strategic vision for energy collaboration as the “1+2+3” cooperation pattern. The first step refers to energy cooperation primarily on oil and natural gas; the second to the two wings of infrastructure construction and trade and investment facilitation; the third to high-tech collaboration on nuclear energy, space satellites, and new energy. Civil nuclear cooperation is officially a part of China’s Belt and Road Initiative (BRI) and combating climate change is central to China’s pitch. MENA states are very concerned about climate change and shoulder the refugee burden from the Syrian crisis as the West observes a rise in populism and calls to build walls. China seeks to connect infrastructure across borders and create a network of reliance while positioning itself as a leader in the Paris Climate Agreement.

Europe raises flags on China’s cyber espionage – POLITICO The EU is gearing up to confront China on alarming levels of Beijing-linked cyber espionage on European industry. The European Commission’s department for industry is drafting a document that would sum up Europe’s worries on the issue, two sources briefed on the plan told POLITICO, and could still come up with new measures to defend European trade secrets during this mandate, which ends in May next year.

The U.S. and China as Peer Competitors in the Indo-Pacific - Carnegie-Tsinghua Center - Carnegie Endowment for International Peace The Trump administration has taken a more confrontational approach to bilateral relations with China, implementing tariffs on nearly half of all Chinese exports to the U.S. and treating Beijing as a strategic competitor across many aspects of the relationship. In this podcast, Paul Haenle spoke with Abigail Grace, a research associate in the Asia-Pacific Security Program at the Center for a New American Security, on the changing dynamics of U.S. relations with China and the U.S. Free and Open Indo-Pacific strategy.

Chinese prof in child porn case also under scrutiny for alleged espionage, say officials - NBC News A professor at a top cancer research center who now faces child pornography charges is also under scrutiny in a federal investigation into economic espionage on behalf of China, say multiple U.S. officials briefed on the case. Until April, Keping Xie, 55, was a gastroenterology professor at Houston's University of Texas MD Anderson Cancer Center, where the officials say the FBI is investigating a suspected effort to funnel advanced research from the facility to the Chinese government. Xie was part of a Chinese government science recruiting program called "Thousand Talents" that U.S. intelligence has linked to espionage.

In Pakistan, Learning Chinese Is Cool — And Seen As A Path To Prosperity : NPR His family has staked what little money they have on him. If he masters Mandarin, he can apply for a scholarship to study in China. And with a Chinese degree, he thinks he'll have a chance of getting a good job back in Pakistan as a fluent Mandarin speaker. Then he can pay for his younger brothers and sisters to get advanced educations.

Sierra Leone cancels China-funded Mamamah airport - BBC News Sierra Leone has cancelled a $400m (£304m) Chinese-funded project to build a new airport outside the capital Freetown. Former President Ernest Bai Koroma signed the loan agreement with China before he lost elections in March.

China, Russia and North Korea eye adjustment of U.N. sanctions in talks | Reuters China, Russia and North Korea believe it is necessary to consider adjusting U.N. sanctions against North Korea at an appropriate time, China’s foreign ministry said on Wednesday. It issued the statement with the three parties’ positions on its website after they held talks in Moscow on Tuesday.

姚明现身朝鲜！_国际新闻_环球网 Yao Ming part of a basketball diplomacy delegation to North Korea. So Yao is not a US citizen?

China’s soccer team reserves undergo elite military training - Global Times Military training for the reserves of China's national soccer team in East China's Shandong Province has sparked huge online discussions. The reserves are being trained in the prestigious 71770 troop in Taian, Shandong, Zui Taian, Taian Daily's app reported on Tuesday. The report said the special force troop has won many awards in international competitions, and is the only troop given a first class merit in the Chinese army.

PLA downsizing continues with firefighters’ transfer to non-military department - Global Times Chinese firefighters were reassigned from the Chinese military to the Ministry of Emergency Management on Tuesday, which is hailed by experts as a move to downsize the People's Liberation Army (PLA) and strengthen Communist Party of China's leadership.  China has 170,000 active firefighters and another 200,000 full-time government firefighters, the PLA Daily reported. Most of China's firefighters belong to public security forces, supplemented by full-time fire and volunteer fire brigades. The public security firefighting force was included in PLA's armed police force, but managed by the public security department, Li Daguang, a professor at the National Defense University of the PLA in Beijing, told the Global Times on Tuesday.

Trial flight soon for new type of Chinese stealth bomber - Global Times The trial flight of China's new-generation stealth  bomber Hong-20 may take place soon, military experts said on Tuesday after China's official television station confirmed the name of the bomber. Disclosing the new bomber is a potential deterrence, Song Zhongping, a military expert and TV commentator, told the Global Times on Tuesday. "Usually the development of equipment and weaponry of the People's Liberation Army is highly confidential,"he said.

 

Hong Kong, Macao

Punishment awaits Hong Kong independence advocates amid efforts to make Article 23 passage more likely, Carrie Lam says | South China Morning Post No timetable set for highly controversial national security legislation, top official adds, but recent banning of separatist party cited as ‘strong testimony’ to government’s resolve

 

Tech And Media

Chinese TV host who sparked Fan Bingbing tax probe goes missing after accusing Shanghai police of fraud | South China Morning Post Cui Yongyuan said on social media on Sunday that the city’s police and celebrities from the world of entertainment were involved in a “huge fraud”.While he did not name any stars, he accused officers from Shanghai’s economic crime investigation department (ECID) of accepting hundreds of thousands of yuan in cash gifts, as well as drinking 20,000 yuan (US$2,900) bottles of wine and smoking 100 yuan a packet cigarettes. In a rare public response, Shanghai police on Wednesday urged Cui to get in touch, claiming it had been unable to locate him since he made the allegations. // 崔永元举报上海警察涉嫌腐败，不能止于网络围观 

Tax Evasion Charges Cast Cloud on Actress Fan Bingbing’s Career – Variety Producers on her next gig, the international all-female action movie “355,” are prepared to fire and replace her should she not emerge from scandal in a manner that satisfies the government, film distributors and Chinese moviegoers, multiple individuals close to the project say. For now, the team is content to watch and wait, with production not expected to begin until spring of 2019.

WeChat-Challenging Startup Returns to Apple Store - Caixin Bullet Message, the social media upstart touted as a challenger to Tencent’s ubiquitous WeChat, has become available again after being removed from Apple Inc.’s App Store in China on Tuesday for potential content violations.

Weibo Kicks Out Under-14s - Caixin As of Nov. 1, the platform will forbid children under the age of 14 from creating accounts, Weibo said in a notice (link in Chinese) on Tuesday. This aims to “protect minors’ cybersecurity” and “further create an environment that is clean, healthy, civilized, and organized,” the notice said.

China's Huawei Takes Aim at Qualcomm, Nvidia With New AI Chips - Bloomberg Chinese’s largest telecommunications gear and mobile phone maker on Wednesday unveiled its latest Ascend series chips, machine-learning capable workhorses that it says can go toe-to-toe with designs from Qualcomm Inc. and Nvidia Corp. It’s also introducing cloud computing services and dedicated data centers for autonomous vehicles that will run off those chips, delving deeper into territory staked out by Amazon.com Inc., Microsoft Corp. and homegrown rival Alibaba Group Holding Ltd.

Dark Clouds Over IPO Of Tencent-Backed Douyu As Regulation Heightens – China Money Network The latest development is that the Douyu mobile app was temporarily unavailable in Android and iOS app stores starting October 2. It was also not available on Sumsung’s app market and Baidu’s app assistant. But as of this morning, Douyu is available in the iOS app store and its mini program is still operating in Wechat. The company’s web-based video streaming portal is not affected.

Alipay warns users of Apple ID security - Global Times "We've monitored the problem recently that some users had suffered financial loss through their online payment systems due to an Apple device security breach," said Alipay in a notice issued on its Sina Weibo account. Recently, Chinese iPhone users have complained that money has been stolen through online payment services caused by an Apple ID breach. Apple's Shanghai branch said they can't help users get their money back, reported the Chinesenews website.

 

Society, Art, Sports, Culture And History

This Chinese man drove his son to school in a Ferrari, and all hell broke loose | South China Morning Post The man, surnamed Li, is the father of a junior school pupil in Hangzhou in Zhejiang province, and is a senior executive in an unidentified property developing company, earning more than 4 million yuan (US$578,000) a year and driving a Ferrari 488, according to the City Express, a newspaper in Hangzhou. Chat records show Li was told by a teacher that some parents had complained in the class group in messaging app WeChat about him driving the sports car to school. The teacher said it would lead to unhealthy comparisons in class that were not conducive to developing fellowship among pupils.

 

Energy, Environment, Science And Health

‘Fish of Good Fortune’ Brings Bad Luck to China’s Native Species - Sixth Tone “Tilapia’s spread [into natural waterways] has been incredibly aggressive,” says Gu, a rangy, tanned researcher at Guangzhou’s Pearl River Fisheries Research Institute who has studied invasive fish species for eight years. “They compete for food and space with native species, churn up the riverbed, and gobble up waterweed. All of this affects the entire water ecosystem.” Even in some parts of their native Africa — Lake Victoria, for example — fast-breeding tilapia have been blamed for accelerating the extinction of hundreds of native fish species.