US-China Trade; Recalibrating the "tough battle" against financial risks; Air pollution crackdown review; Law and ideology; No safe place for Uyghurs; New Era "culture practice centers"

Happy Monday from DC. 

The top things I am watching today include:

  • The Shanghai Composite Index reacted Monday to the US-China trade war by having the biggest one day gain in over two years, in spite of no signs of progress towards a resolution;

  • US Secretary of State Mike Pompeo had difficult meetings in North Korea and now President Trump is suggesting that China may be "exerting negative pressure" on Kim. If North Korea ends up embarrassing Trump expect him to blame China in part, and to return to considering sanctioning major PRC financial institutions and SOE oil firms, which would significantly intensify the US-China trade conflict.

  • Donald J. Trump@realDonaldTrump

    I have confidence that Kim Jong Un will honor the contract we signed &, even more importantly, our handshake. We agreed to the denuclearization of North Korea. China, on the other hand, may be exerting negative pressure on a deal because of our posture on Chinese Trade-Hope Not!

    July 9, 2018

  • Beijing appears to be recalibrating its approach to the "tough battle" against financial risks but I would caution against seeing these moves as "backtracking" or a reversal.

And I agree with Bridgewater founder Ray Dalio, that the tariffs announced Friday are far from just a trade dispute:

Ray Dalio@RayDalio

Today is the first day of the war with China.

July 6, 2018
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The Essential Eight

1. US-China Trade

Peter Navarro - How Trump Will Win Against China on Trade - YouTube:

White House National Trade Council and Office of Trade and Manufacturing Policy Director Peter Navarro spoke about the U.S.-China trade relationship at the Hudson Institute

Wall Street titans fail to explain Trump to China - POLITICO:

Corporate leaders and former U.S. officials who have spent years cultivating relationships with Beijing — such as Blackstone CEO Steve Schwarzman, JPMorgan Chase CEO Jamie Dimon and former Treasury Secretary Hank Paulson — have been fielding calls from Chinese officials anxious for information on what is driving U.S. actions on the trade front.

But even administration officials are often at a loss to predict what the president might do on a given day, and people close to Schwarzman, Paulson and Dimon say their informal efforts to guide the Chinese on dealing with the Trump administration have been frustrating and generated little success.

“It has certainly not been for a lack of trying,” a person close to Schwarzman said.

"No Force Can Reverse China's Economic Advance:" Guo Shuqing Addresses Sino-US Trade War - China Banking News:

“China’s economy possesses a strong capacity…the socialist market economy possesses marked systemic advantages when it comes to facing various difficulties and risks.

“However, this is in no way related to so-called ‘state capitalism.’ China has fulfilled its commitments to the World Trade Organisation, and can be said to be a paragon when it comes to abiding by free trade rules.

“Following the past several years of adjustments, China’s economic growth is no longer excessively dependent upon investment or exports, but has shifted towards a more balanced model in which consumption is primary.

A sector by sector look from the Wall Street Journal-How U.S. and China Tariffs Are Rippling Through U.S. Industries - WSJ

China to expand imports for balanced foreign trade - SCIO:

The State Council has approved and issued a guideline on expanding imports in a bid to promote a balanced foreign trade format and high-quality economic development.

The guideline was submitted by 20 government departments, including the ministries of commerce, foreign affairs and industry and information technology. It urged the expansion of imports while stabilizing export volume and the improvement of the domestic supply system to satisfy people’s increasing demands.

To expand imports, China will increase cooperation with countries involved in the Belt and Road Initiative, set up free trade zones and continue to give preferential tariff policies to the least developed countries, according to the guideline.

China's 'firefighter' vice president avoids flames of U.S. trade war | Reuters:

One source with knowledge of Wang’s meetings with U.S. business leaders said the vice president is only going to get involved when “he can have a clear view of how he can negotiate a solid outcome.” When there is something to be negotiated, Wang will probably insert himself in some way, this person said...

A senior Western diplomat said Beijing appeared to be reluctant for Wang to get involved after Liu had the rug pulled out from under him by Trump’s reneging on a previously agreed “consensus” to resolve the trade spat in May.

Wang is extremely close to President Xi Jinping and reports directly to him, meaning if a similar thing had happened to Wang it would be seen as a personal snub to Xi, the diplomat said.

My comment on Wang in the June 28 newsletter:

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...


2. Recalibrating the "tough battle" against financial risks

I still don't think we are seeing "backtracking" or a reversal, but no one should be surprised by recalibration in the face of reality, and especially when there is the risk of a serious external shock from the US-China trade war.

Central Bank Adviser Joins Chorus for Easing Up on Debt Reduction - Caixin Global:

Central bank adviser Liu Shijin said that “China is entering a phase of stabilizing leverage,” just days after another high-profile academic said regulators would avoid excessive deleveraging, signaling the government may be reducing the intensity of its deleveraging campaign.

“Deleveraging has seen initial results and we are entering a phase of stabilizing leverage,” said Liu, a member of the People’s Bank of China’s (PBOC) monetary policy committee and vice chairman of the government-affiliated China Development Research Foundation, in an interview with the official Economic Daily.

Chinese report on Liu's comments: 货币政策委员会刘世锦:结构性去杠杆有序推进 

Regulators Pause on Wealth Management Products - Caixin Global:

Chinese regulators may delay the release of rules on the country’s 30 trillion yuan ($4.5 trillion) wealth management product (WMP) business in an attempt to avoid further upsetting the stock, bond and foreign exchange markets, Caixin has learned.

The drafted WMP rules, a part of the national develeraging campaign to curb financial risks, were supposed to be introduced in early July after being reviewed for comment by a select group of market participants. However, the regulators have since decided to wait because of the recent slump in Chinese stocks and in the yuan, banking sources said...

The industry has resigned itself to cutting back on the amount of WMPs while increasing the speed of asset disposal, said a banker at China Merchants Bank, which has the second largest amount of WMPs among Chinese lenders. “The rational choice at this stage is to clean up the off-balance sheet business as soon as possible.”

Qu Qing, a bond analyst with Hua Chuang Securities Co. Ltd., echoed the view that a delay in WMP regulations doesn’t herald a change in the government’s drive toward stricter regulations.

“If the WMP rules are delayed, it will only be a short-term change due to the recent market downturn,” Qu said in a Sunday report. “Once the market calms down, it is very likely that regulators will put the rules back on the agenda.”

Why Beijing Won’t Be Stimulating the Chinese Economy Anymore - MacroPolo - Song Houze:

Beijing can actually meet its 2020 doubling of GDP goal even if it tolerated a slowdown. According to the 13th Five-Year Plan, China needs to average 6.5% growth from 2016-2020 to achieve a doubling of GDP from the 2010 level. But that target was set before the fourth General Economic Survey and GDP accounting method revision, which will likely lead to an upward revision of China’s GDP by at least 5% in 2019.[2] What this means is that Beijing can achieve its 2020 target with a growth rate of around 5% through the next 2.5 years.

Here’s my conclusion: Beijing’s priorities have changed, and that is likely to lead to a different set of policy choices than what we’ve grown accustomed to. The factors above suggest that, short of a significant shock to the economy[3]—for instance, if the trade war spirals completely out of control—Xi isn’t likely to reverse course on his deleveraging agenda and the PBOC is unlikely to stimulate to such an extent that credit starts growing significantly faster than GDP again.

Chinese risks to global stability are overblown | Financial Times - Gavyn Davies:

The weakening in the latest indicators of domestic demand has clearly affected market sentiment, but in practice they do not track the business cycle very well. The Fulcrum nowcasts and the Goldman Sachs activity trackers continue to report that underlying growth remains well above 7 per cent. Activity growth is expected to slow from here, but — in contrast to 2015-16 — the fiscal and monetary authorities probably remain in control of the situation.

Furthermore, while the imposition of US tariffs on China’s exports is a clear and present danger, the scale of the impact on the growth rate needs to be kept in perspective. Even an extreme escalation of the trade war would probably reduce China’s growth rate by less than 1 per cent per annum.

In summary, a China-specific shock to global stability does not seem very likely at present.


3. Li Zhanshu is not happy with implementation of air pollution crackdown

Top legislature to convene extraordinary session on air pollution control - Xinhua:

China's top legislature will convene an extraordinary session on air pollution control from July 9 to 10.

"Legislators are expected to review a report on the implementation of the Air Pollution Control Law, and a draft decision on strengthening the comprehensive protection of the environment and supporting the fight against pollution in accordance with the law," said a statement issued after a chairpersons' meeting on July 2...

Two extraordinary sessions were held by the 12th NPC Standing Committee, to handle electoral fraud in Liaoning Province in September 2016 and to review a draft revision to the Constitution in January 2018.

十三届全国人大常委会第四次会议在京举行 栗战书主持并作关于检查大气污染防治法实施情况的报告--中国人大新闻--人民网:

从法律实施的总体情况看,全社会生态环境保护的意识明显增强,大气污染防治的法治保障进一步强化,依法推进大气污染治理工作力度不断加大,但还存在结构性污染问题较为突出、部分配套法规和标准制定工作滞后、大气污染监督管理制度落实不到位、重点领域大气污染防治措施执行不够有力、执法监管和司法保障有待加强、法律责任不落实等主要问题。

Xinhua - 大气污染防治法执法检查报告:全国空气质量总体改善 

全国人大常委会执法检查组关于检查大气污染防治法实施情况的报告9日上午提交十三届全国人大常委会第四次会议审议。报告表示,党的十八大以来,各地区各部门坚决贯彻党中央决策部署,认真贯彻落实大气污染防治法,深入实施大气污染防治行动计划,大气污染防治工作取得积极进展。

Xinhua Infographic - 【图解】以法律的武器治理污染 用法治的力量保卫蓝天 

One example of failed environmental enforcement is turning out to be a global embarrassment for Beijing

Blowing It: Illegal Production and Use of Banned CFC-11 in China's Foam Blowing Industry – EIA Global:

Information obtained by the Environmental Investigation Agency (EIA) demonstrates conclusively that the use of CFC-11 in China’s rigid polyurethane (PU) foam insulation sector, in particular in the building and construction subsector, is widespread and pervasive. CFC-11 is used as a foam blowing agent for the manufacture of molded foam panels and spray foam used for insulation purposes.

EIA has evidence from eighteen companies in ten provinces that they use CFC-11. Detailed discussions with company executives make clear that these are not isolated incidents but instead represent common practice across the industry.

Chris Buckley and Henry Fountain of the New York Times has this story June 24 In a High-Stakes Environmental Whodunit, Many Clues Point to China: 

Interviews, documents and advertisements collected by The New York Times and independent investigators indicate that a major source — possibly the overwhelming one — is factories in China that have ignored a global ban and kept making or using the chemical, CFC-11, mostly to produce foam insulation for refrigerators and buildings.

“You had a choice: Choose the cheaper foam agent that’s not so good for the environment, or the expensive one that’s better for the environment,” said Zhang Wenbo, owner of a refrigerator factory here in Xingfu, in Shandong Province, where he and many other small-scale manufacturers said that until recently, they had used CFC-11 widely to make foam insulation.

“Of course, we chose the cheaper foam agent,” Mr. Zhang said during an interview in his office. “That’s how we survived.”

As it happens, a crackdown was underway in the town and moments later, four officials entered Mr. Zhang’s factory, handed him a leaflet warning against a range of environmental violations, including using CFC-11, and ordered his factory closed.


4. Ideology still matters

Party Ideology and Chinese Law by Rogier Creemers :: SSRN

This chapter elaborates on the claim that ideology provides a useful lens to understand the development of the Chinese legal system. In spite of expectations both inside and outside of China, this system does not seem to be evolving towards a "rule of law" in the Western sense of the term. This chapter claims such expectations were based on an approach paying short shrift to the role of the Party in developing the legal system, and its ideology in particular. It further analyses CCP ideology in the light of three political questions: what is the purpose of politics, who should be in charge and what methods should they use. Lastly, it explores the impact of the answers to these questions on the trajectory of law in China. It suggests there many of the perceived flaws in the legal systems are logical consequences of its ideological structuring, or even fundamental features. Specifically, it finds that legal rationality in China remains tightly circumscribed in its scope of application, ideology is a potent tool to provide meaning to political terminology, and discipline the CCP's organisation....

Mr. Creemers discussed his recent paper in a long twitter thread today:

China Media@ChinaMedia1

1/ The direction of Chinese law reform, particularly under Xi Jinping, has befuddled observers expecting or hoping China to realise "rule of law". Clearly, something was missed. My new paper argues part of that is Party ideology. Available freely on SSRN: https://t.co/xKqLytJBni

July 9, 2018
This one I particularly liked, given how much grief I have gotten in some quarters for saying that we should consider Xi may actually be a Marxist and that the PRC foreign policy views especially have have quite a Marxist strain:

China Media@ChinaMedia1

18/ These laws (or guilü) are not only intelligible, they can also be used to predict and control society. Most important, in the CCP's thinking, is Marx's theory of history. On this basis, Mao elaborated the doctrine of contradictions. In short, history is divided into eras.

July 9, 2018
China Media@ChinaMedia1

19/ Historical progress happens through the resolution of contradictions. Each separate era is defined by a "main contradiction", from which all subordinate contradictions flow. A bit like the end boss in a Super Mario game. There are also two kinds of contradictions.

July 9, 2018
This is another reminder of why the change at the 19th Party Congress of the "principal contradiction" was so important

It is also a timely read today, the third anniversary of the crackdown on rights lawyers. 

709 Crackdown Three Years on: A Tribute to Wang Quanzhang « China Change:

As of today, lawyer Wang Quanzhang has been held incommunicado for 1,095 days. Over the 1,095 days, his toddler has grown into a boy who vows to fight the “Monster” that took his father; his wife has metamorphosed from a timid housewife to one of the most recognizable faces of the 709 resistance. With each day, we worry about Wang Quanzhang’s fate: Is he still alive? Has he been so severely debilitated by torture that they can’t even show him?

‘Shackled, isolated and beaten’: how one child became a victim of China’s 709 crackdown on rights lawyers | South China Morning Post:

Wang Yu knew she would have to pay a price for her work as a Chinese human rights lawyer but she was not prepared for the toll the state would take on her young son.

Wang, the once-fiery defender of activists and the vulnerable, has been beaten mentally and physically by detention and surveillance, and today, three years after she was swept up in a nationwide crackdown, her speech is slower and her pauses for thought longer. She struggles with auditory and smell hallucinations, memory problems and a heart condition – among a litany of other ailments.

But the 47-year-old’s relentlessness returns when she describes the damage that was visited on her son – and the family as a whole.


5. No safe place for Uyghurs

Spy For Us — Or Never Speak To Your Family Again -Buzzfeed:

Tahir Imin, a Uighur academic who lives in the DC area, left behind his wife and their young daughter when he moved to Israel for graduate school. Even though he said more than a dozen of his family members have been sent to reeducation camps, including his brother and sister, he insisted that his real name be published in this article because he believes it will bring more attention to what’s happening in Xinjiang...

Amid all this, a state security operative continued to ask him to send information about others in the Uighur community. Finally, in June, he lost his temper.

“Before last week, I was also very afraid of them,” Tahir told BuzzFeed News a week after that conversation. But something inside him had snapped.

“I said, ‘Why would I cooperate with you? I know how brutal the Chinese police are. I don’t want to listen to you ever again,’” he recounted.

The operative, who is himself a Uighur, reminded him that his daughter was in their hands in a voice message that Tahir shared with BuzzFeed News.

“Your daughter won’t turn out to be a traitor like you when she grows up,” the operative said. “Your daughter will study hard and become useful to her homeland, to the nation, and to the Communist Party.”

Comment: State security using Wechat to harass US residents may get some members of Congress to pay more attention to Wechat in the US?

Xinjiang relocates 460k residents - Global Times:

Authorities in the Xinjiang Uyghur Autonomous Region in Northwest China relocated 461,000 poverty-ridden residents to work in other parts of the region during the first quarter of the year, in what a Chinese expert on Friday said was a bid to improve social stability and alleviate poverty. Data shows that 461,000 residents in Xinjiang villages were relocated during the first three months of the year, People's Daily reported on Thursday. The Xinjiang government plans to transfer 100,000 residents in southern Xinjiang's Hotan and Kashi by 2019, to get employed somewhere else, the report said.

UBC student uses satellite images to track suspected Chinese re-education centres where Uyghurs imprisoned - The Globe and Mail:

Many nights in the past few months, Shawn Zhang has come home from work at a student legal-aid program and pulled up satellite imagery of a place 10,000 kilometres away.

He is looking for re-education camps in Xinjiang, the Chinese region where, scholars estimate, hundreds of thousands of mainly Muslim people have been forced to undergo political indoctrination. What Mr. Zhang has found has given the Chinese-born University of British Columbia law student, 28, an important role in documenting a system that Chinese authorities call “vocational skills training,” but critics liken to military prisons.


6. New Era "culture practice centers" and a regulation on preventing and punishing statistical falsification 

Those are just two of the documents approved Friday at the latest meeting of the central committee for deepening overall reform. 

Xi presides over 3rd meeting of central committee for deepening overall reform - Xinhua

Some of the documents approved:

-- a guideline on supporting Xiongan New Area in Hebei in deepening overall reform and opening up 《关于支持河北雄安新区全面深化改革和扩大开放的指导意见》;

-- a guideline on creating pilot new era culture practice centers 《关于建设新时代文明实践中心试点工作的指导意见》;...

-- a document on enforcing budget performance management 《关于全面实施预算绩效管理的意见》;

-- a document on improving consumption stimulation system and mechanism and stimulating potential consumption capacity of residents《关于完善促进消费体制机制进一步激发居民消费潜力的若干意见》;

-- a plan to improve consumption stimulation system and mechanism (2018-2020) 《完善促进消费体制机制实施方案(2018—2020年)》;...

-- a regulation on preventing and punishing statistical falsification《防范和惩治统计造假弄虚作假督察工作规定》 ;..

-- a document on financial policies for promoting deeper military-civilian integration《关于推进军民融合深度发展若干财政政策的意见》 ;

-- a plan to set up Internet courts in Beijing and Guangzhou 《关于增设北京互联网法院、广州互联网法院的方案》 ;..

Participants in the meeting also agreed to draw up measures to inspire the cadres and support reformers in various ways.

In addition, a batch of reform pioneers should be commended in the celebration of the 40th anniversary of the reform and opening up, said the statement.

7.6. CCTV Evening News report on the meeting - 习近平主持召开中央全面深化改革委员会第三次会议强调 激发制度活力激活基层经验激励干部作为 扎扎实实把全面深化改革推向深入: 

会议指出,全面深化改革,必须更多抓落实、见成效。每项工作都要定责追责到人。要激发制度活力,敢于突破,主动作为,在优化资源配置上下功夫,用制度来盘活资源、提高效能。要激活基层经验,对率先突破、取得经验的,及时拿到面上来研究论证,条件成熟的要及时推广。不管在哪个层面总结推广改革经验,要按照客观规律办事,根据实际作差别化处理。要激励干部作为,拿出一些专门的举措来,让改革者想干事、能干事、干成事。要结合庆祝改革开放40周年活动,表彰一批改革的先锋模范,在全社会大力弘扬改革精神。

I am most intrigued by the document about faking statistics, the new era culture practice centers and the financial policies for promoting deeper military-civilian integration


7. More on the Panopticon

Politics, money, technology, history, popular support are all pushing China towards the eventual creation of a Panopticon surveillance state

Inside China’s Dystopian Dreams: A.I., Shame and Lots of Cameras - The New York Times:

Mr. Xi has launched a major upgrade of the Chinese surveillance state. China has become the world’s biggest market for security and surveillance technology, with analysts estimating the country will have almost 300 million cameras installed by 2020. Chinese buyers will snap up more than three-quarters of all servers designed to scan video footage for faces, predicts IHS Markit, a research firm. China’s police will spend an additional $30 billion in the coming years on techno-enabled snooping, according to one expert quoted in state media...

Judging public Chinese reaction can be difficult in a country where the news media is controlled by the government. Still, so far the average Chinese citizen appears to show little concern. Erratic enforcement of laws against everything from speeding to assault means the long arm of China’s authoritarian government can feel remote from everyday life. As a result, many cheer on new attempts at law and order...

Private companies see big potential in China’s surveillance build-out. China’s public security market was valued at more than $80 billion last year but could be worth even more as the country builds its capabilities, said Shen Xinyang, a former Google data scientist who is now chief technology officer of Eyecool, a start-up...

Eyecool, he said, is also handing over two million facial images each day to a burgeoning big-data police system called Skynet.

China facial recognition tech company: Megvii, FacePlusPlus - Business Insider:

Xie Yinan, Megvii's vice president, told Business Insider that the company sees tons of applications beyond law enforcement, including in financial services, e-commerce, retail, and identity verification...

The buzziest and, for many, most terrifying use of Face++ has been by Chinese police. China already has 170 million security cameras in use for its so-called "SkyNet" system, with 400 million more on the way. Face++ is already being used as part of that system. One of Megvii's biggest investors is China's state venture capital fund...

If the government, or any client, tried to use Face++ pervasively or indiscriminately, Xie said that he is confident that that the system would fail. There simply isn’t enough computing power available to support a facial recognition system that isn’t targeted. Of course, that could change as the technology matures.


8. Water and Hydropower in Tibet

A series of three posts from the blog Rukor.

Hydropwering Central Tibet | Rukor  

Outside Tibet, people often assume China rapaciously exploits and dams all rivers, yet electricity supply has fallen so far behind that TAR is now dependent on two ultra-high voltage direct current (UHVDC) long distance power grid lines to transmit electricity from both Qinghai and Sichuan all the way to Lhasa, but now these two have proven inadequate.[1]

The recent announcement that China would supply electricity to remote highland districts of Nepal, via Tibet, has only exacerbated the chronic shortages.

In a major 14 June 2018 policy announcement, China’s National Development and Reform Commission (NDRC)has instructed TAR to establish a market-based electricity supply, with sufficient incentives for corporations to invest in hydropower. There is almost no mention of photovoltaic solar power, or of wind power, though Tibet is well capable of providing both, being both sunny and windy, especially in winter.

We will soon see many new hydropower schemes, coordinated by NDRC central planners into three grids, one centred on Lhasa, one on Chamdo in eastern TAR, and one in the far west, centred on Ngari.

Second in the series - Pumping Tibet: 

State Grid, by any measure worldwide a massive corporation, announced in 2017 it was upgrading the existing grids in TAR, which seldom had capacity to transmit more than 110kV, to be increased to 500kV, while interconnecting the separate grid networks of eastern and southern TAR.

In announcing this upgrade, State Grid emphasized how important it was to safeguard the new rail line from Lhasa to the luxury resort district of Nyingtri, so close to India’s Arunachal Pradesh. The single track line needs electricity to fulfil its promise of reducing an eight hour bus ride to three hours on a train that stops at only a few of the 17 stations, moving at 160 kms/hr through tunnels as much as 17kms long and bridging the Yarlung Tsangpo just above the Zangmu hydro dam.

Third in the series - Corporate Giants Overpowering Tibet

We know their preferred mode of operation, which is no longer to build the dam, collect their contracted payment and leave. These days they prefer the BOT model, meaning build, operate and eventually transfer the ownership of the dam back to the TAR government, but only after operating the dam and collecting payments for the electricity generated, for the first two or three decades of the hydro dam’s life. Not only is that a way to increase profits in the long run, it also enables the ultimate owner of the land and the dam –the party-state- to get the dam built without having to pay upfront for all the construction costs. The BOT model means more dams get built, not delayed by governments restricted by having insufficient capital to invest, in a time when speculative investment in urban real estate is more quickly profitable for local governments.


Business, Economy, Finance And Trade

China Wealth Fund Posts Record Return After 2017 Stock Rally - Bloomberg China’s $941 billion sovereign wealth fund posted a 17.6 percent return on its overseas investments last year, the best annual performance in its decade-long history, just before rising volatility and political tensions arrested a global stock market rally. That compared with 6.2 percent in 2016 and brought the company’s cumulative annual return to 5.9 percent, Beijing-based China Investment Corp. said in its 2017 annual report released Monday. Net income, which also includes profit from stakes in China’s biggest banks, surged 38 percent to $103.6 billion.

China to Reimburse Tariffs for State Reserve Soybeans - Bloomberg China will reimburse the buyer for the cost of the 25 percent tariff on soybean imports from the U.S. if the cargoes are for state reserves, according to people familiar with the matter... At least one U.S. soybean cargo currently on the water is destined for state reserves, according to the people. Still, most of about 20 cargoes purchased earlier for state reserves have already been canceled, said Li Qiang, chief analyst with Shanghai JC Intelligence Co.

Yuan hedging costs near seven-year low as Beijing seen unlikely to allow sharp fall in currency | South China Morning Post “Even if Chinese policymakers see a weaker yuan as helpful to ease financial conditions and cushion a slowing economy when external demand faces new challenges, we do not believe it is in China’s interests to weaponise its currency,” said Claudio Piron, emerging Asia fixed income and currency strategist at Bank of America Merrill Lynch.

China's FX reserves post surprise gain, withstand June market chaos | Reuters Reserves rose $1.51 billion in June to $3.112 trillion, compared with a drop of $14.23 billion in May, central bank data showed on Monday. Economists polled by Reuters had expected reserves to drop by $10.6 billion to $3.10 trillion. China’s State Administration of Foreign Exchange (SAFE) said in a statement the small increase in reserves was due to asset price changes but did not provide details.

Foreigners May Get OK to Trade China’s Rocky Stocks - Caixin Global As part of the government’s strategy to open its financial markets and attract more overseas capital, the China Securities Regulatory Commission (CSRC) is proposing to broaden access to the yuan-denominated A-share market to foreigners who work in the country and those who work overseas for an A-share listed company that offers stock options and other equity-based incentives.

Cheers and Fears of China’s Tech Listing Boom - Caixin Global Alibaba also pushed back its timelines for issuing CDRs because of disagreement with the regulator on the price and size of the offering, said one person closed to the CSRC. Trading at a price-to-earnings ratio of 47 in the U.S., Alibaba’s shares are difficult to price domestically because that is more than twice China’s P/E limit of 23 for new listings in effect since 2014 — a move first taken to protect small investors in an unstable stock market. Pricing for JD.com is even more of a challenge as the company is currently trading at a P/E of 300 on Nasdaq. Alibaba and JD.com have completed all the necessary documents required to apply to issue CDRs but appear to be in no rush to hand them over to regulators, a securities firm source told Caixin.

Huawei says does not expect U.S. sanctions: press | Reuters China’s Huawei, the world’s largest maker of telecommunication network equipment, does not see itself becoming the target of U.S. sanctions and will keep buying U.S. chips this year, one of its three rotating chairmen told a French newspaper.

Departing ZTE executive describes 'deep humiliation' in farewell letter | Reuters In the letter, which was circulated online on Saturday, Zhang recounted his 18 years at ZTE and said he had no responsibility in ZTE’s compliance violations. “In the environment of a Sino-US trade war, in the ‘white terror’ of a technology war, all executive presidents including me have signed termination contracts to formally leave the company yesterday,” Zhang said

China to improve management of state-owned financial capital - Xinhua The aim of improving management of state-owned financial capital is to optimize the strategic layout of the state-owned financial capital, enhance the vitality and control of state-owned financial institutions, and preserve or increase the value of state-owned financial capital, said the guideline. The guideline gives specific requirements on improving the management of state-owned financial capital, including improving the administrative system, laws and regulations of state-owned financial capital, strengthening the CPC leadership over state-owned financial institutions and enhancing supervision on state-owned financial capital.中共中央国务院关于完善国有金融资本管理的指导意见

China's COSCO Shipping wins U.S. security clearance for OOIL deal | Reuters In a regulatory filing on Sunday the company said the U.S. Committee on Foreign Investment in the United States had notified it that it does not have any outstanding security issues following an agreement with the U.S. government to divest the Long Beach container terminal business to a third party. COSCO said ownership of the container terminal business will be transferred to a trust while a buyer is sought.

With an eye on Belt and Road disputes, China establishes new international commercial courts | Herbert Smith Freehills | Global law firm China's Supreme People's Court (SPC) has established two new international commercial courts to handle a broad range of international disputes. The new courts are specifically designed to attract disputes related to the Belt and Road Initiative, and offer a one-stop dispute resolution mechanism with access to mediation, arbitration and litigation. An International Commercial Expert Committee will be set up and certain international mediation and arbitration institutions will be selected to work alongside the new courts.  However, the market will dictate uptake from here, and the level of acceptance by foreign parties will be key to the courts' success.

Starbucks' departing chairman Howard Schultz backs China prospects and hints at a Jack Ma tie-up - Reuters "There's no doubt that no brick-and-mortar retailer anywhere in the world, let alone China, can exist as a stand-alone business without having a significant, integrated e-commerce mobile application," he said. "I have been very dear and close friends with Jack Ma for many, many years... and suffice to say there will be news coming that will relate to our plans for accelerating and integrating mobile commerce at a higher level into our core business."

China’s Xiaomi makes underwhelming public debut in Hong Kong IPO | TechCrunch Xiaomi enjoyed an understated debut. The stock opened at HK$16.60, below the list price of HK$17, and it quickly fell to HK$16 before later recovering. Its closing share price for the first day of trading was HK$16.78.

China vows to accelerate cancer drug price cuts | Financial Times $$ China has vowed to speed up cuts to the cost of cancer drugs in a move that threatens to dent revenues in the country for multinationals such as Eli Lilly, Roche and Novartis. Officials will “accelerate price cuts” for cancer treatments, the Communist party-run People’s Daily reported over the weekend. The news comes after China slashed the cost of dozens of overseas drugs by as much as 70 per cent after price negotiations last year. The report coincided with the release of a box office-topping film about patients forced to smuggle cheap generics, adding to pressure on drugmakers in the country.

Copper at 12-month low after mystery investor unwinds $1bn bet | Financial Times $$ The liquidation of a $1bn bet placed by a mysterious Chinese investor has roiled the copper market, triggering a violent sell off that has seen the metal plunge to a 12-month low. Data released by the Shanghai Futures Exchange showed the huge futures position held at Gelin Dahua, a Beijing-based brokerage, has fallen from a net long of 36,050 lots last Wednesday to just around 10,000 lots today.

 

Politics, Law And Ideology

China releases plan on fight against gang crime - Xinhua Chinese central authorities have released a plan on the fight against gang crime at the provincial level. According to the general offices of the Communist Party of China Central Committee and the State Council, authorities will supervise lower Party committees and governments at even county or village level when it comes to major cases. Headed by the commission for political and legal affairs of the CPC Central Committee, a group will be set up to lead the campaign. Work will continue to the end of 2019, when the situation will be reassessed.

China Wants to List Mao Zedong Mausoleum as World Heritage Site - RFA The government will apply to have 14 structures listed on the organization’s register of World Heritage sites including the Stalinist-style building that houses the remains of the late Chairman, the Beijing News reported. The paper quoted Shu Xiaofeng, director of the Beijing municipal government’s bureau of cultural relics, as saying that the city government hopes to have the buildings and structures in downtown Beijing meet the requirements by 2035. As well as the mausoleum, the government also wants to list Tiananmen Square and the Monument to the People's Heroes with UNESCO.  //  so much for those annual rumors it may be removed...

China Holds Journalist Who Wrote Articles Criticizing Hunan Officials - RFA Chen Jieren was taken away from his home in Hunan’s Shaoyang city on Thursday. Calls to his cell phone rang unanswered on Friday. A fellow journalist who asked to remain anonymous told RFA that Chen is being investigated for fraud and running an illegal business.

 

Foreign and Military Affairs

China seeks ally in Europe to face down US tariffs | Financial Times $$ China is looking to overcome EU wariness and build a coalition against Washington at a summit in Beijing with European leaders on July 16-17, with Donald Tusk, president of the European Council, and European Commission president Jean-Claude Juncker leading the visiting delegation. Before that summit, Chinese premier Li Keqiang is due to meet German chancellor Angela Merkel in Berlin before returning to Beijing to host the EU delegation. In a summit with central and eastern European leaders in Bulgaria this weekend, Mr Li said China would continue to widen access for foreign investors. “It is a two-way street,” he said. ... European companies are now being groomed by Beijing as the first beneficiaries of reforms rolled out earlier this year, including steps to reduce or remove ownership caps on security groups and other financial services businesses.

North Korea invites Chinese President Xi Jinping to national day celebrations in Pyongyang | South China Morning Post North Korea has invited Chinese President Xi Jinping to visit Pyongyang in September for its national day as relations between the two countries gain pace. An unnamed North Korean official told South Korean reporters on Friday that Pyongyang had sent an invitation to Xi to celebrate the 70th anniversary of the country’s foundation on September 9.

NZ's defence strategy points to China's growing influence in the Pacific | 1 NEWS NOW | TVNZ The New Zealand Defence Force has pointed to China's increasing influence in the Pacific as Australia's outgoing Defence chief takes aim at its militarisation of the South China Sea.

Chinese Embassy Spokesperson's Remarks on Expressen's Article About China Recently, the Swedish newspaper, Expressen, published an article, "Så straffas svenska Journalister av Kina", and accused China of being "dark" and "suppressing freedom of press". The content of the article is seriously inconsistent with facts and full of bias and lies, which is totally unacceptable. The Embassy has sent a letter to Expressen on 2 July to express firm opposition, and present China's position as follows: The so called Foreign Correspondents' Club of China (FCCC) mentioned in the article is an unregistered illegal organization and lacks all legitimacy. It can by no means represent all the foreign journalists stationed in China, and the reports it released are totally unreliable. As China enters a new era, it will not close its door to the world but only become more and more open. The number of foreign media outlets and foreign journalists stationed in China continues to increase. The Chinese government and society have provided more and more assistance to foreign journalists reporting in China. The environment for foreign journalists to work and live in China has become increasingly more convenient, and information covered by their reporting increasingly wider. Foreign journalists enjoy great freedom in interviewing in China.

China tried to spy on German parliament — report | News | DW | 06.07.2018 Chinese spies have attempted to bribe German MPs for information, according to a newspaper report. Chinese agents would use fake profiles to try to get MPs to give insider information for money.

Secretary Pompeo's Meeting With Vietnamese Leaders - US Department of State They also affirmed their shared interest in upholding peace and security in the South China Sea‎, and their shared concerns over militarization and reclamation of features that runs counter to international law. Both sides welcomed cooperation to uphold the freedom of navigation and overflight, with Vietnamese leaders welcoming a strong U.S. role in ensuring stability in the South China Sea. The Secretary and Vietnamese leaders also discussed ways to further strengthen the U.S.-Vietnam Comprehensive Partnership so as to advance our common bilateral and regional priorities and common efforts to promote peace, security, and prosperity in the Indo-Pacific region.

Sri Lanka buries China-related corruption probes? | Economynext At least three mega corruption cases involving Chinese state-owned firms have either been moth-balled or deliberately put on hold, according to officials familiar with the cases. These graft cases are in addition to the alleged campaign funding by the Chinese.

China Defense Blog: PLA ground force SpOps preps to deploy aboard warships Clearly, the plan is in the early stage, but having an additional determent aboard could give naval combatant commanders a hand in recovering downed pilot, pulling Chinese out of an embassy under attack, providing humanitarian assistance after a rapid developing natural disaster.  For the ground force SpOps, that means new types of sea duty on ships across the all three Theater Commands.  The newly commissioned naval marine brigades could focus on their core mission of recovering a run-away province.  This is a way to make sea services more versatile, agile and flexible.

Trump cannot bring Europe and China together | European Council on Foreign Relations But above all, China has an issue of credibility. The Chinese interrupt, minimize or delay dialogues. They fail to implement announcements and agreements. They play games with the China-EU relationship with any willing third party. This difficult history has taught Brussels a lot about China. It may be thought of as statecraft in Beijing, but it will only go so far with increasingly alert partners.

New concepts on int'l relations to be presented at security forum: Chinese scholar - Xinhua New concepts for understanding the world will be presented at an international security forum in Beijing later this week, as previous ones promoted by the West can no longer adapt to reality, the forum's organizer has said. The participants "are expected to come up with some new concepts for understanding the world," Yan Xuetong, dean of the Institute of Modern International Relations at Tsinghua University, told a press briefing in the lead-up to the seventh World Peace Forum. The forum has brought together veteran politicians and leading think-tankers from around the world every year since 2012.

 

Taiwan

U.S. warships pass through Taiwan Strait amid China tensions - Reuters "Two U.S. Navy ships conducted a routine transit through the international waters of the Taiwan Strait on July 7-8 (local time)," Captain Charlie Brown, a spokesman for U.S. Pacific Fleet, told Reuters in a statement. "U.S. Navy Ships transit between the South China Sea and East China Sea via the Taiwan Strait and have done so for many years," Brown said. U.S. officials, speaking on condition of anonymity, said the destroyers Mustin and Benfold carried out the passage.

Taiwan braces for Chinese meddling ahead of election | Financial Times $$ The Democratic Progressive party was probing how hackers breached the party’s website on July 3, a party official said. The source of the hack has not been announced but investigators believed it came from China, according to a person familiar with the matter.

 

Tech And Media

Ofo fires staff in India, winds down operations in the country · TechNode Bike rental firm ofo has asked its staff that formed part of its Indian operations to leave, a move that further draws attention to the company’s rumored cash crunch. Individuals with knowledge of the matter told TechNode that the company is winding down operations in the region and that most of the company’s staff have been laid off.

Tencent to Spin Off Music Unit for U.S. Listing - Caixin Global Hong Kong-listed internet giant Tencent Holdings Ltd. is planning to spin off its online music business for a listing in the U.S. The company hasn’t finalized the financial terms of the spinoff, including the offering size and price range, it said in a Sunday filing to the Hong Kong Stock Exchange. Its online music business is operated by Tencent Music Entertainment Group, a unit majority owned by Tencent Holdings.

China Finds Zen: Begins Production Of x86 Processors Based On AMD's IP - Tomshardware Chinese-designed "Dhyana" x86 processors based on AMD's Zen microarchitecture are beginning to surface from Chinese chip producer Hygon. The processors come as the fruit of AMD's x86 IP licensing agreements with its China-based partners and break the decades-long stranglehold on x86 held by the triumvirate of Intel, AMD and VIA Technologies. Details are also emerging that outline how AMD has managed to stay within the boundaries of the x86 licensing agreements but still allow Chinese-controlled interests to design and sell processors based on the Zen design.

Co-founder of self-driving startup JingChi accuses company of forging signatures · TechNode Over the weekend, Chinese self-driving startup JingChi’s (景驰科技) co-founder Pan Sining accused CFO Lu Qing and others of forging signatures in shareholder’s meetings and illegally removing him from his positions as executive director and statutory representative, local media has reported. Pan wrote in a post on his official social media account demanding a response from JingChi: “Without the legal process, I am still the executive director and statutory representative of the company.”

Signing on to “Third-Party Content Review” | China Media Project On June 22, Nie Chenxi (聂辰席), the head of the China’s State Administration of Radio and Television (国家广播电视总局), met with Alibaba CEO Jack Ma (马云). During his visit with Ma, a tech billionaire who in many ways symbolizes China’s push for innovation, Nie emphasized the need to “deeply study Xi Jinping Thought of Socialism With Chinese Characteristics for the New Era and the spirit of the Party’s 19th National Congress,” the former phrase being the president’s “banner term” (旗帜语), the phrase meant to sum up his policies and legacy. Nie also spoke of the need to emphasize the so-called “Four Consciousnesses” (四个意识) — essentially, the need to have political awareness of the big picture as it impacts the Party’s position — and “Four Confidences” (四个自信), or confidence the country’s chosen political path (meaning CCP leadership), its guiding theories (meaning those of the CCP leadership), its political system (meaning one-party dominance), and in China’s unique culture. Other phrases that played prominently in Nie’s mostly boilerplate speech were the “transmission of positive energy” (传播正能量), meaning more focus on positives in news and entertainment, and “preserving the country’s ideological and cultural security” (维护国家意识形态和文化安全).

 

Society, Art, Sports, Culture And History

The Concert that Changed the World - CHINA US Focus Today, the Chinese are both the greatest consumers and the most amazing contributors to classical music. Composers like Tan Dun, and pianists like Lang Lang and Yuja Wang are celebrated as superstars. Music once given tepid applause is now wildly embraced.

“There are so many orchestras in China in the past few years that have come up,” said S.F. Violinist Jay Liu. “And the government is behind them. Every small cities, they have a new orchestra. Even in Tibet. Even in Inner Mongolia.”

“Today it’s considered a mark of prestige to have a symphony orchestra,” said Sheila Melvin, who has written two books on classical music in China, and whose husband Dr. Jindong Cai is one of the producers of the upcoming film, Beethoven in Beijing. “So they’re all over the country…There are over 70 orchestras now, and many of them started in the past five years.”

China orders register of poor Catholics in Henan- ucanews.com A priest in China's Henan province claims to have received a notice from municipal authorities requesting churches in the province gather statistics on the backgrounds of their congregations, especially those from poor families.
But he is refusing to cooperate out of fear that anyone named in the register could be barred from receiving state subsidies as punishment for practicing their faith.
"This is totally unreasonable. I suspect their hidden agenda may be to cancel people’s low-income subsidies," said the man, who declined to give his name for fear of reprisals from the state.

Passing the baton: Chinese conductors seek global fame - AFP After long relying on Western conductors, a growing number of symphony orchestras around the country are now entrusting the baton to a fresh generation of Chinese music directors.

Students Call for Investigation Into SYSU Sexual Harassment - Sixth Tone According to an article published by nonfiction platform The Livings on Sunday, ecology professor Zhang Peng had been given “a disciplinary punishment within the Party” in April after a freshman student accused him of sexual assault. Then in May, five more women — four students and a colleague — came forward with further allegations of misconduct during field trips, thesis consultations, and work activities, dating back years.

 

Energy, Environment, Science And Health

New Policies Support Commercialisation of Chinese Scientific and Technological Research - China Banking News A regular meeting of the State Council held on 4 July called for the launch of trials to provide an “easy channel” for scientific researchers to obtain ownership or long-term usage rights to the fruits of their professional labours, as well as raise the percentage of indirect funds for basic research projects and streamline budgeting for scientific research projects. The State Council said that it would “grant scientific researchers with greater independent allocation rights in terms of people, funds and materials, to stimulate their innovative activities and strengthen their new role in economic growth.”

Once banned, Chinese scientists now at heart of organ transplant conference | AFP Just a few years ago, China was persona non grata in the transplant world over its use of organs from executed inmates, some of them prisoners of conscience.But at the Transplantation Society’s annual congress in Madrid this week, the tables turned as 150 Chinese experts took part – an unprecedented number – and one-time critics endorsed the country’s organ donation system despite allegations it is far from transparent.

 

Agriculture And Rural Issues

Xi calls for concerted efforts on rural vitalization - Xinhua Rural vitalization is the principal strategy to advance work in agriculture and rural areas in the new era, said Xi, also general secretary of the Communist Party of China (CPC) Central Committee and chairman of the Central Military Commission. In an instruction, Xi said work should cover industry, talent, culture, the environment and rural organizations. During the process, the rural people's enthusiasm, initiative and creativity should be stimulated so that they have a stronger sense of gain, happiness and security, Xi said. Premier Li Keqiang has also made an instruction on rural vitalization. Li ordered authorities to increase input in sectors relating to agriculture, rural areas and rural people, and implement favorable policies.

 

Food And Travel

泰方:普吉沉船事故罪在零元团中国籍负责人_凤凰资讯 Thai official blames Chinese tour operator for the boat tragedy off Phuket that killed at least 40 people, apparently one of these super cheap tours where the operators make the money from the shopping of the participants. 

 

Beijing

School District Reform Prompts Parent Protests in Beijing - Caixin Global: A group of 30 parents staged a protest at the education department of Beijing’s Dongcheng district to voice their opposition to a sweeping change to the “school district” policy now being tested by the local government. Under the change, a school district, usually comprised of several neighborhoods, is no longer tied to one specific school. Instead, students in one school district can choose from a list of schools close to their homes depending on the availability of spaces at each of the schools.//Comment: The people who paid hundreds of thousands of RMB per square meter to buy homes zoned to the top schools are likely to be especially angry//  The parents at the May protests were mix of long-time residents of sought-after school districts and recent homebuyers who paid a steep premium to try to get their children into an elite school. They strongly opposed the plan over concerns about the possible devaluation of their properties or losing money in their new investment. “We’ve spent money for the exclusive rights to a good school,” said one parent who had just bought a new home in a popular school district in Xicheng district. “But if the new policy takes effect, we would no longer have the guarantee in return.”

Beijing Kicks Official Cars to the Curb - SixthTone Since 2014, the municipal and district governments have reduced the number of official cars by 40 percent, The Beijing News reported Tuesday, offering staff transport subsidies instead. The number of cars owned by government offices and Party branches of Beijing has dropped from around 40,000 to 24,000, according to the report, reducing spending on transportation by 8 percent to around 3 billion yuan ($450 million) per year. In place of the official vehicles, eligible staff are instead given monthly cash transport subsidies.