Good morning…hard to believe that we left Beijing for Washington DC two years ago today.
After yesterday’s newsletter several readers sent me a fascinating Economist podcast in AI and China-The Economist asks: How do you win the AI race?. The hosts speak with Sequoia China’s Neil Shen.
I am usually wary of citing Boxun as its track record is quite spotty, but they have an interesting report today (伊万卡和库什纳9月飞北京 习近平和彭丽媛将设“家宴”) claiming that they have confirmed Javanka–Ivanka Trump and Jared Kushner–will travel to Beijing in September with their children and that Xi and Peng Liyuan will host them for a banquet at their home. A trip has already been announced but I am not aware of any official confirmation of dates.
James Mann penned some advice for Javanka in preparation for their China trip-The Chinese Are About to Take Jared Kushner and Ivanka Trump to the Cleaners. Will savvy China specialist Matt Pottinger, the Senior Director for Asia on the National Security Council, join them on the trip?
The August 16 CCTV Evening News has a report on Zhang Dejiang making an environment-related inspection visit to Hunan-张德江在湖南检查固体废物污染环境防治法实施情况. This may be a good sign that whatever has been going on at Beidaihe has concluded.
The Essential Eight *
1. Chairman of the Joint Chiefs of Staff Gen. Joe Dunford Visits China
The Pentagon’s top military officer will make a rare visit on Wednesday to the Chinese armed-forces command that oversees the territory bordering North Korea, a move experts say suggests Beijing’s displeasure with Pyongyang.
Chairman of the Joint Chiefs of Staff Gen. Joe Dunford, the officer, also signed a deal with his Chinese counterpart on Tuesday to formalize and increase operational communication between the U.S. and Chinese militaries
The agreement is intended for crisis mitigation, U.S. Joint Staff officials said, noting that direct communication at the three-star level in the Pentagon and the Ba Yi will “enable us to communicate to reduce the risk of miscalculation.” Army Lt. Gen. Richard D. Clarke, the Joint Staff’s director for strategic plans and policy, will lead the effort for the American military. The first meeting to set up the framework is set for November.
The Joint Staff posted a video to Twitter of Gen. Dunford’s arrival in Shenyang.
2. More China-India Border Tensions. Will The Disputes Impact The Upcoming BRICs Summit?
Chinese and India soldiers had a scuffle in Ladakh near Pangong lake (班公错 in Chinese, སྤང་གོང་མཚོ, in Tibetan. View on Google Maps ). Meanwhile, the current border standoff at Doklam (洞朗) continues.
In China, India soldiers hurl stones at 1 another in Kashmir AP reports:
An Indian intelligence officer said the confrontation occurred after Indian soldiers intercepted a Chinese patrol that veered into Indian-held territory after apparently it lost its way due to bad weather.
The officer said that soon the soldiers began shouting at each other and later threw stones. He said some soldiers from both sides received minor injuries.
After nearly 30 minutes of facing off, the two sides retreated to their positions, he said.
Chinese military officials sought a flag meeting with Indian officials on Wednesday, a day after their men crossed the de-facto border and exchanged blows with troopers in Ladakh, an incident that the government in Beijing said it was not aware of.
India’s opposition to OBOR is the biggest sore point between India and China today. And that could be the reason behind China’s Doklam posture. Border disputes have lingered on for decades and have rarely led to such a prolonged stand-off.
So, the actual theatre of Doklam war might not be the India-Bhutan-China tri-junction where Indian and Chinese soldiers are facing off. It could be thousands of kilometres away—the Line of Control between India and Pakistan. In Doklam, China might be maneuvering to secure CPEC, its biggest strategic asset in the region.
The stand-off in Donglang is a reminder of how crises and even wars can start in totally unexpected places and sooner than might be expected. China has reason to continue to exercise the utmost restraint as it wishes to extend its “period of strategic opportunity”. However, it should also prepare for the worst-case scenario and be prepared to fight and win. This may sound harsh, but the truth is that peace is not a godsend. It often has to be earned, sometimes at the cost of war.–By Zhou Bo, honorary fellow with Center of China-American Defense Relations at the PLA Academy of Military Science.
India orchestrated the standoff to not just guarantee the security of the Siliguri Corridor – India’s sensitive “chicken’s neck” connecting its central and northeast regions, but more importantly to jeopardize China’s Belt and Road initiative. In this way it can reverse its strategic disparity with China in South Asia and the Indian Ocean region and tighten its grip on small countries there.
India says it is acting on Bhutan’s behalf in the standoff. But its intervention has not resulted in much gratitude here. On the contrary, many in Bhutan feel that India’s protective embrace has become suffocating.
Wang Yi, who arrived in Nepal on Monday, described the two countries as “trustworthy friends and partners”. He also noted Kathmandu’s cooperation on the “Belt and Road Initiative”
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3. IMF China Consultation Warns on Debt
The IMF now expects China’s non-financial sector debt to exceed 290 per cent of GDP by 2022, compared with 235 per cent last year. The fund had previously estimated that debt levels would stabilise at 270 per cent of GDP over the next five years.
“International experience suggests that China’s current credit trajectory is dangerous with increasing risks of a disruptive adjustment,” the IMF said in the strongly worded report.
The executive directors also commended China’s increased focus on reducing financial stability risks, noting that “corporate debt is growing more slowly, reflecting restructuring initiatives and overcapacity reduction.” They called for continued strengthening of regulatory and supervisory efforts.
Debt racked up by China’s government, companies and households will likely balloon to almost 300 percent of gross domestic product by early next decade, the International Monetary Fund projected in its annual review of the country’s economy.
Big, for sure, and a risk to global financial stability. But anything less would be a risk as well. What would China’s economy and the world’s look like without this level of stimulus? Global growth since the 2007-2009 crisis would be slower and more dependent on the U.S., which is struggling to escape the world of 2 percent growth.
4. More On Trump’s Latest Trade Action
Section 301 has been historically ineffective at achieving U.S. negotiating goals, while consistently infuriating trading partners. One legal expert called it “probably the most criticized piece of U.S. foreign trade legislation since the Hawley-Smoot Tariff Act.” Invoking it wouldn’t do much to change China’s behavior. But it could very well undermine the global system of trade…
If the administration hopes to change China’s behavior, it would be well within its rights to bring a formal intellectual-property case at the WTO, ideally with the support of allies. If it wants to undermine the global system of dispute resolution, antagonize trading partners, and destabilize world affairs for no reason at all, it should keep doing what it’s doing.
We do not want to become fixated on IP theft, however. It reflects a mindset from the days when the United States effortlessly led in technology. Those days are gone. If IP theft was so valuable, China would not be trying many other approaches: buying entire Western firms to gain know-how; opening research facilities in Silicon Valley; continuing to demand technology transfer as part of the cost of doing business in China; and spending billions on science education and on research and development. China, after decades of spending, is creating its own culture of innovation, not as effective as America’s but better than most countries and lavishly resourced. China will increasingly make its own IP, so stopping IP theft will not keep the United States competitive.
“If Xcerra becomes a Chinese state-owned enterprise and obtains top-tier semiconductor companies like Qualcomm, Broadcom and Texas Instruments as customers, it is reasonable to expect transfer of this critical information to Chinese semiconductor companies,” the document says.
5. Shanda Founder Chen Tianqiao Returns To The Spotlight
Comment: Bloomberg has an interesting profile of Chen Tianqiao and his life after Shanghai. He now lives in Singapore, is a Buddhist, a philanthropist and an investor. Chen, a Communist Party member once if not still, was an online gaming pioneer. This profile is very interesting, it also looks to be a huge PR win as it washes away all the dirt of original sins and sketchy behavior that were rife in the early days of the Chinese online game industry.
A dozen years ago, the largest internet company in China wasn’t Alibaba or Tencent, but game developer Shanda Interactive Entertainment Ltd. Its founder was a young man named Chen Tianqiao, who had become a billionaire at 30…
Chen is finally ready to talk publicly again. Now 44, he’s living in Singapore with plans for his next act….
The struggles with his own mental condition, combined with his Buddhist beliefs, convinced him to focus on research of the human brain.
He has set aside $1 billion for the effort, out of a personal fortune of at least $2.4 billion
Shanda Group Raises Stake in Community Health Systems – WSJ Comment: Shanda now owns 22.1%
6. Chinese Illegal Fishing Around the Galapagos Islands. There Are Not Enough Fish In The Sea For Chinese Consumers
The Fu Yuan Yu Leng 999 was found Sunday in the archipelago, which is a marine reserve, carrying 300 tonnes of fish.
Most of the catch was sharks, including protected species such as hammerheads
China, with its enormous population, growing wealth to buy seafood and the world’s largest fleet of deep-sea fishing vessels, is having an outsize impact on the globe’s oceans.
7. Chafing At Abusive Teachers
An essay of 2000 characters written by a [4th grade] primary school student from Lüliang in Shanxi province has gone viral on WeChat and Sina Weibo. The essay, titled “Teacher, What I Want to Tell You” (“老师我想对您说”), has triggered thousands of shares and comments from Chinese netizens.
Over recent year, the issue of corporal punishment at school has been a recurring topic of debate on Chinese social media.
8. Nationalism and Building A Military That Can Fight And Win Wars
It’s important to note that “Wolf Warrior 2” is not just another commercial success: It also serves as an excellent example to the Chinese film authorities of how to conduct effective propaganda in today’s social environment.
China’s zhu xuanlü dianying, or “main melody films” — that is, the bulk of movies targeted at a domestic audience — are charged with spreading civilized thought, improving social integration, and reflecting state-sanctioned interpretations of historical events. It should come as no surprise, then, that the war genre — with its dualistic, us-versus-them ideology — has played an integral role in furthering such thinking.
Business, Economy And Trade *
China Human Rights Accountability Center Open Letter: A Call for Investigation Into HNA Group’s Activities in the US and Likely Corrupt Ties With Top Communist Party Leaders « China Change HNA bypassed scrutiny while acting as a state sovereign investment company. On the other hand, given the opacity of the ownership and its special connections, we are concerned that it could very well be controlled by individuals and families connected with the top of the Chinese Communist Party (CCP), operating through a shadowy Guan Jun. Cihang will provide a shelter for CCP leaders’ families to retain their wealth, which they could only have obtained through corruption. Cihang may thus become a beachhead for the CCP to influence the U.S. government and public. If this is the case, such an entity would be liable for examination per the Global Magnitsky Human Rights Accountability Act, passed in December 2016 (NDAA 2017, section 1261-1265)
Exclusive: China’s Belt and Road acquisitions surge despite outbound capital crackdown – Reuters Chinese acquisitions in the 68 countries officially linked to President Xi Jinping’s signature foreign policy totaled $33 billion as of Monday, surpassing the $31 billion tally for all of 2016, according to Thomson Reuters data.
Ripple Confirms China Expansion Plans, Shoots Down Alibaba Rumor – CoinDesk In new statements to CoinDesk, the San Francisco blockchain startup aimed to address rumors that first appeared last Thursday on XRP Chat, a forum dedicated to gossip and commentary on both the company and its technology. In short – yes, the blockchain company is planning to set up operations in China, but no, it’s not doing so with the help of one of the region’s e-commerce giants.
Liquor-Maker Luzhou Spills Into Theme Parks – Caixin Global To better protect themselves from future downturns, many of China’s most famous liquor-makers have developed similar tourist villages and other attractions, which receive strong support from local governments and also capitalize on brands that are well-known to many Chinese. Such attractions also cater to growing demand from China’s booming middle class for more tourism offerings.
China Reclaims Spot as World’s Biggest Holder of Treasuries – Bloomberg China’s holdings of U.S. bonds, notes and bills rose to $1.15 trillion in June, up $44.3 billion from a month earlier, according to Treasury Department data released Tuesday in Washington. Japan owned $1.09 trillion, a decrease of $20.5 billion from its total in May.
Leading Aluminum-Maker Heeds Cutback Order – Caixin Global One of the world’s largest aluminum producers China Hongqiao Group Ltd. has responded to Chinese government production controls by idling 2.68 million tons of capacity, affecting nearly one-third of the company’s output.
Alleged Job-Recruiting Scams in China Turn Deadly – Caixin Global Police investigators link the deaths to pyramid sales networks, which raise money primarily through joining fees and sometimes use brainwashing and illegal detention to prevent members from leaving.
General Aviation Sputters Despite Beijing’s Big Plans – Caixin Global China’s general aviation sector, which is separate from big commercial airlines, posted almost no growth in the first half of the year in terms of flight time, stifled by numerous obstacles despite Beijing’s big plans to advance the sector.
Unicom to Raise $11.7 Billion Via Stock Sale to Alibaba, Others – Bloomberg Alibaba Group Holding Ltd., Tencent Holdings Ltd. and Baidu Inc. will be among companies investing 78 billion yuan ($11.7 billion) into China’s second-largest wireless carrier as part of a government push to draw private capital into its state-owned enterprises.
China Ends Curbs on Derivatives as Stock Market Stabilizes – Caixin Global China’s securities regulator is ending curbs on exchange-traded derivatives, which were seen as one of the culprits behind the stock market rout two years ago.
专家：有的国家抄袭中国高铁 给中企造成巨大损失_凤凰资讯 Comment: From the Department of Shamelessness, a Chinese expert claims that China’s High Speed Rail the victim of IP infringement that has led to massive financial injury…
五省市尝鲜“市政债” 已发行435亿元 – 21经济网 Comment: Beijing, Xiamen, Fujian, Hebei and Guangdong have already issued 43.5B RMB od the new “municipal bonds”. so far these backed by land reserves and toll roads
China builds better business environment with solid measures – Gov.cn The State Council’s latest circular urged governments and departments to build a legal, international and convenient environment for foreign businesses, through continued efforts in supply-side reform, administrative streamlining and service optimization. According to the circular, pre-establishment national treatment and negative list management will be rolled out nationwide at a quick pace.
Politics And Law *
Fears For Safety of Detained Chinese Rights Lawyer ‘Missing’ Since The Weekend – RFA Gao Zhisheng, who was under house arrest in the northern province of Shaanxi, hasn’t been seen or heard of since Sunday, amid growing fears for his safety.
A new torture in China – China Policy Institute: Analysis During some recent chats about their experience of the ‘criminal justice’ system as suspects, defendants, and defence lawyers in the 709 Crackdown, my interlocutors mentioned details that sounded grimly familiar. For years, we had been hearing about the en-suite guest room in changing locations where a captive would be held, effectively disappeared, for days, weeks, or months on end; the two guards never leaving the room, the blinds always down and glaring ceiling light never turned off; the stress positions; the handcuffs; the beatings; the food deprivation, and the numerous sophisticated additional methods to humiliate, torment and terrorise (such as telling Wang Yu that she had been forgotten by the outside world.)
Former head of Chinese news agency investigated for graft Liu Beixian, editor-in-chief of the China News Service until retiring in February 2015, was suspected of “serious discipline breaches”, a euphemism for graft, the Central Commission for Discipline Inspection said in a statement. 中国新闻社原党委书记、社长刘北宪接受组织审查_新闻_腾讯网
“新一线”城市扩城：“撤县设区”城市规模猛增 – 21经济网 根据民政部数据，全国市辖区数量从2000年的787个增至2014年的897个，县级市则从400个下降到361个
Foreign And Defense Affairs *
Here’s what a permanent treaty with North Korea might look like – The Washington Post As U.S. officials ponder the path of negotiation that might lead to a permanent treaty, they have signaled several basic American positions: First, the United States would offer assurances to North Korea that its regime wouldn’t be toppled; second, it would guarantee the security of South Korea, a close U.S. ally; third, Washington would pledge not to seek any quick reunification of the Korean Peninsula, reassuring China and Japan, which fear a unified, resurgent Korea; and finally, the United States would express willingness to discuss the future status of its military presence in South Korea, if a peace agreement proved durable.
North Korea’s New High-Performance Missile Engines Likely Weren’t Made in Russia or Ukraine | The Diplomat While U.S. intelligence has assessed the design origins of the engine as belonging to the Soviet-origin RD-250 family, sources who spoke to The Diplomat said there is no confident U.S. assessment of the specific provenance of the engines in North Korea’s inventory today. Notably, in contradiction with Elleman’s conclusions about the origins of these engines, which were covered in the New York Times earlier this week and in the Washington Post in July, the U.S. intelligence community does not currently assess that North Korea procured engines from the former Soviet Union. Neither Ukrainian nor Russian entities are currently assessed to have sold or transferred engines from the RD-250 family to North Korea.
China angered at U.S. criticism of religious freedom, says U.S. not perfect – Reuters Tillerson, speaking at the State Department while introducing the agency’s annual report (International Religious Freedom Report for 2016 ) on religious freedom, said the Chinese government tortures and imprisons thousands for their religious beliefs, citing the targeting of Falun Gong members, Uighur Muslims and Tibetan Buddhists.
Hong Kong, Macao And Taiwan *
What’s in a Name? For Taiwan, Preparing for the Spotlight, a Lot – The New York Times Taipei is preparing for one the biggest international events ever to be held there: the 29th Summer Universiade, a competition featuring more than 10,000 university athletes from around the world. The games begin on Saturday and will run through Aug. 30….In a Facebook post, Taiwan People News said: “Chinese Taipei is a special ‘island’? Taipei is the capital of ‘Chinese Taipei’? Welcome everybody to ‘Taipei, Chinese Taipei!’ Holding a Universiade, do we have to go to such lengths? Do we have to belittle ourselves like this?”
Worry About This Taiwan Power Vacuum – Bloomberg Gadfly It’s been 17 years since former President Chen Shui-bian came to power with “no nukes” among his campaign platforms. But bickering through three administrations and multiple legislatures; the political impossibility of TaiPower raising prices; a failure to adequately open up the electricity market to local and foreign players; and a utopian belief that renewable energy will be a silver bullet, have all resulted in a glacial pace of reform and capacity increases.
Tech And Media *
Tencent Beats Estimates as WeChat, Mobile Games Drive Growth – Bloomberg China’s largest corporation reported a 70 percent surge in net income to a record 18.2 billion yuan ($2.7 billion) for the three months ended June, exceeding the 13.5 billion-yuan average of estimates compiled by Bloomberg. Sales rose 59 percent to 56.6 billion yuan, also topping projections.
LeEco’s Listed Arm Reshuffles Top Management in Revival Bid – Caixin Global The management reshuffle came after Leshi elected a new board and named Sun Hongbin, chairman of Sunac China Holdings, as its new chairman in July, replacing departed founder Jia Yueting.
Society, Art, Sports, Culture And History *
Anhui Author Detained for 1995 Quadruple Murder – Sixth Tone The suspect, 53-year-old Liu Yongbiao, was apprehended at his home in Nanling County in eastern China’s Anhui province on Friday. According to police, he confessed to the crime, saying: “I’ve been waiting for you here all this time.” // Number 8 in yesterday’s “Essential Eight” 湖州22年前灭门案 两嫌疑人被控制_深度_新京报网
Energy, Environment, Science And Health *
第四批8个中央环境保护督察组全部实现督察进驻–时政–人民网 Comment: fourth round of MEP environmental inspections start, eight this time, heading to Jilin, Zhejiang, Shandong, Hainan, Sichuan, Tibet, Qinghai, Xinjiang
北师大博士发论文：马克思主义在北京臭氧检测及分析中的应用 Comment: A widely mocked scientific paper online. A Beijing Normal University doctoral article with 8 authors. –“马克思主义在北京臭氧检测及分析中的应用” “Application of the Marxism in the Environmental Monitoring and Analysis of Ozone in Beijing”) in the 环境与可持续发展 (Environment and Sustainable Development), 42 (4) (August 10, 2017)
Northern China air quality worsens in January-July: ministry – Reuters Air quality worsened in China’s northern region of Beijing-Tianjin-Hebei in the first seven months of this year, piling pressure on authorities to crack down on firms in their efforts to meet politically crucial 2017 pollution targets.
Chinese police smash dog-meat gang that stole pet canines and killed them for food | South China Morning Post Several cages holding 34 dogs were found at a simple concrete workshop in Yangfang township in the suburban Changping district on August 12 after police officers received an anonymous tip-off, according to a report from state-owned Xinhua on Monday.
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