Bill Bishop
Featured

Inside China's "Happy Town": sex toys and adult-only hotels

Photo: Chris O'Meara / AP

The South China Morning Post is running a series on three of the biggest risks to China's economy. The latest installment examines the urban-rural development gap.

In a push to bridge the gap, the local government of one sleepy riverside town — Yucheng, about an hour's drive from Shanghai — signed a 10 billion yuan (U.S. $1.5 billion) deal with a Chinese company to develop a "Happy Town." It will include a sex toy shopping street, a sex exhibition centre, and an "adult-only" hotel.

Get smart: Local officials are under huge pressure from Beijing and are desperate for ideas to revitalize their jurisdictions. Many will fail but perhaps Yucheng will end up vibrating its way out of poverty.

Featured

Axios China

Good morning, winter is finally here in D.C. Situational awareness: A Chinese envoy is in town working to defuse tensions over North Korea and trade but will likely return to Beijing unsatisfied. The Chinese government is about to convene its annual economic conclave to set the agenda for 2018. Don't expect any surprises.

Event: Join Axios' Mike Allen for breakfast in D.C. on Monday morning when Axios "Harder Line" energy columnist Amy Harder leads a conversation about energy under President Trump. Check out the lineup and RSVP here.

Please send me comments and feedback by replying to this email, contacting me at bill.bishop@axios.com or signal +13012460858. If you want more than a weekly dose of China from me please subscribe to the Sinocism China Newsletter here. FYI – I'm taking off for the holidays next Friday but I will return after Christmas. Happy Holidays and thanks for reading.

1. The next big U.S.-China competition: artificial intelligence

Illustration: Lazaro Gamio / Axios

China is in the midst of an artificial intelligence frenzy, spurred in part by the "Next Generation Artificial Intelligence Development Plan" Beijing released in July that promises huge policy and financial support in pursuit of expansive goals between now and 2030.

The big question: Will AI sharpen competition between the U.S. and China? Right now, the most likely outcome is that it will.

A white paper by Kai-Fu Lee, founder of Sinovation Ventures and a world-renowned AI researcher, and Paul Triolo, head of Eurasia Group's Geo-technology practice, argues that China and the U.S. are already in a global AI duopoly because China has several structural advantages for AI development:

  • Huge data sets generated by nearly a billion internet users and few privacy restrictions.
  • A rapidly growing pool of talented Chinese AI engineers.
  • Some of the best and most aggressive entrepreneurs in the world.
  • A very supportive government policy, including significant financial support.

Go deeper: Read my full story here. Also check out CNAS' report on the role of AI in China's future military power and Axios' Steve LeVine's deep dive into the Sinovation white paper.

2. North Korea tensions keep rising as U.S. and China continue talks

On Wednesday we had the scoop that Beijing dispatched Vice Minister of Foreign Affairs Zheng Zeguang 郑泽光 to D.C. on a "firefighting" mission to deal with escalating tensions over North Korea and trade. The trip was so hurriedly scheduled that Ambassador Cui Tiankai reportedly left the U.S.-China Business Council's annual dinner Wednesday early to meet with Zheng.

What's happening now: There is temporary quiet from the White House about new sanctions against China or North Korea, despite President Trump's Twitter promise nine days ago:

Just spoke to President XI JINPING of China concerning the provocative actions of North Korea. Additional major sanctions will be imposed on North Korea today. This situation will be handled!

Ambassador John Bolton, one of the leading proponents of regime change in North Korea, met with Trump on Thursday – that will have gotten Beijing's attention.

Beijing's Diplomacy: China continues to push its "freeze for freeze" proposal, in which North Korea would suspend nuclear and missile development while South Korea and the U.S. would suspend military exercises. The Trump administration rejects this approach.

South Korean President Moon Jae-in will visit China for four days starting December 13. On Thursday, a South Korea ruling party lawmaker said that Xi and Moon "share an understanding that [freeze for freeze] is perhaps the most realistic way," Yonyap reported.

China's goal: Xi has been working hard to repair relations with Seoul and create distance between Moon, a relative dove on North Korea, and Trump, thus reducing America's multilateral options and bringing the U.S. and North Korea to the negotiating table. China says it will not accept a nuclearized North Korea but no one, including officials in Beijing, actually believe that North Korea would give up its nuclear weapons now.

3. Sen. Cotton says Chinese diplomats are lying

Sen. Cotton answers questions during an interview at the Associated Press bureau in Washington on Dec. 7, 2017. Photo: Jacquelyn Martin / AP

In an interview yesterday with AP, Sen. Tom Cotton, a member of the Armed Services and Intelligence committees and purportedly a leading candidate to head the CIA, said:

"Chinese diplomats are lying when they tell their Western counterparts that Beijing shares their goal of convincing North Korea to abandon its advancing nuclear weapon and ballistic missile programs."

"A nuclear-capable North Korea draws attention away from Beijing's misbehavior that includes 'economic warfare' against the U.S., island building in the disputed South China Sea, and its 'atrocious treatment of Christians'."

"As long as North Korea is a nuclear country, the time and energy and effort of U.S. policymakers must be focused on North Korea, not on China," he said. "That's why they've been playing both sides of the street, saying one thing to Western officials in public but doing nothing to stop North Korea from getting nuclear weapons or now to get them to denuclearize."

Why it matters: China is waking up to the fact that the White House is listening to the hawkish voices on China.

4. Key year-end economic conclave set to begin

Every December the Chinese leadership holds the Central Economic Work Conference (CEWC) to set the national economic agenda for the following year. The Politburo sets the agenda at a meeting just prior to the conference.

What we're hearing: This year's date has not been officially announced but all signs are the meeting will be held in the next week or so. The Politburo just met and discussed economic work for 2018, according to the statement released Friday afternoon Beijing time.

Some of the key themes we should expect at the CEWC, per the Politburo statement (brief English, longer Chinese), include:

  • A focus on "high quality" growth;
  • Reforming the housing system and building a long-term policy for the real estate market;
  • Continuing focus on reducing risks in the financial system and reducing leverage;
  • Increasing efforts to reduce poverty to achieve Xi's goal of eradicating poverty by 2020;
  • Reduction of pollution and progress in reversing some of the massive environmental degradation.

The bottom line: 2018 is the 40th anniversary of the reform and opening policy, and it is the first year after Xi's massive political success at the 19th Party Congress. If things go off the rails in 2018, he has no one else to blame.

5. Wang Qishan protege gets banking oversight job – in sign crackdown to continue

Caixin reports that Zhou Liang, recently a senior official at the Central Commission for Discipline Inspection (CCDI), the Communist Party's discipline and anti-corruption unit, is now a vice chairman of the China Banking Regulatory Commission (CBRC).

What we know: Zhou is the second CCDI official to move to the CBRC in three months. Li Xinran became the head of the CBRC discipline and inspection group in September.

Zhou has a long history of working with Wang Qishan, including as his secretary in the late 1990s when Wang was deputy governor of Guangdong Province. Wang is the recently retired (or not, as we reported last week) head of the CCDI.

Quick take: The financial sector has been hit with several corruption investigations over the last year. The appointment of Zhou looks to be another disappointing sign for those who were hoping that the pressure on financial institutions will abate.

6. Erik Prince's proposal to reduce Chinese influence: BuzzFeed

A general view of Mes Aynak valley, some 25 miles southwest of Kabul, Afghanistan, where it has massive, untouched wealth of minerals. Photo: Rahmat Gul / AP

BuzzFeed has published a presentation that Erik Prince, founder of the controversial military contracting firm Blackwater, gave Trump Administration officials about privatizing the war in Afghanistan.

Yes, but: Prince is also the head of Chinese-backed Frontier Services Group, a security and logistics provider. And, during his presentation to Trump's top officials, BuzzFeed claims, he pitched that one benefit of the proposed venture would be to "develop and produce key rare earth minerals [REEs] to restore US high tech manufacturing supply chain".

Stated in the presentation, which BuzzFeed said was prepared for the Trump administration according to a source familiar with the matter:

"In recent years, China has made the control of the global REEs an unstated economic policy"

"Because China state regulations around mine development, finance, and environmental impact can enable a favorable climate for domestic production, China remains in firm control of the REE market"

"China currently holds the dominant market position, a threat to U.S. manufacturing capability in electronics and unique defense products"

My thought bubble: Prince was not happy that this presentation leaked, nor would I imagine his Chinese partners will be pleased to hear he is pitching the U.S. government on how to reduce Chinese influence over key strategic commodities. But there is a long history of double games while playing the Great Game in Central Asia.

7. Sex toys and "Happy Town"

The South China Morning Post is running a series on three of the biggest risks to China's economy. The latest installment examines the urban-rural development gap.

Buzz: SCMP writes "[s]ex toys are not the first things that spring to mind when visiting Yucheng, a sleepy, riverside town in the Yangtze River Delta, about an hour's drive from Shanghai…"

However, the paper reports, the town government signed a 10 billion yuan (U.S. $1.5 billion) deal with a Chinese company to develop a "Happy Town" that will include a sex toy shopping street, a sex exhibition centre, and an "adult-only" hotel.

Go deeper: Local officials are under huge pressure from Beijing and are desperate for ideas to revitalize their jurisdictions. Many will fail but perhaps Yucheng will end up vibrating its way out of poverty.

8. What I am reading

Time: Xi Jinping is No. 3 runner-up in Time's Person of the Year.

Brookings: Ryan Haas, an NSC staffer under Obama, returned from the Wuzhen World Internet Conference with the concern that China is "aggressively moving to attract international support for its vision for internet rule-making and management, while the United States government appears largely missing in action."

NextShark: There are nasty sexual misconduct allegations at the elite Shanghai American School.

Magpie Digest: A look at Bilibili, a social video streaming platform with over 100 million daily users and plans for an IPO.

What's on Weibo: Writes on reactions to an awkward propaganda rap video by state media.

Global Times: A hologram virtual singer named Luo Tianyi has millions of fans and is now a Chinese Communist Youth League ambassador.

NYT and Sydney Morning Herald: China is causing a rumble Down Under as it scolds Australia over its fears of foreign influence and accuses PM Turnbull of bias and the media of racism.

The Global Times: Tweets a video of Hu Xijin, editor of this Communist Party tabloid, where he calls Canadian media "both annoying and funny" and "repulsive."

Sixth Tone: A piece on Wendell Brown – the jailed American athlete who Trump forgot.

Sinocism: Read this week's edition.

Featured

The next big U.S.-China competition: artificial intelligence

Illustration: Lazaro Gamio / Axios

China is in the midst of an artificial intelligence frenzy, spurred in part by the "Next Generation Artificial Intelligence Development Plan" Beijing released in July that promises huge policy and financial support in pursuit of expansive goals between now and 2030.

The big question: Will AI sharpen competition between the US and China? Right now, the most likely outcome is that it will.

A white paper by Kai-Fu Lee, founder of Sinovation Ventures and a world-renowned AI researcher, and Paul Triolo, head of Eurasia Group's Geo-technology practice, argues that China and the US are already in a global AI duopoly because China has several structural advantages for AI development:

  • Huge data sets generated by nearly a billion Internet users and few privacy restrictions.
  • A rapidly growing pool of talented Chinese AI engineers.
  • Some of the best and most aggressive entrepreneurs in the world.
  • A very supportive government policy, including significant financial support.

The big picture: China's AI plan is part of the Chinese government's blueprint for becoming a superpower and achieving "the great rejuvenation of the Chinese nation," while maintaining Communist Party control.

  • As Elsa B. Kania, a fellow at the Center for a New American Security, recently wrote: "China plans to pursue cutting-edge advances in a category of critical next-generation AI technologies in order to "occupy the commanding heights" of AI science and technology."
  • Kania also wrote that the Chinese government "plans to leverage its rise in AI to enhance national competitiveness, while bolstering its capacity to ensure state security and national defense." It plans to "leverage AI to create systems for intelligent monitoring and early warning and control of potential (or perceived) threats."

The bottom line: China has the data, the talent, the money, the regulatory environment and the government vision to become an artificial intelligence superpower. As in an increasing number of other areas, US-China AI competition is far more likely than cooperation.

Go deeper: Battlefield Singularity: Artificial Intelligence, Military Revolution, and China's Future Military Power by Elsa B. Kania

Featured

Scoop: China’s envoy visiting D.C. over North Korea and trade

Zheng Zeguang speaking at a news conference in Chicago in December 2014. Photo: Teresa Crawford / AP

Beijing has dispatched Vice Minister of Foreign Affairs Zheng Zeguang 郑泽光 for a visit to D.C. starting today, on what a knowledgeable source describes as a “firefighting" mission with the apparent goal of preventing an escalation of tensions over North Korea.

What it means: Beijing is concerned enough about the trajectory of the relationship with the U.S., especially over North Korea and trade, to send the vice minister, who is expected to replace Cui Tiankai as Beijing's ambassador to the U.S.

  • Specifically, this is a sign Beijing is hopeful it can prevent the U.S. from attacking the DPRK and from sanctioning Chinese entities, such as a major financial institution or PetroChina, if Beijing does not cut off oil supplies to North Korea, as the Trump administration is demanding.
  • Beijing is concerned about recent talk by the National Security Advisor and Sen. Lindsey Graham about the increasing risk of war. It has no doubt heard the rumor that the U.S. told South Korea Nov. 29, after the North's latest test, that it may strike the North unilaterally. So far though, Xi's efforts to find some sort of compromise are just not compelling or feasible.

North Korea is not the only issue worrying Beijing. Politico reported Tuesday that...

  • It's only been 109 days since USTR launched a Section 301 investigation that could lead to unilateral trade action against China, but there are already signs the Trump administration could release its conclusions and move into the remedy phase of the probe much sooner than the one year it has to complete the investigation.
  • Two sources told Morning Trade that USTR has completed a draft report that is now being shared with the interagency committee overseeing the investigation. A USTR spokeswoman wouldn't comment on the report's status, but said it has not gone to the White House and declined to provide any update on when it would be released.

Bottom line: Xi seems to have thought that Trump's Beijing visit went well and that the issues in the relationship were under control. Now the Trump administration appears to have Beijing rattled. If Xi really thought things were going well then there are questions about the quality of information he is receiving.

More: Read the full story on Bill's subscription newsletter and follow China news via the free, weekly Axios China newsletter.

Editor's note: We corrected the headline to state it is an envoy and not a "top envoy" visiting today.

Featured

Axios China

Good morning...lots of interesting news in China today. As U.S-China tensions increase, Chinese President Xi Jinping is heading towards naming a top official to manage the U.S. relationship.

Please send me comments and feedback by replying to this email or contacting me at bill.bishop@axios.com or signal +13012460858. And if you want more than a weekly dose of China from me please subscribe here. Thanks for reading.

1. North Korea missile test shows limits of U.S. leverage

Illustration: Lazaro Gamio / Axios

North Korea's launch of a missile that appears capable of striking anywhere in the U.S. is an early test of the Trump administration's relationship with China, and the goodwill reinforced during President Trump's November meetings with Xi in Beijing. But even if Xi wants to help, there are no good options.

Reality check: China doesn't actually have that much leverage with North Korea, and until the regime is interested in negotiations, even more help from China isn't going to help the U.S. solve the crisis.

North Korea does not appear interested in talks at this point. As expert Andrei Lankov has argued repeatedly:

"Pyongyang decision-makers see the ability to hit the United States as their best, and perhaps only, guarantee of long-term political survival. They are not going to stop testing until they reach that goal."

Read my full story here.

2. U.S. starts some trade actions against China

As I predicted in prior editions, the Trump administration is ratcheting up trade tensions with China, even as it pressures Beijing to do more on North Korea.

This week the U.S. has:

The Trump administration, led by U.S. Trade Representative Robert Lighthizer, is taking the approach that there is no reason to keep negotiating with China over incremental concessions as Beijing is well aware of the structural changes Washington insists it undertake to fix the imbalanced economic relationship.

Get ready: If Gary Cohn, director of the National Economic Council, leaves the White House as expected after the tax bill then there may be no checks in the White House against a much more aggressive trade agenda against China.

3. Wang Qishan not really retired

Wang Qishan at the Politburo Standing Committee national congress in October, when he officially "retired." Photo: Mark Schiefelbein / AP

The big news for China watchers today is further confirmation of a continued role for Wang Qishan, the recently retired head of the Communist Party's discipline and anti-corruption unit and a politician well-known to American policymakers and business people.

The well-connected South China Morning Post says that Wang still attends Politburo Standing Committee Meetings and is likely to be named vice president in March.

What I'm hearing: My sources also tell me Wang is attending the Standing Committee meetings as an observer and additionally say that he will be tasked with managing the U.S.-China relationship as well as assisting with economic work. Wang is known for dealing with crises, and he may be tested again relatively soon.

My thought bubble: Wang "retired" at the recent 19th Party Congress as the retirement age norms dictated, but clearly Xi sees him as an asset worth breaking other norms to keep around.

Go deeper: Read this Axios Expert Voices piece by U.S.-China business adviser Deborah Lehr.

4. World Internet Conference wants to remake cyber governance

Giphy

China convenes its 4th World Internet Conference from December 3-5. The conference is a vehicle to promote the Communist Party's vision to remake global internet governance.

The details: The theme of this year's conference, as described at a Nov. 17 press conference by Ren Xianliang, the vice minister of the Cyberspace Administration of China, is "Developing the Digital Economy for Openness and Shared Benefits – Building a Cyberspace Community of a Common Future."

"[T]he conference will thoroughly implement Xi Jinping's thought on socialism with Chinese characteristics for a new era and firmly reflect his proposal on the governance of cyberspace. We will focus on the digital economy and highlight the importance of openness and shared benefits..."

"We hope such efforts will help to narrow the digital gap between developing and developed countries, and make contribution to governance of the global internet through China's solution of 'jointly building a community of a shared future in cyberspace,'" Ren said.

Attendees: Among the foreign technology executives attending this year is Apple CEO Tim Cook. President Xi has attended in the past, but this year plans to make a statement via video hookup.

Go deeper: New America examines China's cyber governance in today's report, China's Cybersecurity Law One Year On.

5. Private sector support for "Panopticon 2.0"

China's embrace of big data and surveillance technologies has the country well on its way to creating the most impressive surveillance state in history.

Symbiotic relationship: The Chinese Communist Party needs help from private sector firms, and those firms in turn need to stay in political good graces to be successful.

Behind the scenes: The Wall Street Journal just published a months-long report on the role internet giants Alibaba and Tencent play in helping build the PRC panopticon. Much of these efforts can be used to improve governance and efficiency, but the dual-use potential for a police state increasingly resembles the movie "Minority Report." Per the WSJ:

  • "The political and legal system of the future is inseparable from the internet, inseparable from big data," Alibaba CEO Jack Ma told a Communist Party commission overseeing law enforcement last year. He said technology will soon make it possible to predict security threats. "Bad guys won't even be able to walk into the square," he said.
  • Alibaba's "big data" systems are behind a "smart city" initiative that ties together data from multiple inputs, including ubiquitous surveillance cameras. 100 smart-city trials are planned by the end of 2018.
  • Tencent, operator of WeChat, is working with local police to build an "early-warning system" that can track and predict crowd-size and movement.

More: U.S.-listed Alibaba is an investor in Chinese facial-recognition startups Megvii Inc and SenseTime.

6. Pterosaur embryo fossils discovered in China

Axios' Erica Pandey reports that:

"Scientists have discovered a site in China [In Xinjiang] that once served as a nesting ground for pterosaurs — the flying reptiles of the dinosaur age. They recovered more than 200 egg fossils, 16 of which show pterosaur embryos and provide a host of new insights into the ancient creature's early life," per a paper published yesterday in the journal Science.

Perhaps the next installment of Jurassic Park can take place in a Chinese genetic lab...

The illustration above, by Maurilio Oliveira, is a reconstructed image showing the hatchling of a Pterosaur based on evidence presented in the study.

7. Disney picks the next Mulan

Giphy

Disney has found the star for its upcoming live-action remake of "Mulan" – Liu Yifei, also known as Crystal Liu.

Buzz: Liu is an inspired choice. She is already a superstar in China, is fluent in English from the years she lived in Queens, NY, in her childhood, and has martial-arts experience. Liu should help guarantee a massive China box office, and by choosing an ethnically Chinese actor, Disney maintains cultural accuracy.

Flashback: Mulan was a legendary female warrior who pretended to be a man to take her father's place in the conscription army. In other words, not your average Disney princess.

8. Worthy of your time

The Beijing Migrants Crackdown – A ChinaFile Conversation on the government's 40-day campaign to demolish the capital's "unsafe" buildings, which some view as a thinly veiled excuse to force out migrant workers.

The Big Bet at the Heart of Xi Jinping's "New Deal" – Evan Feigenbaum in MacroPolo talks about Chinese expectations of a "better life."

Avoiding war: Containment, competition, and cooperation in U.S.-China relations – Brookings discusses how the U.S. and China will navigate each other's changing roles in international affairs.

Battlefield Singularity: Artificial Intelligence, Military Revolution, and China's Future Military Power – The Center for a New American Security writes how China is starting to catch up in its quest to become a "science and technology superpower."

Beijing Hinders Free Speech in America – Former Chinese prisoner Wang Dan writes an opinion piece in the NYT.

"The Quantum Spy" – A new novel by The Washington Post columnist David Ignatius is about PRC attempts to steal U.S. quantum computing technology.

Red Lights Go Gray – This piece by Sixth Tone looks some of Dongguan's former brothels that have become retirement homes.

The Complicated Legacy Of A Panda Who Was Really Good At Sex – A feature by FiveThirtyEight on Pan Pan, who was the world's panda paterfamilias.

Sinocism this week.

Featured

North Korea missile test shows limits of U.S. leverage

Illustration: Lazaro Gamio / Axios

North Korea's launch of a missile that appears capable of striking anywhere in the U.S. is an early test of the Trump administration's relationship with China, and the goodwill reinforced during President Trump's November meetings with General Secretary Xi Jinping in Beijing. But even if Xi wants to help, there are no good options.

Reality check: China doesn't actually have that much leverage with North Korea, and until the regime is interested in negotiations, even more help from China isn't going to help the U.S. solve the crisis.

North Korea does not appear interested in talks at this point. As expert Andrei Lankov has argued repeatedly:

"Pyongyang decision-makers see the ability to hit the United States as their best, and perhaps only, guarantee of long-term political survival. They are not going to stop testing until they reach that goal."

President Trump has threatened new sanctions, but so far none have been announced. And Beijing is resisting renewed calls from the administration to cut off the supply of oil to North Korea.

China has less leverage than Trump seems to believe. Xi Jinping is very unhappy with Kim Jong-un, and the special envoy he recently dispatched to Pyongyang was treated poorly and did not get a meeting with Kim.

China's main leverage point with North Korea is the supply of oil — but Beijing is wary of shutting it off out of concern that Pyongyang could turn on Beijing.

What to watch: If China does not at least reduce the oil supply to North Korea, expect the U.S. to sanction a major Chinese financial institution, such as China Merchants Bank or the Industrial and Commercial Bank of China, to "punish" Chinese inaction. But that could backfire, as the anger in Beijing may lead China to halt any cooperation with the U.S. over North Korea.

The bottom line: China is not going to fix this problem. The U.S. either accepts a nuclear North Korea and sits down for negotiations once Kim is willing to talk, attempts a deterrence strategy that allows the region to live with a nuclear North Korea, or launches a pre-emptive war.

Featured

Chinese officials urge Christians to replace symbols of Jesus with Xi

Chinese President Xi Jinping. Photo: Kham Pool via AP

China is far from having a cult of Xi that comes anything close to the cult of Mao that led to the disastrous Cultural Revolution, but some of the signs are worrisome. Ucanews reports that local officials in Jiangxi province offered poverty relief aid in exchange for Christian residents to replace religious images with posters of Xi.

Key quote: "The message from officials stated that the Christians involved had 'recognized their mistakes and decided not to entrust to Jesus but to the (Communist) Party' claiming the Christians voluntarily removed 624 religious images and posted 453 portraits of Xi."

Quick take: Local officials doing this likely see it as double-win:

  • They get to show they are cracking down on foreign religions.
  • They demonstrate loyalty while disseminating the Party's good news.
Also: Last week another set of local officials made a pilgrimage to a tree Xi had planted several years earlier. They admired the "big, verdant and tall...Xi Paulownia tree" before retaking the oath to join the Communist Party, the Guardian reported.
Featured

China named world's worst abuser of internet freedom again

Photo: Andy Wong / AP

Freedom's House has released its "Freedom on the Net 2017" report. The China section claims that:

  • China was the world's worst abuser of internet freedom for the third consecutive year;
  • The 2016 cybersecurity law mandates real name registration and storage of PRC user data within China;
  • Censorship on WeChat increased and several were detained for comments on WeChat;
  • New rules constrict the space for online news;
  • A crackdown virtual private network (VPN) tools.

Ren Xianliang, deputy director of the Cyberspace Administration of China criticized the report, per Reuters:

  • "We should not just make the internet fully free, it also needs to be orderly...The United States and Europe also need to deal with these fake news and rumors."

The key point: Chinese officials, some of who have warned for years of "hostile foreign forces" using the internet to subvert China, believe they have found the solution to managing the political risks from the internet while harnessing its economic and technological power. The interference in the U.S. presidential election process by Russia, a "hostile foreign force" to America, only strengthens their resolve.

One interesting fact: The censorship has not hurt wealth creation. Overseas-listed Chinese internet firms have a combined market capitalization of over one trillion dollars, and three of China's richest people are internet moguls.

Featured

Meet China’s 5 men worth 20 billion-plus

Jack Ma at a conference in Nairobi, Kenya, in July 2017. Photo: Ben Curtis / AP

Tech and real estate are the paths to riches in China. The latest top five are:

  1. Hui Ka Yan, chairman of real estate developer China Evergrande: $40.7 billion;
  2. Tencent co-founder and chairman Pony Ma Huateng:$39 billion;
  3. Jack Ma, Alibaba co-founder and chairman: $39.9 billion;
  4. Wang Jianlin, chairman of real estate developer and entertainment giant Dalian Wanda: $25.1 billion;
  5. Wang Wei, chairman of SF Holding, aka the "Fedex of China": $21.1 billion
Jack Ma may be having the most fun. He stars in a new short film about a Tai Chi master – himself.
Featured

Axios China

Good morning and welcome to the second issue of the Axios China weekly newsletter. There will be no newsletter next Friday as we will be sleeping off Thanksgiving.

President Trump is back from his 12 day Asia trip, including a "state visit plus" in China. Expectation were low but the trip overall was not as bad as some have claimed.

And, just a reminder that today is the last day of charter pricing for my daily Sinocism China Newsletter. The price jumps Saturday at midnight. So if you want more than a weekly dose of China from me please subscribe here. Thanks for reading.

1 big thing: Trump's Jekyll and Hyde approach to Asia

Illustration: Lazaro Gamio / Axios

President Trump's trip to Asia displayed a Dr. Jekyll and Mr. Hyde approach to security and economics in the region. Militarily, he is reassuring allies to stand against China's growing military might, but economically Trump is turning his back on broad trade pacts with those same allies.

Our thought bubble: Asian nations worried about China's rise want both strong military and economic ties with the U.S.

The security aspect of the U.S. strategy towards Asia was reinforced with the visits to Japan, South Korea, Vietnam and the Philippines.

  • In support of the recently articulated "Indo-Pacific" strategy, Trump is working to revive the "Quadrilateral Security Dialogue," aka the "Quad," which is a group the U.S., India, Japan and Australia first formed in 2007 but quickly shelved, in deference to Beijing's concerns. Beijing is concerned again.

The U.S. insistence on renegotiated bilateral trade deals was not well received.

  • Rather than helplessly pining for the U.S. while rushing into the embrace of China and its President Xi Jinping, key Asian states are working amongst themselves to increase inter-Asian connectivity and balance against China.
  • Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam agreed to revive a variant of the Trans-Pacific Partnership (TPP), without the U.S. The new grouping is called the TPP-11 and they hope that the U.S. will eventually want to join.

Bottom line: The Asian nations, with the exception of China's near-vassal states Cambodia and Laos, want U.S. leadership and are very concerned about the "America First" agenda and the withdrawal from many multilateral efforts. What they're telling U.S. diplomats is that "we will wait and hope you return to your senses." China has not won yet.

2. No apparent North Korea breakthroughs

Kim Jong-un looks up at the sky at what is said to have been a missile launch on Aug. 29, 2017, at an undisclosed location in North Korea. Photo: KRT via AP Video

North Korea was at the top of the Trump-Xi agenda but there are few signs of progress, and already signs of miscommunication between the two. The two sides gave different statements after the visit.

  • Trump said: "President Xi recognizes that a nuclear North Korea is a grave threat to China, and we agreed that we would not accept a so-called 'freeze-for-freeze' agreement like those that have consistently failed in the past."
  • China's Ministry of Foreign Affairs spokesman Geng Shuang said at a weekly news conference Thursday: "Suspension-for-suspension is the most realistic, viable and reasonable solution in the current situation," per AP.

Quick take: Xi is sending special envoy Song Tao to Pyongyang. His visit does not appear to be a result of American pressure (Song's predecessors went after previous congresses). But the language announcing his visit suggests there is more on his agenda than just the 19th Party Congress briefing.

We are left to speculate about what Xi may be working on:

  • Will Song meet North Korea leader Kim Jong-un to deliver a warning?
  • Does Xi, on the heels of his rapprochement with South Korea and the announcement of a December visit to Beijing by the South Korean president, have a plan underway for a broader deal to ease tensions?

The big picture: Crafting a "Chinese" solution, even a temporary one, to the North Korea crisis would be a huge diplomatic win for Xi and China, would fit with the global aspirations articulated at the 19th Party Congress as well as the "major power diplomacy" efforts, and would damage U.S. prestige and influence.

Trump seems to think he and Xi see eye to eye on North Korea, but that seems a bit of a stretch given the U.S. and China's disparate strategic calculations about the DPRK.

3. Congress increasingly sees China as strategic competitor

It feels like the U.S. is close to a tipping point towards a much tougher approach to China.

My thought bubble: I expect the administration to harden its position soon with the completion of the China strategic review and the eventual, inevitable disappointment with Beijing over North Korea. Congress, of course, has been more consistently hawkish.

Senator John Cornyn (R-TX) just introduced the the Foreign Investment Risk Review Modernization Act, an attempt to empower the Committee on Foreign Investment in the United States (CFIUS) to review more China deals inbound into the U.S. And earlier this week Cornyn gave a speech where he said the U.S. is in a "Cool War" with China:

  • "For decades, U.S. policy has been to welcome the so-called peaceful rise of China, and I was onboard with that."
  • "For the sake of our own national security in the long term, I think it's time for the U.S. to adopt a new policy on China"
  • "In some ways, what we're now embarking on has been termed a "Cool War" with China – not quite a Cold War, as we had with the Soviet Union throughout the latter half of the 20th century, but very serious nonetheless."

And on Wednesday, the U.S.-China Economic and Security Review Commission released its 2017 report recommending: an update of CFIUS legislation, a review of proposed Chinese media acquisitions, and a strengthening of the Foreign Agents Registration Act to require the registration of all staff of Chinese state-run media entities (to monitor staff for possible involvement in Chinese intelligence gathering and information warfare.)

4. Internet freedom and China's World Internet Conference

WhatsApp was reportedly partly inaccessible July 18, 2017, unless VPN software was used to circumvent China's censorship apparatus, known colloquially as The Great Firewall. Photo: Andy Wong / AP

Freedom's House has released its "Freedom on the Net 2017" report. The China section claims that:

  • China was the world's worst abuser of internet freedom for the third consecutive year;
  • The 2016 cybersecurity law mandates real name registration and storage of PRC user data within China;
  • Censorship on WeChat increased and several were detained for comments on WeChat;
  • New rules constrict the space for online news;
  • A crackdown virtual private network (VPN) tools.

Ren Xianliang, deputy director of the Cyberspace Administration of China criticized the report, per Reuters:

  • "We should not just make the internet fully free, it also needs to be orderly...The United States and Europe also need to deal with these fake news and rumors."

The key point: Chinese officials, some of who have warned for years of "hostile foreign forces" using the internet to subvert China, believe they have found the solution to managing the political risks from the internet while harnessing its economic and technological power. The interference in the U.S. presidential election process by Russia, a "hostile foreign force" to America, only strengthens their resolve.

One interesting fact: The censorship has not hurt wealth creation. Overseas-listed Chinese internet firms have a combined market capitalization of over one trillion dollars, and three of China's richest people are internet moguls.

5. Top five Chinese billionaires

Jack Ma at a conference in Nairobi, Kenya, in July 2017. Photo: Ben Curtis / AP

Tech and real estate are the path to riches in China. The latest top five are:

  1. Hui Ka Yan, chairman of real estate developer China Evergrande: $40.7 billion;
  2. Tencent co-founder and chairman Pony Ma Huateng:$39 billion;
  3. Jack Ma, Alibaba co-founder and chairman: $39.9 billion;
  4. Wang Jianlin, chairman of real estate developer and entertainment giant Dalian Wanda: $25.1 billion;
  5. Wang Wei, chairman of SF Holding, aka the "Fedex of China": $21.1 billion
Jack Ma may be having the most fun. He stars in a new short film about a Tai Chi master – himself.

6. Down With Jesus, Up With Xi

China is far from having a cult of Xi that comes anything close to the cult of Mao that led to the disastrous Cultural Revolution, but some of the signs are worrisome.

Ucanews reports that local officials in Jiangxi province offered poverty relief aid in exchange for Christian residents to replace religious images with posters of Xi:

  • "The message from officials stated that the Christians involved had 'recognized their mistakes and decided not to entrust to Jesus but to the (Communist) Party' claiming the Christians voluntarily removed 624 religious images and posted 453 portraits of Xi."

Quick take: Local officials doing this likely see it as double-win:

  • They get to show they are cracking down on foreign religions.
  • They demonstrate loyalty while disseminating the Party's good news.

Reaction: Of course, this has led to some interesting Instagram responses.

Also: Last week another set of local officials made a pilgrimage to a tree Xi had planted several years earlier. They admired the "big, verdant and tall...Xi Paulownia tree" before retaking the oath to join the Communist Party, the Guardian reports.

7. Victoria's Secret Shanghai show hanging by a thread

Katy Perry reportedly can't get a visa to China to perform at the Nov. 28 annual Victoria's Secret Fashion Show. The singer upset Beijing during a performance in Taiwan when she:

  • wore a dress with sunflowers on it, not long after Taiwanese protesting against Beijing used sunflowers as their symbol;
  • waved the Taiwan flag during the concert.

Perry recently sent a letter to the Chinese authorities promising not to "do or say anything religious or political" or "participate in any activities that jeopardize China's unity and integrity."

Page Six says that this year's Victoria's Secret Fashion Show "is turning into an international media crisis" because of visa problems and media restrictions.

Chinese netizen anger: Model Gigi Hadid has pulled out of the fashion show as netizens have erupted over an online video showing her apparently making a slanteyes face, SCMP reports.

Cognitive dissonance: On Friday, China's propaganda chief Huang Kunming warned against seduction by Western culture and political values.

8. Worthy of your time

"Tightening the Vise on Chinese Investment in U.S. Tech" (Matt Sheehan of MacroPolo)

"China and the CIA Are Competing to Fund Silicon Valley's AI Startups" (Patrick Tucker of Defense One)

"The Tea Leaves of Xi-Era Discourse." A close reading of the 19th Party Congress Work Report (Qian Gang of the China Media Project)

"How to Sell the American Dream, (Without Getting Banned from China)" – Amway (Noelle Mateer of That's Beijing)

"China's soccer push puts a storied soccer team under murky ownership" on the Chinese purchase of A.C. Milan (Sui Lee Wee, Ryan McMorrow and Tariq Panja of New York Times)

"Gary Liu, CEO of the South China Morning Post," discusses remaking the Alibaba-owned, 114-year old paper. Gary has big plans for the SCMP in the U.S. (Kaiser Kuo of The Sinica Podcast)

"A panda at the National Zoo may have arthritis" (Dana Hedgpeth of The Washington Post)