Feb 12, 2020

Axios China

Welcome back to Axios China. Today we've got an exclusive look inside the FBI's China influence task force, the latest on China's financial stimulus amid the coronavirus epidemic, and more.

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  • Smart Brevity count: 1,640 words, a 6-minute read.
1 big thing: How the FBI combats China's political meddling

Illustration: Eniola Odetunde/Axios

In May 2019, the FBI's Foreign Influence Task Force quietly added a unit aimed at countering China's political influence in the United States.

  • In an exclusive interview, an FBI official reveals for the first time the bureau's approach to countering China's interference in local and state politics.

Why it matters: "This is ultimately a potential systemic challenge to the world order that we've had for the past several decades," the FBI official told me of China's efforts.

The big picture: There is a growing body of evidence that China devotes massive resources to influencing the political environments of foreign countries, including the United States.

  • “For a long time we focused on the federal level, but we really have come to understand that the Chinese are playing a long game with the political influence in this country," the official said.
  • "So we have spent a lot more time and energy trying to understand the state and local people-to-people influences going on."
  • Meanwhile, over the weekend, Secretary of State Mike Pompeo warned that China is targeting U.S. local and state officials.

China's influence playbook centers around economic leverage stemming from its growing wealth. That includes:

  • The use of economic “carrots and sticks” at the local and state levels.
  • “Conduit contributions” to illegally funnel Chinese funds into U.S. politics.
  • The use of Chinese government-linked proxies to cultivate relationships of dependency with a variety of American individuals and organizations — which happens at every level of government and society. “The toolkit works just as well on a mayor as it would work on somebody in higher elected office," the official said.

The FBI task force's threshold for determining what counts as malign foreign influence is a four-word rubric: “subversive, undeclared, criminal and coercive.” The official, who spoke to me anonymously, defined the terms:

  • Subversive: "Activities that are undermining democratic processes, or people's ability to cast a vote."
  • Undeclared: "Any activity where the hand of the government, the hand of the foreign government is opaque, is non-transparent to the target audience.”
  • Criminal: "There's a suite of election crimes in the U.S. And we're concerned about those crimes. .. So campaign finance violations, this is a big part of what we're concerned about — foreign money entering U.S. political races."
  • Coercive: "If there is some sort of quid pro quo, some sort of economic carrots and stick, it's a tool that the Chinese use quite a lot.”

The focus is on party-connected actors, the official said.

  • “We're certainly not looking at, you know, all Chinese students or all Chinese Americans," said the official. “This isn't something that we only see happening with ethnic Chinese.”

How the task force works: The initiative, which is part of the FBI's Foreign Influence Task Force, is housed within the agency's counterintelligence division, with embeds from the criminal investigative, cyber and counterterrorism divisions.

  • The task force investigates illegal activity and provides defensive briefings about the potential risks of specific situations.

Their advice: Do everything possible to manage risk.

  • That means understanding where funding comes from and any organizational ties back to China, as well engaging in secure travel practices with personal electronic devices and business laptops.

The bottom line: China is increasing its efforts to hold sway over cash-strapped local and state governments.

  • Companies and organizations must aim for smarter engagement to lessen the risk because “most folks who are already engaged with some aspects of the Chinese government or with a Chinese institution can't just say no,” the official said.
2. China’s playbook for hooking local governments

Photo: Michael Macdonald/EyeEm

Several nations try to influence America's domestic politics, but China has its own distinctive set of methods and goals.

Why it matters: “Our concern at the end of the day isn't focused on an election event. It is focused on the integrity of our policymaking process and the policymakers' decision-making ability," the FBI official said.

China, Russia, and Iran all engage in influence activities, but their goals are different, according to the official, who added:

  • "Russia wants us to tear ourselves apart."
  • "Iran wants us to leave them alone.”
  • "China wants to manage our decline."

Two other differences between how China and other nations wield covert influence abroad are method and scale.

  • Method: China's top tool is its wealth. It uses a toolkit that combines rewards and punishments to shape the behavior of its targets.
  • Scale: China's malign influence activities are global in scope and reach all the way to local governments, even town councils in some cases. Russian and Iranian efforts are usually regional and far more limited in scope; they lack China's global reach and economic clout.

Between the lines: “The scope and scale of what it is that we're facing is unprecedented," the official said. "The growth of Chinese influence has absolutely been tied to the global growth of their economic influence.”

  • Chinese delegations to America, carefully choreographed trips to China for U.S. government and business leaders, and offers of lucrative investment projects and business deals may provide the initial hook, the official said.

Beijing's goal is to cultivate more officials at these levels who are friendlier to China-backed development projects and who recognize the value of telecommunications infrastructure at bargain prices.

  • "If you've got a baseline across the country of folks who say it's not that bad, this is a relationship that we need ... because it's creating jobs," then the U.S. can end up with a federal decision-making process where it's "harder for us to say there's probably some lines we should not cross," the official said.
  • "Perception adds up and creates a policy environment."
Bonus: China's trade power
Expand chart
Data: U.S. Census Bureau; Chart: Axios Visuals
3. Coronavirus travel restrictions hit migrant workers hardest

Migrant workers in Quanzhou City on Jan. 15. Photo: He Canling/Xinhua via Getty Images

Migrant workers will be most negatively affected by the travel limits that China’s local governments have imposed to halt the spread of the novel coronavirus, Eli Friedman of Cornell University tells Axios.

What's happening: After travel restrictions were put in place over the Lunar New Year holiday, migrant workers with jobs in cities under lockdown can’t get back to work.

  • These laborers often have no safety net or savings, so the loss of what might be weeks of income could plunge them into dire financial straits.
  • Many industries, particularly manufacturing, rely on cheap migrant worker labor. (There are an estimated 288 million migrant workers in China.) Without employees, companies based in quarantined cities may be forced to shut down operations.

Meanwhile, the Chinese government is taking some measures to help workers by requiring employers to continue to cover basic living expenses.

  • Yes, but: Officially, China has only one labor union, which is controlled by the Communist Party. That means it largely fails to challenge true power imbalances in the system.
  • “Employees don't have any mechanism for expressing their interests,” Friedman said.

Another concern: There's a lack of access to affordable medical care.

  • “For migrant workers specifically, there is a lot of data that shows their medical insurance coverage is abysmal,” Friedman said.
  • That means it’s harder for migrant workers with the coronavirus to receive timely treatment, and they may be “staying at home for longer periods of time potentially infecting others.”

The bottom line: Migrant workers are among China’s most vulnerable, and much of China’s manufacturing industry depends on them. If they can’t get back to their jobs soon, both they and the companies they work for will suffer.

4. China's stimulus push amid coronavirus may raise risk

Photo: Chukrut Budrul/SOPA Images/LightRocket via Getty Images

Worries are beginning to grow about China's stimulus efforts as the government pushes new measures to offset the impact of the coronavirus, Axios' Dion Rabouin reports.

The latest: Chinese regulators ordered banks to lower interest rates and allow late repayment of loans to help small and midsize companies, but there are worries the program may be ill-advised.

  • "[T]he measures are not working as intended, bankers and analysts say, as the move could heighten financial risk in the banking sector and add to small business debt," Caixin reported, citing unnamed sources.
  • "Under the latest directives, banks heeding Beijing's call to support small and midsize companies could make problematic loans to companies that might not meet standards under normal circumstances."

Of note: China’s fiscal revenues rose just 3.8% in 2019, the slowest growth pace since 1987, largely as a result of wide-ranging tax cuts in response to the country's economic slowdown. That followed 6.2% growth the year prior, according to South China Morning Post.

Why it matters: China has been working to reduce its debt for years as part of a “structural deleveraging” campaign, but had to reverse course as the trade war and now the coronavirus outbreak are pushing the government to increase spending.

5. What we're reading

Back door: U.S. officials say Huawei can covertly access telecom networks (Wall Street Journal)

CIA: ‘The intelligence coup of the century:” For decades, the U.S. read the encrypted communications of allies and adversaries (The Washington Post)

University scandal: China influence scandal rocks Berlin university (David Matthews, Times Higher Ed)

Overseas connections: China’s ‘overseas delegates’ connect Beijing to the Chinese diaspora (Australian Strategic Policy Institute)

Czech survey: What do you think of the New Silk Road? China secretly seeks the views of Czech politicians (Lukáš Valášek, Aktuálně.cz)

6. Between the lines on Chinese strategy

Illustration: Aïda Amer/Axios

In this recurring feature, I'll interview an expert about a Chinese Communist Party phrase to explain the news.

The phrase: "Use the local to surround the center." (以地方包围中央)

What it means: Building up support for China at the state and local levels in a foreign country so that those leaders may then call upon the national government to adopt policies that are friendlier to Beijing.

The expert take: Anne-Marie Brady, a political scientist at the University of Canterbury in New Zealand, tells me this strategy usually involves political funding of some kind via...

  • Chinese government proxy groups and individuals.
  • Subsidized trips to China.
  • Business partnerships.
  • Directorships on Chinese companies.
  • Special economic agreements such as a local-level signing up to the Belt and Road Initiative.
  • Business and political connections via "friendships," aka "sister cities."

The bottom line: The Chinese Communist Party cares about cultivating mayors and state officials in countries thousands of miles away, Brady says, because...

  • They make decisions. "Local and state governments have a lot of delegated powers for governance over various aspects of society and they also are frequently the bodies which make decisions on infrastructure projects."
  • They're vulnerable. "They don’t tend to have much depth in foreign policy knowledge, which tends to make them even more vulnerable to foreign interference activities than national-level bodies."
  • They put the economy first. "Local government tends to prioritize economic development as a key marker of good governance, so they tend to be very attracted to China’s economic diplomacy efforts."