Sep 22, 2020

Axios China

Welcome back to Axios China. Today we're looking at China's grip over businesses, the war over TikTok, partisan divides on China, and lots more.

  • 🎧 Listen to the "Axios Re:Cap" podcast to hear CNBC Beijing bureau chief Eunice Yoon talk to our team about the TikTok view from China.
  • If you have comments or feedback, feel free to email me at bethany@axios.com.

Today's newsletter is 1,580 words, a 6-minute read.

1 big thing: Beijing draws Chinese companies even closer

Illustration: Annelise Capossela/Axios

Chinese Communist Party Secretary Xi Jinping announced last week that the party must strengthen its leadership over private companies, and that entrepreneurs must meet the party's needs. 

Why it matters: Xi's new announcement will increase fears that Chinese businesses may serve as a Trojan horse for the CCP.

What's happening: On Sept. 15, the CCP's top decision-making body, the Central Committee, released a memo calling for closer ties between private Chinese businesses and the United Front Work Department, which is the CCP's bureau in charge of extending its influence and control to all corners of society.

  • The guidelines say the aim is to "create a backbone team of private businesspeople who are reliable and useful at critical moments."
  • On Thursday, the party also convened the first-ever conference on strengthening ties between private businesses and the UFWD.

Between the lines: Under Xi, the party is seeking to establish control over the private sector in a way that maintains robust economic growth while allowing the government to implement long-term strategy and commandeer private sector resources when needed.

  • In 2018, China's securities regulator issued a guideline requiring listed companies to include in their articles of association a section about the party's role.
  • The party aims to accomplish not just economic goals but also political and national security goals.
  • “Xi has clearly given a strong push to the United Front system to do more and be bolder,” said Alex Joske, a China analyst at the Australian Strategic Policy Institute who has written extensively about the department.

The big picture: U.S. concerns over TikTok are based in part on the suspicion that private Chinese businesses aren't able to fend off Chinese government demands for data or other assistance.

  • Chinese law states that companies and individuals are required to hand over data and provide assistance to the government and its intelligence agencies upon request, and that they must keep any such requests a secret.
  • The new memo adds in a strong political element, suggesting some companies may now be required to assist in political goals and activities — though the specifics remain unclear.

What to watch: While this measure is directed primarily at Chinese businesses, the policy could spill over beyond its borders, since many Chinese businesses have partners, customers, or operations abroad.

  • The Chinese government already pressures companies to act in concert with official diplomatic and foreign policy goals.
  • Chinese companies have canceled contracts with foreign companies when their governments have acted against Beijing's wishes, such as earlier this month when a Chinese company suspended a $23.8 million order from Czech piano company Klaviry Petrof after a Czech government official visited Taiwan.
  • Chinese companies have also pulled ads from foreign news outlets that publish content Beijing doesn't like.

Go deeper:

2. Study: China's policies directly harmed U.S. industries

Illustration: Eniola Odetunde/Axios

China's economic planning and targeted subsidies have increased the competitiveness of Chinese firms in the global economy to the direct detriment of U.S. industry, an academic study has found.

Why it matters: When it comes to American industries and workers, the rise of Chinese industrial policy hasn’t been a win-win — researchers found for every 100 factories opened in China, 12.5 U.S. factories in the same industry closed.

Details: Researchers at Columbia University and Boston College found that "high birth rates" of Chinese firms — meaning the opening of new factories and companies — negatively affected U.S. employment, in their April 2020 SSRN study.

What they're saying: "The key findings support the concern that U.S. firms are displaced by China’s manufacturing prowess, not just in 'sunset' industries from which the U.S. was happy to retreat, but also in industries that both countries are eager to lead, in a race that has been significantly shaped by the Chinese government."

The big picture: China's state-guided capitalism is increasingly showing itself to be a major challenge to a liberal global trade order premised on trading partners following a set of shared principles.

Bonus chart: China and partisan divide
Data: The Chicago Council on Global Affairs; Note: Total survey sample of 2,011, with a ±2.3% margin of error for the full sample; Chart: Andrew Witherspoon/Axios

Democrats and Republicans have sharply differing views on some aspects of foreign policy and national security. But when it comes to China, there is some degree of consensus, according to a new survey by the Chicago Council on Global Affairs.

Details: There is widespread support across party lines for sanctions to combat China's human rights violations, as well as measures to protect Americans from the potential risks of Chinese technology.

  • But the gap between Republicans and Democrats widens on trade issues, with more Republicans supporting policies that reduce overall trade.
  • And when it comes to policies that would keep Chinese students and scientists out of the U.S., the gap is dramatic — few Democrats expressed support, compared to a majority of Republicans.

The bottom line: There is room for bipartisan support for some, but far from all, of the China policies the Trump administration has promoted in recent months.

3. Catch up quick

1. Federal prosecutors charged a New York City police officer with acting as an illegal agent of China and feeding information on ethnic Tibetans to the Chinese consulate in New York. Go deeper.

2. President Trump said he approved "in concept" a deal whereby TikTok will be allowed to continue operating in the U.S., with Oracle as its "trusted technology partner." Go deeper.

3. China flew at least 19 fighter jets and bombers into Taiwan airspace, just ahead of a series of meetings between a senior American diplomat and Taiwanese leaders. Go deeper.

4. Swedish clothing retailer H&M said it will no longer source cotton from Xinjiang, where the Chinese government is forcing Uighurs into factory work, AFP reports.

4. The TikTok deal is just for show

Illustration: Aïda Amer/Axios

The new deal to rescue TikTok from a threatened U.S. ban — full of provisions aimed at creating the temporary appearance of a presidential win — looks like a sort of Potemkin village agreement, Axios' Scott Rosenberg writes.

The big picture: TikTok's drama has unfolded as trade and security tensions between China and the U.S. deepen. The process has been driven by three demands from Trump.

1. ByteDance, TikTok's Chinese owner, must sell it to a U.S. company.

  • After Microsoft's effort to acquire TikTok failed, Oracle emerged as the leading bidder. But the actual deal involves ByteDance handing TikTok over to a newly constituted U.S. company named TikTok Global.
  • Oracle and Walmart will take 20% ownership of that company — valued, per many reports, at between $50 billion and $60 billion. The rest of it will be owned by ByteDance's existing shareholders, who include both Chinese and U.S. investors.
  • It's still unclear exactly how TikTok Global will get to operate TikTok's coveted recommendation algorithm, or how its U.S. operation will be able to vet it.

2. The deal must secure American users' data. ByteDance, as a Chinese company, can't protect U.S. users' data from Chinese government spying, the firm's critics charge.

  • Under the new deal, Oracle will take over all of TikTok's cloud operations in the U.S. market. Oracle has a close relationship with the White House, and Trump says he's confident in its security capabilities.
  • A separate, U.S.-only board and security apparatus will oversee TikTok's U.S. operation to further placate U.S. concerns.
  • Yes, but: TikTok's security threat remained hypothetical, not evidence-based, and it's unclear how different in practice the new arrangement will be from the old.

3. The deal must benefit the United States. In August, Trump insisted that the U.S. Treasury get a cut of the deal.

  • It was never clear on what legal basis the president made this claim, which sounded like a shake-down to many observers.
  • Oracle's deal announcement cites a promise by TikTok Global to add 25,000 new jobs to its U.S. workforce and says that would ultimately funnel $5 billion in new tax revenue to the U.S.
  • Yes, but: The jobs could materialize, but the Trump administration has a long record of extracting promises of jobs that never arrive — as happened with a 2017 Foxconn factory deal in Wisconsin.

What's next: Between now and a Nov. 12 deadline, lawyers for all the parties will fill in the many blanks, seek to satisfy U.S. regulators' reviews, and try to make this deal fly. China, too, needs to bless the plan.

Meanwhile, TikTok users' consumption of short videos and memes will continue undisrupted till after the election.

5. What I'm reading

Mask dash: China’s epic dash for PPE left the world short on masks (Bloomberg)

  • "By the end of February, as other countries were realizing their own need for masks and protective equipment, the campaign had sent 2.5 billion items to China worth 8.2 billion yuan ($1.2 billion), including 2 billion masks, according to Chinese government figures."
  • My thought bubble: Really recommend this investigation from Sheridan Prasso. She examines the extraordinary global mobilizing power of the UFWD without casting a genuinely humanitarian undertaking in a conspiratorial light.

Money talks: How China mobilizes funding for United Front work (Jamestown Foundation)

  • Research from Ryan Fedasiuk at Georgetown University’s Center for Security and Emerging Technology shows that various UFWD offices received a total of $2.6 billion from the Chinese government last year — more than the budget allotted for the Chinese Ministry of Foreign Affairs.
  • Of that, $600 million was set aside for United Front offices tasked with influencing people abroad.

Belt and Road and Pollution: The climate risks of China's Belt and Road Initiative (Bulletin of the Atomic Scientists)

  • "China has long been the world’s largest exporter of coal power equipment, exporting twice as much as Japan, its nearest competitor. Chinese banks are financing more than 70 percent of all coal plants outside of China. ... At current rates, Chinese coal equipment exports and financing make it virtually impossible to limit global warming to safe levels."
6. Notable quote: Outgoing Ambassador Branstad on Trump

Terry Branstad shakes hands with President Xi on Sept. 30, 2017, in Beijing. Photo credit: Lintao Zhang/Getty Images.

“I think President Trump believed the Chinese when they said what they said about the virus. ... And then he and the rest of the world have found out that what they said was not true, and misinformation and cover-ups occurred.”
— U.S. Ambassador to China Terry Branstad, in a Sept. 18 interview with CNN, via Politico

P.S. Congratulations to Yi-Ling Liu, a young writer who has just been named a New America fellow for her forthcoming book that looks at how people in China navigate the internet there.

  • There are only a few New America fellows named each year, and it's great to see that the program is supporting books on China and writers of Chinese heritage.