1 big thing: U.S. "slander" and "lunatic ravings"
China's Ministry of Commerce (MOC) issued a long statement Friday in response to the U.S. Trade Representative Robert Lighthizer's July 10 statement announcing the U.S. would start the process to impose 10% tariffs on $200 billion more of Chinese imports in the next few months.
Among the highlights, per the MOC statement:
My thought bubble: PRC official media response to the trade war has been relatively restrained, for now. It takes a while for the system to decide upon responses, and while is there still time to negotiate before the next round of tariffs, the government likely wants to keep the vitriol manageable. But there still have been some angry words in official media this week:
- People's Daily: A Thursday commentary on page two referred to the "lunatic ravings of the White House 白宫这种痴人说梦." The abridged, official translation of that piece — U.S. bullying practices are a global provocation — left out the bit about lunatic ravings but did write that "Washington has lost its rationality."
- China Media Group (中央广播电视总台): A commentary (which has no official translation) on Thursday concludes by saying that "more Americans may start to wonder where a government that has lost reason and is nearly insane is taking its country."
What's next: Beijing will keep working on U.S. firms to lobby the White House to back down. Tesla CEO Elon Musk was the latest target, the South China Morning Post reports. He was given the full treatment by Vice President Wang Qishan, who's often called the PRC's top "barbarian handler."
- China-U.S. Trade Grew in First Half as Tariff Standoff Worsened, per Bloomberg.
- Peter Navarro speaking on How Trump Will Win Against China on Trade at the Hudson Institute, via C-SPAN on YouTube.
2. China's currency drop
In Axios Expert Voices, CFR's Brad Setser writes ... Since the middle of June, China’s currency — the yuan — has fallen more than 3% against the dollar, and by a bit less against the currencies of China’s main trading partners. After a particularly large drop last Monday, China is reported to have intervened to limit the yuan’s fall.
Why it matters: Few prices matter more to the global economy — or to global trade — than the value of China’s currency. A weaker yuan supports China’s exports and generally pushes down the currency values of countries that compete most intensely against China in global markets.
The background: China manages its currency, so changes in its value never reflect just the moves of an unfettered market. But it isn’t clear if the yuan’s recent depreciation stemmed from a swing in market consensus — i.e., that China’s currency needed to fall because of economic slowdown and pending U.S. tariffs — or from a conscious decision by China’s government to weaken its currency to support its exports ahead of the tariffs.
The big picture: On one hand, a weaker currency gives China a way of retaliating against the U.S. even after it maxes out on its ability to match U.S. tariffs dollar for dollar. On the other, additional depreciation might invite Trump to accuse China of starting a currency war — and it also runs the risk of triggering a reprisal of the capital outflows that followed the yuan’s surprise depreciation in 2015.
Read the full piece by Setser, who's the Steven A. Tananbaum senior fellow for international economics at the Council on Foreign Relations.
My thought bubble: China can obviously control the direction of the RMB in at least the short to medium term, so interpreting the most recent moves as signaling to the U.S. is not illogical.
- But is the threat of a significant devaluation in the face of a U.S.-China trade war really credible, given the damage to domestic sentiment and subsequent increased capital flow pressure such a move would cause?
- And, let's not forget the fact that a competitive devaluation would blemish the image China and Chinese President Xi Jinping have worked so hard to cultivate since Davos 2017 — that China is a responsible major economic power and upholder of the global trading system.
3. ZTE is saved, but the lesson is not lost on Xi
Between the lines: The dangerous reliance on foreign and especially U.S. technology is at the top of Xi's mind. Xinhua reports he chaired another meeting Friday to discuss "improving innovation capabilities for key, core technologies":
Flashback: As I wrote in the April 20 newsletter ...
Quick take: The ZTE case may end up being a pyrrhic victory for the U.S.
4. Liu Xia is released to Germany
Liu Xia, widow of Nobel Peace Laureate Liu Xiaobo, who died in custody one year ago today, flew to Germany earlier this week. Jane Perlez and Ian Johnson of the New York Times explain How Germany Won Freedom for the Widow of China’s Most Famous Dissident:
Why it matters: Liu's release demonstrates that concerted, high-level pressure from Western governments can still work. There has been much debate in recent years about whether to take a low-key approach to pressuring Beijing over human rights or to make the efforts public.
Dissident Liao Yiwu, also based in Germany now, released deeply disturbing tapes of Liu's anguish in May, despite what he says was pressure from Western diplomats:
Go deeper: Quartz's Why Berlin is the favorite city of Chinese dissidents.
5. 1 big read: Rio Tinto execs' jail time
Former Rio Tinto China executive Stern Hu was released from eight years in a Shanghai prison earlier this month. Bloomberg Businessweek has a new story looking at the case that sent him and three colleagues to jail:
Of note: Bloomberg says its sources asked not to be identified, Rio declined to comment, and the Chinese government denied any knowledge of a targeted campaign.
Go deeper: Read Bloomberg's When Rio Tinto Met China’s Iron Hand.
6. Chinese firm roots for Croatia to beat France
Kitchen-appliance maker Vatti came up with a clever marketing scheme around the World Cup, Caixin reports:
The bottom line: If France wins Sunday the company will be on the hook for nearly $12 million in refunds.
7. Don't vape and fly
On Tuesday, an Air China flight from Hong Kong to Dalian dropped 25,000 feet in just a few minutes, causing the oxygen masks to deploy.
The cause? One of the pilots was vaping and tried to hide the smell, as The South China Morning Post explains:
8. Worthy of your time
China Heritage — Mendacious, Hyperbolic & Fatuous — an ill wind from People’s Daily by Geremie R. Barmé
SSRN — Party Ideology and Chinese Law by Rogier Creemers
South China Morning Post — China to send strategic bombers, fighter jets for war games in Russia
TV.81.cn — Music video of theme song for 2018 PLA recruitment drive (2018解放军征兵宣传片主题曲《青春不一样》 吴京李晨杨幂等激情演绎)
Buzzfeed News — Spy For Us — Or Never Speak To Your Family Again
Magpie Kingdom — Chinese Web Novels Launch Gold Rush for Adaptation Rights
Pandaily — Web Reshapes the Lives of China's LGBT Community
The New York Times — Years After Retiring, Li Na Wields Major Influence in Tennis
The Strategist — The African Union headquarters hack and Australia’s 5G network
The Information — China’s Huawei Plots AI Push With ‘Project Da Vinci’
CNBC — Apple announces $300 million clean energy fund in China