Nov 16, 2018

Axios China

Bill Bishop of Sinocism

New: Axios interviews Tim Cook, Elon Musk and Bill Gates in the tech-heavy final two episodes of "Axios on HBO," airing the next two Sundays at 6:30pm ET/PT. 

Next week the newsletter will be off for Thanksgiving, so I'll see you Nov. 30.

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1 big thing: U.S.-China trade deal is a stretch...

Illustration: Rebecca Zisser/Axios

There are only 13 days until President Trump and Chinese President Xi Jinping are to meet in Argentina — and the leaks, rumors and guesses are flying fast.

The best case scenario appears to be a tariff ceasefire with some sort of framework deal to keep talking, but based on what I am hearing, even that may be a stretch.

Commerce Secretary Wilbur Ross commented on the prospects for the meeting yesterday, per Bloomberg:

“The big event is going to be the one-on-one meeting with President Trump and President Xi at the G-20 down in Argentina. All this other stuff is just preparatory until that. That’ll set if there is going to be a real framework," he said at the ribbon cutting for Cheniere Energy....
It can’t be expected that the two presidents will “get into intimate details -- how much LNG and how much this and that. It’s going to be big picture, but if it goes well, it’ll set the framework for going forward," Ross said. “We certainly won’t have a full formal deal by January. Impossible.”

An unnamed senior U.S. official spoke with Reuters yesterday and downplayed the possibility of a breakthrough deal with China anytime soon. Reuters reports...

China’s written response to U.S. demands for trade reforms is unlikely to trigger a breakthrough at talks between Presidents Donald Trump and Xi Jinping later this month, a senior Trump administration official told Reuters on Thursday...
The Chinese document included 142 items divided into three categories: issues the Chinese are willing to negotiate for further action, issues they are already working on and issues they consider off limits, the official said...
The items on Beijing’s non-negotiable list were unacceptable to the United States, the official said, and the overall list deserved to be looked at with skepticism in part because China has previously made pledges on economic and trade reforms that it had not fulfilled.

What we're watching: Expect more leaks, speculation and probably market-moving tweets between now and the meeting. Asset Management firm Miller Tabak, I think, nailed it in their prediction of how Trump might communicate with the markets between now and the meeting,

  • As CNBC's Carl Quintanilla tweeted:
"POTUS 'is VERY sensitive to the movements in the stock mkt. The last thing he wants to do is have the mkt flat on its back going into the #G20 mtg .. Therefore, we think it's very likely that he'll tweet [or leak] more positive [China] news' -- Miller Tabak"
  • Quick take: At some point, won’t there be Presidential China Deal Tweet Fatigue?

What we're hearing: A source tells me to expect Liu He, top economic policymaker and Xi's point man for the trade negotiations, to come to D.C. after Thanksgiving for the talks.

Go deeper: China Fund Managers Have Low Expectations for Xi-Trump Meet (Bloomberg)

2. ... as Pence spells out U.S. demands

Speaking of the possible trade deal, if Vice President Mike Pence speaks for the Trump administration on China policy, then his comments in an interview with Josh Rogin of the Washington Post should quell any optimism for a deal.

Why? There's little prospect that China would agree to much of what Pence lays out. Rogin writes...

Pence told me in an interview that Trump is leaving the door open for a deal with Xi in Argentina, but only if Beijing is willing to make massive changes that the United States is demanding in its economic, military and political activities. The vice president said this is China’s best (if not last) chance to avoid a cold-war scenario with the United States...
In addition to trade, Pence said China must offer concessions on several issues, including but not limited to its rampant intellectual property theft, forced technology transfer, restricted access to Chinese markets, respect for international rules and norms, efforts to limit freedom of navigation in international waters and Chinese Communist Party interference in the politics of Western countries.
If Beijing doesn’t come up with significant and concrete concessions, the United States is prepared to escalate economic, diplomatic and political pressure on China, Pence said. He believes the U.S. economy is strong enough to weather such an escalation while the Chinese economy is less durable.
3. Commission: U.S. faces worst national security crisis in decades

Illustration: Rebecca Zisser/Axios

David Lawler writes for from his Axios World newsletter (sign up here) ...

U.S. national security is in greater peril “than at any time in decades,” according to a recent report from a panel of top national security experts tasked by Congress with reviewing the state of American national defense.

Why it matters: The U.S. has entered into an era of "great power competition" with China, which poses an unprecedented challenge to U.S. dominance both economically and militarily, and with an increasingly assertive Russia.

Threat level: American military superiority has deteriorated to the point where the U.S. “might struggle to win, or perhaps lose, a war against China or Russia.” As U.S. superiority fades, the authors write, the likelihood of war rises, according to the report from the National Defense Strategy Commission.

More from the report...

  • “Rivals and adversaries are challenging the United States on many fronts and in many domains. America’s ability to defend its allies, its partners, and its own vital interests is increasingly in doubt. If the nation does not act promptly to remedy these circumstances, the consequences will be grave and lasting.”
  • “Authoritarian competitors — especially China and Russia — are seeking regional hegemony and the means to project power globally. They are pursuing determined military buildups aimed at neutralizing U.S. strengths. Threats posed by Iran and North Korea have worsened as those countries have developed more advanced weapons and creatively employed asymmetric tactics.”
  • “In multiple regions, gray-zone aggression — intimidation and coercion in the space between war and peace — has become the tool of choice for many. The dangers posed by transnational threat organizations, particularly radical jihadist groups, have also evolved and intensified. Around the world, the proliferation of advanced technology is allowing more actors to contest U.S. military power in more threatening ways.”
  • “Finally, due to political dysfunction and decisions made by both major political parties... America has significantly weakened its own defense.”

Between the lines: Ambassador Eric Edelman, a co-chair of the commission, tells Michael Morell on the latest Intelligence Matters podcast that many of these warnings have been issued before: “I think what we had to wrestle with was the consequences of all those warnings having been ignored.”

Go deeper:

4. China's campus crackdown intensifies

Students at commencement ceremony of Peking University. Photo: Xinhua/Shen Bohan via Getty Images

The government has decided that college campuses are in need of enhanced security and ideological hardening, and is implementing different control measures, Reuters reports. The article states:

Late on Wednesday, the university, informally known as Beida, warned all students against taking part in demonstrations of support for recent labor-rights activism involving former students and said they would be held responsible if they “challenged the law”.
The school believes that the majority of students are sensible, but if there are those near you who are spreading rumors or reactionary sentiments, regardless if they are your teacher or your friend or your schoolmate, please keep a firm stance,” students were told over instant messaging platforms.
On Tuesday, the Communist Party committee at Beida set up new bodies responsible for disciplinary inspection tours and campus “control and management”, according to a document released by the committee and seen by Reuters, moves that tighten enforcement of party discipline.

My thought bubble: New Beida Party Secretary Qiu Shuiping is wasting little time. As I wrote in the October 26 issue of Axios China when he was appointed...

Amidst the broader tightening inside China, 2019 is a year of momentous anniversaries of student movements--the 100th of the May 4 Movement and the 30th of the Tiananmen Square protests--and Peking University was at the center of both. It certainly looks like this move may be part of the broader ideological hardening underway at Peking University and at educational institutions in general.

Go deeper: Chinese campus crackdown on young Marxist activists expands in major cities ( South China Morning Post)

5. Tightening the screws on the internet

The government also does not think current internet regulations are strong enough — so it's implementing a campaign to rein in "self-media," like blogs and social media accounts.

Details: As part of the campaign, per Global Times...

More than 9,800 self-media accounts, referring to subscription-based accounts that are popular on WeChat, Weibo or news portals such as Toutiao, have been punished in the campaign that was launched on Oct. 20, said the Cyberspace Administration of China (CAC).
The violations included defaming heroes, tarnishing the nation's image, spreading rumors and information that is sensational, lewd or pornographic, and blackmailing companies with media exposure, said the administration.
"Self-media should never be a place outside of judicial reach," said the CAC.

And starting Nov. 30, new regulations will apply to any companies or services with a “public opinion or social mobilization capacity" 具有舆论属性或社会动员能力. The Financial Times reports...

China’s cyber regulator will require detailed logs of user activity and personal information from all technology companies and online service providers with “public opinion or social mobilisation capacity” before the month’s end, the latest sign of how far Beijing is willing to go to tighten its control over the domestic internet.
The Cyberspace Administration of China laid out the new rules, due to come into effect on November 30, in a notice published on Thursday. The new requirements will apply to services including online forums, blogs, microblogs, chat rooms, news providers, short or streaming video platforms and information-sharing apps, among others.

My thought bubble: This move certainly looks related to the crackdown against labor activists and students, and is another sign that the political atmosphere will likely tighten even more (at least from now until June 5 after we have safely passed the 100th anniversary of the May 4 movement and the 30th anniversary of June 4).

  • But if you are a pessimist you might wonder why they would loosen up then, especially if U.S.-China relations and the PRC economy continue in downward trajectories?

Go deeper: Web Czar’s Handwritten Confession Showcased at Reform Exhibition (Caixin)

6. Report: Secret plot to infiltrate UN

The Sydney Morning Herald has an interesting story, about a secret plot by China to infiltrate the United Nations via Australian insider Sheri Yan. Here's part of it...

Earlier this year, a petite 62-year-old woman dubbed the ‘‘queen of the Australian-China social scene’’ walked out of a US federal prison.
Charming and gregarious, Sheri Yan was once known for hosting soirees around the world where diplomats mingled with millionaire business executives and socialites. But her life changed forever in October 2015, when she was arrested by FBI agents in New York and accused of bribing the former president of the United Nations General Assembly, John Ashe...
In the blur of names and NGOs, it is easy to get confused. It is perhaps why Yan’s story has mostly been reported as a straightforward kickbacks case, a cautionary tale of avarice. Yet serving and former national security officials in Australia and the US note the pattern of conduct displayed by Yan’s NGO and the two octhers like it, along with their deep connections to the Communist Party. Under the guise of charitable and altruistic policy work, the NGOs all combined clandestine and corrupt means to influence powerful UN officials.
Former US intelligence official and expert on Chinese government intelligence, Mark Stokes, has reached the same conclusion as these officials: ‘‘Most certainly it is part of a broader campaign of influence at the UN.’’
7. Worthy of your time

Reuters — China's Xi makes push into Pacific; scores 'own goal' with block on media

SCMP — What does ‘opening up’ exhibition giving credit to SOEs and Xi Jinping say to China’s private firms?

MacroPolo — From Windfalls to Pitfalls: Qualcomm’s China Conundrum

TeaLeaves Podcast Kurt Campbell talks to Elizabeth Economy

The Guardian NZ police investigate after prominent China critic's car 'sabotaged'

The National Interest — The Chinese Century? An Early Appraisal

Technode —Faraday Future: How a "Tesla-killer" became a zombie company

Wall Street Journal — In China’s New Space Odyssey, 80 Startups Race to Get Into Orbit

MIT Technology Review — China’s giant transmission grid could be the key to cutting climate emissions

Financial Times — China’s Belt and Road hits problems but is still popular

Caixin — Tax Crackdown Sends Chill Through Movie Biz

The Spectator — Social credit is just one part of China’s new state control

This week's issues of my Sinocism China Newsletter, now with a special 20% discount for Axios readers.

Bill Bishop of Sinocism