Oct 12, 2018

Axios China

By Bethany Allen-Ebrahimian
Bethany Allen-Ebrahimian

It is a beautiful fall day here in D.C., even as we are into winter in U.S.-China relations...

Thanks for reading, and if you want a daily and deeper look at China, please check out my daily Sinocism China Newsletter and follow me on Twitter @niubi.

1 big thing: Trump and Xi may meet at G20

Illustration: Lazaro Gamio/Axios

The Wall Street Journal reported Thursday that President Trump will meet with General Secretary Xi Jinping at the G20 summit in late November.

Driving the news: Treasury Secretary Steven Mnuchin and National Economic Council Director Larry Kudlow are said to be pushing the meeting. Per WSJ:

Mr. Trump has dedicated a team to plan for his summit meeting with Mr. Xi, the officials said. One of the people involved in the planning is Christopher Nixon Cox, grandson of former President Richard Nixon, whose trip to China in 1972 eventually led to diplomatic relations between the two nations. Meantime, the planning team on the Chinese side includes Liu He, Mr. Xi’s economic envoy...
“The plan is to get Trump in a room with Xi, get a small win and declare an end to the whole thing,” said a U.S. source familiar with the negotiations, who views the talks skeptically.

My thought bubble: I would be cautious about getting too hopeful about significant results.

  • It's not clear that U.S. Trade Representative Robert Lighthizer is on the same page as Mnuchin and Kudlow, and the Chinese side is very wary of any talks that do not have the full support of the USTR head.
  • Even if there's a deal that mitigates some of the short-term tensions, the broader security and strategic issues remain. Vice President Mike Pence's speech last week made very clear there are many more problems than just trade in the relationship.
  • The last few months of dealing with the Trump administration have made it clear to the Chinese that the U.S. view towards the PRC has shifted fundamentally and so any trade deal would at best be a useful delaying action to give China time to prepare for much more difficult longer-term relations with the U.S.

Go deeper:

2. PRC reactions to U.S. pressure

As we mentioned in last week's newsletter, Pence's speech struck a nerve — and the repercussions continued this week.

Buzz: Xinhua published at least 8 responses attacking the speech. The Central Propaganda Department’s Theory Bureau, writing under the pen name "Zhongxuanli 钟轩理," published 2 commentaries attacking Pence's comments in People's Daily this week. The South China Morning Post reports:

The nearly 5,400-word screed by “Zhong Xuanli”, a pseudonym used by the Central Propaganda Department’s Theory Bureau, sought to refute the vice-president’s address point by point, including a remarkable proposal for Beijing to buy four US Gerald R. Ford-class aircraft carriers to help close China’s trade surplus with the US.
“The problem is not that China does not buy, but that the United States does not sell,” the piece argued, referencing the escalating trade war between the two countries. “For example, is the US willing to sell its Ford-class aircraft carriers? If one piece is priced at US$15 billion and the US sells four to China, we can immediately narrow the trade gap by US$60 billion.”
“Pence even said that much of China’s success was driven by American investment in China and that the US ‘rebuilt’ China over the last 25 years – what a huge joke!”

There are concerns that U.S. pressure will lead to rising nationalism and conservatism in China. London School of Economics professor Jin Keyu makes that point in an op-ed for Caixin:

Yet, in China’s view, what the U.S. is really reacting to is not only the specifics of its trade policy, but also its overall development model and its aspirations to become a major global power — aspirations that are not out of reach. In fact, the Chinese believe, Trump’s trade war effectively proves that China has become a real and present threat to American hegemony.
Whether this is true or not is irrelevant; what matters is Chinese perception. Whereas in the past, when only a few conservatives warned of U.S. attempts to “contain” China, virtually everyone in China now buys into this narrative, including a growing number of young people...
The real danger is that rising nationalism could embolden a contingent of the Communist Party, known in China as the New Left, that denounces capitalism and its Western proponents, and calls for a return to the Maoist socialist order of 40 years ago.

Between the lines: Hu Xijin, editor in chief of the nationalist tabloid Global Times, has also been publicly worrying on his Weibo account about the temptation to become more conservative and nationalistic in the face of U.S. pressure. Hu is smart, savvy and an excellent political weather vane — so for him to express these concerns means he sees such a shift as a real possibility.

Go deeper:

3. China's "influence" vs. "interference" on midterms

Former CIA Director John Brennan. Photo: Drew Angerer/Getty Images

Axios' Joe Uchill reports ... John Brennan, the former CIA director and homeland security adviser, believes the debate over what China may be doing to influence or interfere in the 2018 midterm elections hangs on the meaning of those two words.

"The term 'interference' is loosely used. But there's a difference between 'interference' and 'influence.'"
— John Brennan tells Axios at SecureAuth event

Why it matters: At the UN, President Trump declared, "China has been attempting to interfere in our upcoming election." Pence made a similar case a week later at the Hudson Institute, saying that China was trying to influence the election.

  • We don't know whether either executive was using "interference" and "influence" to mean separate concepts, as Brennan does, or as a single mushy idea, they way he fears the public uses the terms.
  • But it's clear the public took the statements to mean China was doing something like what Russia did in 2016.

The big picture: The difference, at least to Brennan, is that influencing an election doesn't cross over into illegality.

  • Attempts to influence the public could be completely aboveboard — like a factual statement to the press.
  • Interference covers activities like hacking, propaganda or other components of the Russian meddling in 2016.
  • "I would assume China would have an influence campaign," Brennan says. "I'd be surprised if more nations did not have influence campaigns."

The administration has hinted it has proof that China is doing something untoward in the 2018 elections. But the public evidence the administration has offered — such as legally placed, clearly identified advertisements and tariffs targeted at Trump-supporting states — appears to fall cleanly under Brennan's definition of influence.

Read more of Joe's story here.

Go deeper: The Five Eyes intelligence alliance — Australia, Britain, Canada, New Zealand and U.S. — is building a coalition to better coordinate on PRC influence, interference and investments. (Reuters)

4. U.S. indicts PRC intelligence officer

The indictment and extradition from Belgium of a serving Chinese Ministry of State Security officer for economic espionage is a very big deal.

Driving the news: From the Department of Justice announcement...

A Chinese Ministry of State Security (MSS) operative, Yanjun Xu, aka Qu Hui, aka Zhang Hui, has been arrested and charged with conspiring and attempting to commit economic espionage and steal trade secrets from multiple U.S. aviation and aerospace companies.  Xu was extradited to the United States yesterday...
Yanjun Xu is a Deputy Division Director with the MSS’s Jiangsu State Security Department, Sixth Bureau. The MSS is the intelligence and security agency for China and is responsible for counter-intelligence, foreign intelligence and political security. MSS has broad powers in China to conduct espionage both domestically and abroad.

Why it matters: This appears to be the first time a PRC intelligence officer has been brought to the U.S. to face charges, which can be taken as a sign that the Trump administration is stepping up the U.S.-PRC spy contest.

My thought bubble: A PRC reaction is to be expected, quite possibly including the arrest of an American in China as a spy. Plus, the trade war and China's renewed drive for self-reliance may lead to an increase in cyber-related economic espionage.

What we're hearing: Dmitri Alperovitch, co-founder and CTO at CrowdStrike, said as much on Twitter this week in reaction to the arrest of Xu:

Go deeper: How the US Halted China’s Cybertheft — Using a Chinese Spy (Wired)

5. U.S. garlic growers love China trade war

Illustration: Rebecca Zisser/Axios

Axios' Courtenay Brown writes ... Most American farmers are livid with Trump's tariffs. But not garlic growers. Reeling after a quarter-century-long war with Chinese garlic farmers, they are thrilled with a trade war that they say could finally give them the advantage on U.S. turf.

Why it matters: Chances are if you're cooking with garlic (or, less commonly, using it medicinally), it's from China, which has an iron grip on the U.S. market, controlling more than 90% of the dried garlic trade and killing many American garlic farms. U.S. farmers think Trump's new 10% tariff could bring them back to life.

There is a "garlic war that has crowded out U.S. farmers," says Eric Block, a University at Albany professor who has studied garlic for more than 30 years. Pricing pressure from cheaper Chinese garlic has caused a lot of of U.S. farms to scale back production, or shut down completely.

By the numbers: How the price difference ripples through the market can be seen in San Francisco, where the current price of a 30-pound carton of Chinese-grown white garlic is $38–$40, compared with $68 for U.S.-grown garlic, according to the USDA.

Ken Christopher, who runs Christopher Ranch, the largest U.S. garlic producer in Gilroy, California, says that even though the tariff will not equal out the prices, the penalty will make it less profitable for Chinese growers and "it will make an impact, when you're dealing in millions of pounds of garlic."

Go deeper: Read Courtenay's full story here.

6. Xi: Rural revitalization key to food security

On his northeastern inspection tour the last week of September, Xi stressed "rural revitalization" and "the importance of ensuring China’s food security so that the country can always control its own food supply."

Meanwhile, not coincidentally, the government that same week released a new 5-year plan on rural revitalization. The excellent Dim Sums blog read the new plan so you didn't have to:

The sprawling 36,000-character Plan is a little more than twice as long as the "Number 1 Document" that laid out the Rural Revitalization initiative earlier this year, yet this "Plan" includes a similar stream of general statements with few details and only a few minor new items.
The Plan has great ambitions to overhaul the countryside — to make it richer, cleaner, more scenic, more ecologically balanced, and more closely integrated with cities...
"[F]ood security" is declared as a "class one issue." The Plan aims to achieve a delicate balance of simultaneously opening the agricultural economy to the world while upgrading its domestic agricultural sector and forging links between farms, processors, input suppliers and service providers. 
The Plan's preamble says it presents great opportunities, but worries about prominent risks in international trade. Improving the competitiveness of China's agricultural products and strengthening risk management are identified as "urgent tasks."

Of note: The trade war with the U.S. already has prompted the China Feed Industry Association to propose reducing the minimum content of soy meal in pig rations.

Go deeper:

7. One big read

New Yorker writer Jiayang Fan has written a terrific profile of novelist Yan Lianke:

"No one here has actually read anything I’ve written, or knows that my books are banned. To live in China in 2018 is to inhabit a reality that makes you question the very nature of reality.” The absurdity of the evening’s events seemed, ever so slightly, to please the author.
"The people we met today, they know the name Yan Lianke and that he’s a Henanese who’s come by a bit of fame,” he said. “But, in their minds, I might as well be a character in a story.” ...
Yan is not exactly a political dissident, and he remains a member of the Communist Party — a club that’s much easier to join than to leave. Over the years, he has honed an instinct for self-preservation through pliancy, deflection, and bemused forbearance. Yan used to joke that the day he managed to learn ten words of English he would move abroad, but he suspects that he wouldn’t feel the same urgency in his work if he left China.
“It’s ironic,” he told me. “There is so much anxiety about writing within Chinese borders, but that anxiety is also what I write from.”

Go deeper: Read the whole thing.

8. Worthy of your time

US Congressional-Executive Commission on China 2018 Annual Report

Rhodium Group — Credit and Credibility: Risks to China’s Economic Resilience

Elephant RoomA depressing look at the state of the PRC economy

Focus Taiwan — Full text of Taiwan President Tsai Ing-wen's National Day address

NYT — For China, a Bridge Over the Adriatic Is a Road Into Europe

Carnegie Endowment for International PeaceHow U.S.-China Disputes on Trade, Taiwan, and the South China Sea Are Driven by Washington’s New Generation (Doug Paal)

Council on Foreign Relations — Who Controls the Tap? Addressing Water Security in Asia

PingWest — China's economics of the lonesome and the lazy

Center for Strategic and International Studies What I Learned at Alibaba's Data Protection Summit (Samm Sacks)

The Economist — Israel’s ties with China are raising security concerns

Sinica Podcast — Nury Turkel and the Uyghur plight

Xinhua — Chinese researchers produce mouse pups with same-sex parents

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

Bethany Allen-Ebrahimian