Nov 2, 2018

Axios China

It is a happy Friday, at least for markets, as President Trump and General Secretary are making nice again about trade talks.

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1 big thing: Trump and Xi to meet at the G-20

Photo: Xinhua/Li Tao via Getty Images

Trump and Xi had a phone call Thursday and look to have confirmed a meeting at the end of the month.

  • The South China Morning Post says it will be a "meeting plus dinner," and Bloomberg says that Trump has asked his cabinet to draft a possible trade deal with China.
  • "Trump asked key cabinet secretaries to have their staff draw up a potential deal to signal a ceasefire in an escalating trade conflict, the people said, adding that multiple agencies are involved in the drafting of the plan. It was unclear if Trump was easing up on U.S. demands that China has resisted," Bloomberg reported.

By the numbers:

  • Markets and the RMB liked the news of talks, as the currency had its biggest two-day gain since 2007. Hong Kong surged more than 4% and Shanghai went up more than 2.5%.
  • Meanwhile, the US trade deficit with China rose to a monthly record high in September:
  • "The Commerce Department said on Friday the trade gap increased 1.3 percent to $54.0 billion, widening for a fourth straight month. Data for August was revised to show the trade deficit rising to $53.3 billion instead of the previously reported $53.2 billion."

Between the lines: It sounds like the two sides are still far apart on a deal.

  • If there is a positive outcome from the meeting, it is likely to be a framework deal that involves a tariff cease fire and a roadmap for talks. That seems to be what the Chinese side sees as the most realistic positive outcome.
  • Even if we see a trade deal, expect it to be a short-term, superficial salve to the fundamentally deteriorating U.S.-China relationship, and that Xi et al will see it and leverage it as a delaying action while China ramps up its efforts to reduce reliance on the U.S. and build up its comprehensive national power to better compete with the U.S.

The big picture: The trade dispute is just one dimension of the fundamental resetting of the U.S.-China relationship, and even if there is a trade deal some time in the future, the other issues, including but not limited to Taiwan, South China Sea, and interference/influence have little prospect of resolution any time soon.

Go deeper: China's Xi promotes 'self-reliance' as next economic era:

“Trade frictions with the U.S., and particularly the near-collapse of ZTE, has reinforced Chinese leaders’ instinct for technological autarky,” said Yanmei Xie of Gavekal Dragonomics, an economic research firm.
2. Xi and the Party embrace private entrepreneurs

China's economy is slowing, concerning both government and private businesses.

The bottom line: Xi and the leadership understand the concerns of the entrepreneurs, but whether or not the flurry of recent statements and meetings will improve confidence and business conditions for them remains unclear.

  • The Politburo met on Wednesday. According to the official release about the meeting noted some of the growing challenges and hinted at more accommodative policies going forward.
  • On Thursday, Xi convened a symposium of leading private business owners to reassure them of the Party's commitment to private businesses.

Per Xinhua:

  • "The private sector's contributions are undeniable for the country to be able to make miraculous achievements in economic development."
  • "All private companies and private entrepreneurs should feel totally reassured and devote themselves to seeking development."

But private entrepreneurs need to remember their place in overall system:

  • "The basic economic system of retaining a dominant position for the public sector and developing diverse forms of ownership side by side is an important part of the system of socialism with Chinese characteristics and crucial for improving the socialist market economy, Xi said."

Go deeper: China Investors Convinced Policy Is ‘Turning Left,’ Citigroup Says:

  • "China’s domestic investors are more bearish than their overseas counterparts because confusing policy signals have convinced them the government is favoring state enterprises over private companies."
3. U.S. targets Chinese economic theft

The Justice Department is creating a "China Initiative" to better identify and counter high-priority Chinese trade theft incidents, Axios' Shannon Vavra reports.

  • "Attorney General Jeff Sessions explained Thursday that a federal grand jury indicted a Chinese government-owned company, a Taiwanese company, and three individuals with 'conspiracy to commit economic espionage' from stolen trade secrets from American semiconductor company, Micron."
  • "The U.S. also filed an injunction Thursday to prevent the foreign companies from transferring products based on the stolen technology to the U.S."

What's next: "Picking flowers, making honey", a new report by the Australian Strategic Policy Institute examines the Chinese military’s collaboration with foreign universities:

China’s People’s Liberation Army (PLA) is expanding its research collaboration with universities outside of China. Since 2007, the PLA has sponsored more than 2,500 military scientists and engineers to study abroad and has developed relationships with researchers and institutions across the globe.
This collaboration is highest in the Five Eyes countries, Germany and Singapore, and is often unintentionally supported by taxpayer funds. Australia has been engaged in the highest level of PLA collaboration among Five Eyes countries per capita, at six times the level in the US. Nearly all PLA scientists sent abroad are Chinese Communist Party (CCP) members who return to China on time.

The bottom line: No matter what happens with the Trump-Xi trade talks, these issues are not going away in the U.S.-China relationship and in fact will likely become much more contentious as the US and allies start pushing back harder.

4. And the U.S. goes after Chinese espionage

The U.S. revealed two high-profile moves to crack down on Chinese intellectual property theft this week, Axios' Joe Uchill reports.

The big picture: "U.S. experts charge that China has hacked into U.S. companies to steal anything and everything that could build up its tech industry without having to spend money on research and development."

Go deeper: US senators demand probe into China’s alleged hacking of tech giants’ supply chains | South China Morning Post

5. RIP Jin Yong

A picture of novelist Jin Yong (aka Louis Cha Jing-yong) is seen at a memorial section of a bookstore in Hangzhou, Zhejiang Province of China. Photo: VCG/VCG via Getty Images

Louis Cha, who wrote martial arts novels under the pen name Jin Yong, died this week in Hong Kong at the age of 94.

  • Tributes to him filled Chinese social media as just about everyone in China has read his novels. I am at a loss to think of anyone in American literary culture as influential as Jin has been to so many generations of Chinese. 

Per the South China Morning Post:

Cha was a respected journalist, community leader, and, above all, a celebrated author whose novels in the wuxia genre – featuring chivalrous tales of kung fu masters in ancient China – made him a household name both at home and among the global Chinese diaspora.
His work transcended political, geographical and ideological barriers, with well over 100 million copies sold worldwide and countless adaptations into media ranging from films to video games.

The New Yorker profiled Cha earlier this year in The Gripping Stories, and Political Allegories, of China’s Best-Selling Author:

Louis Cha, who is ninety-four years old and lives in luxurious seclusion atop the jungled peak of Hong Kong Island, is one of the best-selling authors alive. Widely known by his pen name, Jin Yong, his work, in the Chinese-speaking world, has a cultural currency roughly equal to that of “Harry Potter” and “Star Wars” combined. Cha began publishing wuxia epics—swashbuckling kung-fu fantasias—as newspaper serials, in the nineteen-fifties. Ever since, his fiction has kept children, and their parents, up past their bedtimes, reading about knights who test their martial-arts mettle with sparring matches in roadside ale-houses and princesses with dark secrets who moonlight as assassins. These characters travel through the jianghu, which literally translates as “rivers and lakes,” but metaphorically refers to an alluvial underworld of hucksters and heroes beyond the reach of the imperial government. Cha weaves the jianghu into Chinese history...
“Of course, there were other wuxia writers, and there was kung-fu fiction before Jin Yong,” the publisher and novelist Chan Koonchung said. “Just as there was folk music before Bob Dylan.”
6. Worthy of your time

The New York Times - Fury Erupts in China as Video Shows Fight Led to Fatal Bus Crash

Carnegie-Tsinghua Center - Is the Taiwan Strait Heading Toward Another Crisis?

South China Morning Post - Deputy head of Inner Mongolia's public security department kills himself after two former colleagues come under corruption cloud

Reuters - Chinese students assaulted at pro-Marxist society protest. Video of the assault here.

Inside Higher Ed - Cornell ends partnership with Chinese university over academic freedom concerns

Foreign Affairs - China’s Bad Old Days Are Back Why Xi Jinping Is Ramping Up Repression

Caixin - Apple Fights for Share of Shrinking China Smartphone Market

Technode - How China’s music streaming industry differs from Spotify

Abacus - In China, where you live determines the tech you use

City Paper - Residents of Wah Luck House Have Endured Difficult Living Conditions to Remain in Downtown D.C.'s Chinatown

The Guardian - Ma Jian: ‘Freedom can’t be taken for granted. We have to remain constantly vigilant’

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