Mar 8, 2019

Axios China

Happy International Women's Day!

Situational awareness: February trade data for China came in below expectations, though given the timing of the Lunar New Year, the data may not be quite as awful as they look, CNBC reports.

  • The data — combined with the downgrade call on the shares of state-owned insurer (per Bloomberg) and official punishment for 2 lenders illegally lending money for stock market trading (according to Reuters) — appear to be the triggers for the Shanghai Composite Index's 4.4% drop Friday.

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: U.S.-China trade deal remains uncertain

Illustration: Lazaro Gamio/Axios

I have been hearing throughout this week that a U.S.-China trade deal may not be as close as some expected, and that the mooted March summit between President Trump and Chinese President Xi Jinping is in jeopardy.

What's new: Two articles in the last 24 hours confirm the chatter.

1. The New York Times reported Thursday that:

[S]ome of the biggest details — like the enforcement mechanism to ensure China complies and the timing for the removal of tariffs — still haven’t been hammered out. Beijing officials are wary that the final terms may be less favorable, especially given Mr. Trump’s propensity for last-minute changes, according to two people familiar with China’s position...
Chinese officials face an obvious dilemma in asking their president to fly all the way to Mr. Trump’s Mar-a-Lago club in Florida without a clear understanding of the final details. And persuading Mr. Xi to attend such a summit meeting is no easy task, given his imperative of appearing strong before a domestic audience.

2. The Wall Street Journal earlier today reported on an interview with U.S. Ambassador to China Terry Branstad that "a date hasn’t been finalized.” The report also states...

In recent days, especially after Mr. Trump’s failed meeting in Vietnam with North Korean leader Kim Jong Un, senior Chinese officials have become increasingly wary of agreeing to a summit without a guarantee from Washington on a final deal, according to people familiar with the leadership’s thinking.

What we're hearing: A source briefed on the negotiations tells me there is still hope Trump and Xi will meet at Mar-a-Lago on March 29, but only if Xi can be certain there will be no last minute surprises that result in a Hanoi summit-like humiliation.

My thought bubble: Given the remaining gap between the two sides, that date may be more aspirational now than realistic, unless the U.S. sends its top negotiators back to China sometime after March 15 and they can finalize a deal.

Go deeper:

2. China trade war needs allies

Illustration: Lazaro Gamio/Axios

Xi and his team have long been concerned about a united front among major economic powers against the PRC's trade and economic policies.

Between the lines: Fortunately for them, the Trump administration's go-it-alone approach — from withdrawing from the Trans Pacific Partnership (TPP) to imposing tariffs on the EU — has reduced America's leverage in the trade war with China.

European Trade Commissioner Cecilia Malmstrom recently spoke with Bloomberg News:

“We have a problem: China is dumping the market, China is subsidizing their industry, this creates global distortions. We can agree on that. So what is the solution? Well, we think it is to cooperate on China.”
“The solution to these problems is not imposing tariffs on the European Union. Why is that so hard to understand?”
3. Xi's thought on diplomacy is "epoch-making"

Chinese Foreign Minister Wang Yi at March 8 press conference. Photo: Lintao Zhang/Getty Images

Chinese Foreign Minister Wang Yi held a press conference at the National People's Congress Friday to discuss China's diplomatic work.

Details: Xinhua English's lead story reports on Wang's comments...

The establishment of Xi Jinping Thought on Diplomacy as the fundamental guideline for China's diplomatic work is an epoch-making milestone in the diplomatic theory of New China, Chinese State Councilor and Foreign Minister Wang Yi said Friday...
At the Central Conference on Work Relating to Foreign Affairs in 2018, the guiding status of Xi Jinping Thought on Diplomacy was established, setting a fundamental guideline for China's diplomatic work and point the way for navigating through the complex array of issues in today's world, Wang said.

The big picture: The ideological tightening inside China has contributed to a more rigid and shrill group of PRC diplomats. Earlier this week Bloomberg reported on this trend...

[F]oreign diplomats in Beijing say that the behavior of Chinese officials has become far more aggressive and assertive in private meetings in recent years.
Their discussions have become more ideological, according to one senior foreign envoy, who described the behavior as a strong sense of grievance combined with increasing entitlement about China’s international role and rights.

Meanwhile, Wang also weighed in on the U.S. case against former Huawei CFO Meng Wanzhou and Huawei's lawsuit against the U.S. government, SCMP reports:

“We support the company and the individual in question in seeking legal redress to protect their interests,” Wang said, raising his fist, “and refusing to be victimised like silent lambs”.

Go deeper: Read more highlights of Wang's comments via CGTN and Global Times.

4. Facebook may not be possible in China

Illustration: Sarah Grillo/Axios

Facebook CEO Mark Zuckerberg may have signaled in his recent Privacy-Focused Vision for Social Networking post that Facebook has given up on plans to operate its services inside China.

Driving the news: Zuckerberg's comments suggest it may be impossible for Facebook to launch inside China in compliance with PRC law. In his note published Wednesday, he says...

“As we build our infrastructure around the world, we've chosen not to build data centers in countries that have a track record of violating human rights like privacy or freedom of expression."
“If we build data centers and store sensitive data in these countries, rather than just caching non-sensitive data, it could make it easier for those governments to take people's information.”

BuzzFeed later reported that:

"Facebook does not see any path forward in China, a senior source inside the company told BuzzFeed News on Wednesday...
The source told BuzzFeed News that many employees felt it was critical for Facebook’s mission to enter China, and that it’s one of the most frequent questions asked during employee Q&A sessions. This person also noted that many people internally will likely be unhappy with Zuckerberg’s hard line on data storage.

But, but, but: Facebook already does have a massive business selling ads on its platform to Chinese-based entities looking to reach out into the global internet, perhaps as high as $5 billion in 2018, according to this NYT report last month.

Go deeper:

5. 1 big read: Cracking a Chinese spy case

Illustration: Sarah Grillo/Axios

In October, the U.S. Department of Justice announced the indictment of Chinese Ministry of State Security (MSS) operative Yanjun Xu for allegedly attempting to commit economic espionage and steal trade secrets from multiple U.S. aviation and aerospace companies.

What's happening: Xu is awaiting trial in U.S. custody, after he had been lured to Belgium, arrested, and then extradited to the U.S. One of his targets was reportedly GE Aviation, and this week local Cincinnati WCPO provided new details on the case in their report...

On May 25, 2017, the 41-year-old engineer loaded five GE Aviation documents to the hard drive of his personal laptop, then drove from Cincinnati to Detroit, where he boarded a flight to China...
WCPO is not naming the engineer because he has not been charged with a crime. He has not responded to our requests for comment...
What follows is the most detailed public chronology of the events leading to Xu's arrest, events that shed new light on how brazenly China shops for America's corporate secrets and the kind of effort required to keep these alleged spies from ringing up a sale.

Why it matters: Xi's exhortations to achieve "self-reliance" and "control core technologies" increase the pressure on the PRC bureaucracy to work even harder to obtain those core technologies by any means necessary.

The other side: At the same time, the DOJ under Trump has more aggressively publicized these cases and for the first time extradited a serving MSS operative to the U.S. Regardless of what happens with the trade negotiations, this is an area where U.S.-China tensions look set to increase markedly.

Go deeper:

6. Intel: 5 years until China catches up

An Intel technician in 2000. Photo: Gilles Mingasson/Liaison/Getty

From the excellent Axios Future newsletter (sign up here) ... One of the most important and overlooked arenas of high-stakes tech competition is the global race among companies and nations to invent and manufacture the brains of future technologies — a rivalry for the commanding heights in advanced computer chips for artificial intelligence.

What's happening: Axios' Kaveh Waddell writes that for decades, U.S. companies have held the lead in chips. But now, they are losing ground.

Threat level: America's biggest chipmaker says Chinese companies could catch up with U.S. chip advances within 5 years.

Driving the news: In a new policy paper shared first with Axios, Intel earlier this week called on the government to implement a national AI strategy that will position the U.S. to beat upstarts in China and elsewhere.

  • Leading Chinese chipmakers include HiSilicon, Tsinghua Unigroup and Shenzhen Huiding Technology, per MIT Technology Review.

The semiconductor industry has been flooded with new entrants in the U.S., Europe and China, each playing for a piece of a new pie that nobody's quite sized up yet. The new arena of competition: chips special-made for AI, a quickly shifting field that requires deep expertise in designing and manufacturing silicon.

  • Leaders Intel and Nvidia are under threat at home and abroad. U.S. web giants — including Google, Facebook, Apple and Amazon, some of the chipmakers' biggest customers — are increasingly making their own chips.
  • At the same time, China and other countries are pushing to rely less on American-made chips.

What we're watching: China's rise "hasn't happened yet in the AI market, but it will," says Naveen Rao, Intel's head of AI. "I have no doubt."

Go deeper: Read Kaveh's full story.

7. Worthy of your time

The Washington Post — China is blocking World Bank report calling for changes in economy

Caixin — State Firm Profits Will Pay for China’s Tax Cuts, Sinochem Chief Says

The Washington Post - In China, many are impressed that, yes, you can sue the U.S. government

SCMP — China’s tech strategy all talk, no action and a waste of taxpayers’ money, says its former finance minister Lou Jiwei

Andrew S. Erickson — China’s 2019 Defense Spending to Rise 7.5% to 1.19 Trillion Yuan (~177.61 Billion U.S. Dollars)

Time — The Dalai Lama on Donald Trump, China and His Search for Joy

Inkstone — ‘Tibetans and Uyghurs not accepted’: Apple supplier Foxconn probes hiring discrimination

Cui Liru — China’s 'Period of Historic Opportunities

China Leadership Monitor The Spectre of Insecurity: The CCP’s Mass Internment Strategy in Xinjiang

WSJ— ‘China Could Have Been a Very Different Country.’ A Search for Family Reveals a Lost Moment

David Cowhig's Translation Blog A Most Chinese Public Disappearance on Twitter: @airmovingdevice

What's on Weibo — Here Comes Trump the Chinese Opera, Starring Mao Zedong and Kim Jong-un

Chinarrative — Why Northeasterners Love Their Bathhouses

This week's issues of my Sinocism China Newsletter