Axios China

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October 05, 2018

China has been on vacation for the National Day holiday this week but the Trump administration ruined the holiday for some of the cadres.

Vice President Mike Pence's speech Thursday clearly laid down an official marker for a much more competitive and contentious New Era of U.S.-China relations (more below).

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: Pence details the China challenge...

Photo of Vice President Mike Pence
Vice President Mike Pence. Photo: Ethan Miller/Getty Images

Axios' Dave Lawler has a good writeup of the vice president's speech. Overall I thought it was a useful articulation of the problems the U.S. sees with China but short on prescriptions. The election meddling accusations were weak, though I have been told there is more substance that is still classified.

ICYMI: Pence yesterday accused China of using its military, spies, economic power and propaganda prowess to undermine the U.S. around the world and influence its domestic politics. The U.S. had long turned a blind eye, Pence said, “but those days are over.”

Why it matters: Pence made headlines by declaring that China “wants a different American President,” and by repeating the still-unsubstantiated claim that Beijing is meddling in the midterms.

But his underlying message echoes a growing consensus among China watchers: We're entering a new era of U.S.-China relations, driven by competition and confrontation.

This is just the beginning, according to Axios' Jonathan Swan, who says President Trump is planning an "administration-wide" offensive against China.

What they're saying:

  • Chris Johnson, a former CIA China analyst now at the Center for Strategic and International Studies, describes the “pronounced groundshift in Washington about how China is viewed” on this week’s Intelligence Matters podcast with Michael Morell. One of his points: "The gears are starting to lock into place in both leadership’s minds that this is an implacable enemy, a global struggle for influence and maybe domination."
  • David Rennie, the Economist’s Beijing bureau chief, writes in his latest column that America's China policy "has long whiffed of hypocrisy,” but honesty poses dangers of its own. "Trump’s preferred form of candor —an amoral, might-makes-right cynicism — may be the least help of all.”

My thought bubble: I have no doubt this will just be seen as more evidence to support the belief held by Chinese President Xi Jinping and his team that we are in a new era of U.S.-China relations where the U.S. is determined to keep China down.

  • They did not fully believe this even a few months ago but now they seem to have fully bought into the idea that the trade war is just one dimension of a growing adversarial relationship and conflict across every dimension.
  • The gloves on both sides are not yet off, but we should prepare for them to come off.

Go deeper:

2. ... and China responds

It is still the holiday in Beijing but the Ministry of Foreign Affairs (MoFa) communications offices has been kept busy.

China's response: MoFa website has posted two statements so far...

1. US Leader's Groundless Accusations Against China

The relevant speech made unwarranted accusations against China's domestic and foreign policies and slandered China by claiming that China meddles in US internal affairs and elections. This is nothing but speaking on hearsay evidence, confusing right and wrong and creating something out of thin air. The Chinese side is firmly opposed to it...
China always follows the principle of non-interference in others' internal affairs and we have no interest in meddling in US internal affairs and elections. The international community has already known fully well who wantonly infringes upon others' sovereignty, interferes in others' internal affairs and undermines others' interests. Any malicious slander on China is futile.

2. US Leader's Unfounded Accusations on Taiwan-related and Other Issues:

There is only one China in the world, and Taiwan is an inseparable part of China. The US has no right at all to pick on relevant countries who chose to develop relations with China on the basis of the one-China principle...
China has indisputable sovereignty over the South China Sea islands and their adjacent waters...
Our advice for the US is to buy itself a mirror and take a look at itself, and spend more time thinking about its own human rights problems, instead of exploiting human rights and religious issues to interfere in China's internal affairs.

Pence clearly struck a nerve with these comments about Taiwan:

And since last year alone, the Chinese Communist Party has convinced three Latin American nations to sever ties with Taipei and recognize Beijing. These actions threaten the stability of the Taiwan Strait, and the United States of America condemns these actions.
And while our administration will continue to respect our One China Policy, as reflected in the three joint communiqués and the Taiwan Relations Act, America will always believe that Taiwan’s embrace of democracy shows a better path for all the Chinese people.

My thought bubble: There remains some hope that Trump and Xi will meet at the G-20 at the end of November and find a way to a deal that reduces tensions. I wish I could live on the sunny side of the mountain, but when it comes to the U.S.-China relationship right now all I am seeing are storm clouds.

3. Bloomberg: PLA hacked server motherboards

Illustration of semiconductor in Chinese start shape with red background
Illustration: Rebecca Zisser/Axios

On Thursday, Bloomberg published an absolutely blockbuster story claiming that based on 17 sources from the U.S. government, Amazon and Apple, the People's Liberation Army had added tiny chips to server motherboards supplied by Supermico that would allow backdoor access. Per Bloomberg:

Nested on the servers’ motherboards, the testers found a tiny microchip, not much bigger than a grain of rice, that wasn’t part of the boards’ original design...
During the ensuing top-secret probe, which remains open more than three years later, investigators determined that the chips allowed the attackers to create a stealth doorway into any network that included the altered machines. Multiple people familiar with the matter say investigators found that the chips had been inserted at factories run by manufacturing subcontractors in China...
The investigators concluded that this intricate scheme was the work of a People’s Liberation Army unit specializing in hardware attacks, according to two people briefed on its activities. The existence of this group has never been revealed before, but one official says, “We’ve been tracking these guys for longer than we’d like to admit.”

The other side: Apple, Amazon, Supermicro have all issued unconditional denials, so either the journalists got it wrong or the companies are lying,

The Bloomberg reporters made clear that they got wind of this operation during the Obama administration, seemingly trying to inoculate against claims this was somehow a plant by the Trump administration:

The companies’ denials are countered by six current and former senior national security officials, who — in conversations that began during the Obama administration and continued under the Trump administration — detailed the discovery of the chips and the government’s investigation.

Why it matters: If this happened, then all the fears about security vulnerabilities in technology hardware manufactured in China have seemingly come true.

  • Pressures to relocate supply chains out of China, already a goal of the Trump administration, will only increase regardless of the cost and complexity.
  • And it could be the kiss of death for Chinese companies Huawei and ZTE in any developed markets where they aim to build business.

Go deeper:

Fiction meets fact: The excellent 2015 novel "Ghost Fleet: A Novel of the Next World War" by P.W. Singer and August Cole includes F-35 jets that are compromised by microchips infected via the supply chain in the PRC. It would make a great movie, but for Hollywood's fear of offending Beijing...

4. Allies sour on U.S. but fear China more

Adapted from Pew Research Center; Note: Survey of 25 countries. "Don't know", "Both", and "Neither" responses not shown; Axios Visuals
Adapted from Pew Research Center; Note: Survey of 25 countries. "Don't know", "Both", and "Neither" responses not shown; Axios Visuals

Many of America's closest allies tend to view China more favorably than the U.S. and have more confidence in Xi than Trump, according to an annual survey from the Pew Research Center.

Yes, but: When asked whether the world would be better off with the U.S. or China as the leading global power, respondents overwhelmingly choose the U.S., Dave reports.

Why it matters: The U.S. is far less popular around the world than it was before Trump took office, and the decline has been particularly sharp in countries like the U.K., Germany and Canada. That stands to benefit America's rivals for global influence, but these numbers reveal widespread wariness of a China-led world.

Read more of Dave's story here.

5. Taxman cometh for Fan Bingbing

Photo of the Chinese actress Fan BingBing
Fan Bingbing in 2017. Photo: Laurent Koffell/Gamma-Rapho via Getty Images

There is a resolution in the disappearance of actress Fan Bingbing.

The details:

  • Fan and the companies she controls have agreed to pay 883 million RMB in back taxes and fines by the end of the year, according to a Xinhua announcement Wednesday (部门依法查处范冰冰“阴阳合同”等偷逃税问题 Chinese actress Fan Bingbing fined for tax evasion) and other media reports.
  • She will avoid criminal penalties if she pays by Dec. 31, though her agent and “other related personnel” are under investigation for possible criminal offenses including destroying documents and other evidence.
  • Fan posted an apology (范冰冰就逃税事件致歉:对不起,我辜负了国家对我的培养) to her Weibo account, saying she let everyone down by not properly arranging the interests of the state, society and the individual.
  • Fan said she would raise the cash to pay what she owes and that “all of her achievements are inseparable from the support of the state and the people. Without the good policies of the Party and the state, without the love of the people, there would be no Fan Bingbing.”
  • The official “Sword of Chang’an 长安剑“ WeChat account noted (长安剑:超8亿!范冰冰逃税被重罚!除此之外还有四大新闻) that the case reflected the naked worship of money in entertainment circles as well as the complete disregard for art, morality, personal integrity and the law.

My thought bubble: Fan will probably be able to revive her career, though not without continued and repeated displays of obeisance to the party.

  • Penalizing her makes a lot of sense, both because so much money is involved and because she's the perfect target to use to reiterate the party's point that it's serious about cleaning up the entertainment industry both financially and “spiritually.”
  • And fleeing to Hollywood is not an option for Fan as no Hollywood studio will touch her if she is not in the good graces of Beijing.

Quick take: The Xinhua announcement made it clear Fan is not the only TV/film industry participant with a tax issue. The evaded taxes due by Dec. 31 might fill some budgetary holes…

Go deeper:

6. Hong Kong refuses to renew FT editor's visa

The Asia editor of the Financial Times was unable to renew his visa to work in the city. From the Washington Post:

The Financial Times said Friday that Hong Kong authorities rejected a work visa renewal application for Victor Mallet, its Asia news editor.
The newspaper said it has not been given a reason for Mallet’s rejection, but the news comes weeks after Mallet defied requests from the Hong Kong and central Chinese governments to cancel a talk at the Foreign Correspondents’ Club with Andy Chan, an activist who called for Hong Kong to declare independence from mainland China.

It is yet another sign that Hong Kong is just another PRC city, no matter what was promised ahead of the handover from the U.K.

7. Report: Interpol head may be under China investigation

Meng Hongwei, head of Interpol and a vice minister of China's Ministry of Public Security, has been reported missing and may be under investigation in China, according to an SCMP source. Per SCMP:

The 64-year-old official, who is also a vice-minister at China’s Ministry of Public Security, was “taken away” for questioning by discipline authorities “as soon as he landed in China” last week, the person said.
It is not yet clear why Meng is being investigated or exactly where he is being held.
French police said earlier they had launched a search for Meng after being contacted by his wife, news agencies reported.

Threat level: Both the Fan and Meng cases will remind anyone still paying attention that no one — no matter how famous or connected you are — is safe in Xi's China.

8. Worthy of your time

New York Times — Private Businesses Built Modern China. Now the Government Is Pushing Back

Economist — China has designs on Europe. Here is how Europe should respond (cover story)

Bloomberg — Italy Pivots to China in Blow to EU Efforts to Keep Its Distance

NPR Series on China's Global Influence — China Unbound

Mercator Institute for China Studies — Decoding Chinese concepts for the global order

China Media Project — Missing Compliments

NYT — Lindsey Graham Welcomed Trump’s China Tariffs, Then Helped Companies Avoid Them

SCMP — US galleries, Chinese artists share rare trade war ‘win’ after being spared from tariffs

RFAChina Shutters WeChat Account Listing Historical Grievances Against Moscow

Nikkei Asian Review — China's great leap forward in biotech

What's on Weibo — Communist Blasphemy: Red Scarf with Wanda Advertisement Goes Viral on Weibo

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