Jun 9, 2020

Axios China

Happy Tuesday, Axios China readers. Today we've got spies in Hong Kong, tariffs, China's oil demand, and lots more.

  • Check out our Deep Dive from this past weekend for more on how the coronavirus has disproportionately affected people of color in America.
  • This week's newsletter is 1,657 words, a 6-minute read.
1 big thing: China’s spy agencies are coming to Hong Kong. Here’s what that means.

Illustration: Eniola Odetunde/Axios

Chinese intelligence officers have been covertly operating in Hong Kong for years, but Hong Kong’s new national security law means Beijing’s spies will likely establish a more official presence there, Zach Dorfman of the Aspen Institute and I report.

Why it matters: Allowing mainland China’s security and intelligence services to operate with impunity in Hong Kong would dramatically reduce the political freedoms enshrined in the “one country, two systems” agreement that was supposed to provide the region with a high degree of autonomy until 2047.

  • This could endanger Hong Kong-based pro-democracy figures and other local anti-Communist Party dissidents.

What’s happening: A draft of the new national security law states, “When needed, relevant national security organs of the Central People’s Government will set up agencies” in Hong Kong.

Background: The Ministry of State Security (MSS), China’s foremost intelligence and political security agency, is notoriously brutal.

  • It operates both domestically and abroad, monitoring political and criminal targets, detaining and torturing those deemed threats to the state, and performing traditional espionage.

The national security law likely means China’s security and intelligence officers could legally be allowed to pursue targets in Hong Kong in one of two ways.

  • Extradition: The security law could pave the way for establishing a framework for extradition from Hong Kong to China. This would mean that Chinese security agencies would have to submit extradition requests to Hong Kong authorities, and cases would go through Hong Kong’s courts before a target could be sent to mainland China.
  • Rendition: In a darker scenario, mainland security officers could apprehend individuals and simply take them over the border to the mainland for interrogation or imprisonment.

“There have already been several known cases of Chinese intelligence officers operating in Hong Kong and Macao taking people over the border,” said Rodney Faraon, a partner at Crumpton Group and former senior CIA officer. “But these have always been officially denied.”

  • The most infamous recent case is that of Causeway Bay Books, a well-known bookstore and monument to press freedom, whose employees were kidnapped from Hong Kong and elsewhere and detained in mainland China in 2015. (The bookstore was subsequently forced to relocate to Taiwan.)

But a formal presence for the MSS in Hong Kong doesn’t necessarily mean a visible one.

  • "Even in China they can be pretty quiet and don't try to build a large overt presence, preferring to work through fronts and proxies,” said Alex Joske, an analyst at the Australian Strategic Policy Institute.

“If Chinese intelligence agencies are allowed to operate openly and officially, then that becomes an alternative center of power to the law enforcement agencies that the Hong Kong government currently has, one that would undoubtedly have legal primacy in the jurisdiction,” said Faraon.

  • “It would be the subversion of the role that Hong Kong law enforcement is supposed to play under one country two systems.”

Go deeper: New book unveils China’s formidable spy agencies

2. Scoop: Chinese-owned U.S. chemical company lobbied for tariff exemption

Illustration: Annelise Capossela/Axios

A chemical company registered in the U.S. signed a letter urging the Office of the U.S. Trade Representative to exclude from tariffs a product made by its Chinese government-linked parent company — without disclosing that link.

Why it matters: The tariffs remain, but the process illustrates how Chinese-owned companies registered as U.S. entities can lobby the U.S. government to change policies that negatively affect their Chinese parent companies, all without registering as foreign agents.

  • This makes it more difficult to track the potential influence of Chinese corporate- and government-linked interests on U.S. policy.

What's happening: The letter, dated Nov. 13, 2019, and addressed to U.S. Trade Representative Robert Lighthizer, says the U.S. is unable to produce enough PMDI, which is used to make insulation and other household products, to fulfill the needs of U.S. manufacturers.

The intrigue: Wanhua Chemical U.S. Operations LLC, which signed the letter, is owned by Wanhua Chemical Group, a Chinese company that is among the world's largest manufacturers (and exporters) of PMDI.

  • An investment entity owned by a Chinese municipal government is Wanhua Chemical Group's largest shareholder (21.59%), according to the company's 2019 annual report.
  • But Wanhua Chemical U.S. Operations does not disclose this relationship in the letter, which states it is from "consumers of PMDI."

The big picture: Foreign-owned companies, through their U.S.-registered affiliates, have an avenue to lobby the U.S. government not only by hiring former U.S. elected officials to press their cause, but also through industry and trade groups.

  • Wanhua Chemical is a member of several U.S. industry groups, including the American Chemistry Council (ACC) and the Polyisocyanurate Insulation Manufacturers Association.
  • Industry groups receive funds from member companies whose contributions are disclosed only to the IRS, not publicly, a phenomenon known as "dark money."
  • The groups are allowed to spend money on donations to super PACS and lobbying.

What they're saying: "Wanhua has been very public with its problems with tariffs," Edward Brzytwa, director for international trade at the ACC, told Axios in an interview.

  • "For our purposes, if they’re investing in the U.S., we call them a U.S. chemical manufacturer," he said.

Read the full story.

Data du jour: China's oil demand near pre-coronavirus levels

Illustration: Aïda Amer/Axios

Global oil demand tanked in the early months of the coronavirus outbreak. But China's demand has now recovered to more than 90% of what it was before the pandemic, Reuters reports.

Why it matters: The recovery in the Chinese market is driving a global recovery in oil demand.

  • “When you consider that oil demand in China — the first country impacted by the virus — had fallen by more than 40% in February — the degree to which it is snapping back offers reason for some optimism about economic and demand recovery trends in other markets such as Europe and North America,” Jim Burkhard, head of oil markets at IHS Markit, told Reuters.
3. Asian "Milk Tea Alliance" spills over to Hong Kong protests

Illustration: Sarah Grillo/Axios

A social media movement started by users in Hong Kong, Taiwan and Thailand to fight back against China's nationalist netizens has turned its attention to Beijing's new national security law for Hong Kong, writes Axios fellow Camille Elemia.

Why it matters: The "Milk Tea Alliance" — which refers to sweet tea drinks that are popular in east and southeast Asia — highlights the solidarity between Taiwan and Hong Kong and the growing distrust of Beijing in the region, particularly among younger people.

The big picture: This all began with a Twitter feud in April after two Thai celebrities supported the independence of Taiwan and Hong Kong from China.

  • The hashtags #MilkTeaAlliance and #MilkTeaIsThickerThanBlood first trended on Twitter in Thailand, followed by other countries, and have been used in over a million tweets.
  • The Chinese Embassy in Bangkok formally addressed the issue on April 14, accusing "some particular people" of "inflaming and sabotaging the friendship between the Chinese and Thai people."
  • What started as a China-Thailand meme war then spiraled into a debate on regional issues such as the coronavirus.

While that debate has raged online, political events have been bringing Taiwan and Hong Kong closer together.

  • Taiwan has vowed to give assistance to Hong Kong residents fleeing the former British colony for political reasons, further angering Beijing.
  • The number of Hong Kongers moving to Taiwan was up 150% in the first four months of this year from the same period last year, Reuters reports.
  • President Tsai Ing-wen expressed solidarity in a Facebook post, while Taiwanese people showed theirs by sending protective gear to protesters in Hong Kong.

Beyond Taiwan, messages of solidarity with Hong Kong have been coming in from across the online "alliance."

  • In Thailand, which has seen its own protests against an autocratic government, a student activist group handed out milk tea-flavored cookies to mark the anniversary of the Tiananmen Square Massacre, some in the shape of the iconic "tank man" image.
  • In the Philippines, citizens quickly joined the online coalition, citing Beijing's continued militarization in the disputed South China Sea. Polling suggests younger Filipinos are significantly more likely to support the Hong Kong protests than their older counterparts.
4. What I'm reading

More threats: China threatens to pull plug on new British nuclear plants (The Times)

  • This happened after British PM Boris Johnson recently said Britain would aim to exclude Huawei from British 5G.
  • Further reading: Check out this Twitter thread from British researcher Martin Thorley, who has posted documents related to China's nuclear facilities in the U.K. that he obtained via a freedom of information request.
  • Related: Denmark just signaled that it, too, wants 5G suppliers from closely allied countries.

Protests: Tiananmen can happen here (Foreign Policy)

  • "In spaces in the United States, where there are none of the barriers to mourning Hong Kongers face, Tiananmen’s story is only a relic. There is no linkage of Tiananmen to America itself, despite the violence that the American state has also inflicted on its own citizens over the years and decades and the struggle against the brutality of law enforcement that continues today," writes Rui Zhong of the Wilson Center.

Maotai mania: Chinese liquor-maker briefly surpasses value of world’s largest bank (Caixin Global)

  • Last week, Kweichow Moutai Co. Ltd. briefly overtook Industrial and Commercial Bank of China on China's stock exchanges.
  • Henry Kissinger famously told Deng Xiaoping in 1974, "I think if we drink enough Maotai we can solve anything." Many seem to have heeded this advice.

ICYMI: Three Chinese nationals were murdered and burned in Zambia, in a week when racial tensions were running high (CNN)

  • Frightening times for the 22,000 Chinese nationals living in Zambia. Many African nations have long had close relationships with China, though the coronavirus, and recent racism against Africans in China, have caused strain.
5. 1 book thing: China's rural campaigns made a difference

Image Credit: Cornell University Press.

China's rural modernization campaigns have tended to draw a hint of an eye roll from outside observers.

But in her deeply researched new book, "Mobilizing for Development," Kristen Looney, an assistant professor of Asian studies and government at Georgetown University, argues that such campaigns have played a significant role in rural development, not just in China, but also in South Korea and Taiwan.

Key takeaways: “Campaigns, like social movements, can create, destroy, revitalize, or circumvent institutions," Looney writes.

  • "They are a powerful means of mobilizing resources for change and have been frequently used in Leninist systems as a check against bureaucratic ossification.”
  • Interestingly, rural modernization campaigns seem to have been more effective in Taiwan and South Korea than in China, according to Looney's research.

"Campaigns more easily spiral out of control in China," Looney told me in an interview, "because there are so few participatory institutions at the lower level, and because there is such a big gap between central control and local governance."

The big picture: Urban industrialization alone didn't do much to help the poor rural populations across several East Asian countries. Rather, Looney demonstrates, it was an active interventionist state that finally helped mobilize resources so rural areas could get a share of modern prosperity.

P.S. I'm always looking for good nonfiction books to read on any topic, though of course my bookshelf is weighted heavily in favor of China books. What are you reading these days? Send me your recommendations.