May 11, 2018

Axios China

By Bethany Allen-Ebrahimian
Bethany Allen-Ebrahimian

Tomorrow is the tenth anniversary of the devastating Wenchuan earthquake that killed nearly 70,000 people. The Atlantic has published a series of haunting photos of the ruins that remain in Beichuan County.

Thanks for reading, and remember, 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: Top Chinese trade official may delay U.S. visit

Chinese Vice Premier Liu He may not attend trade talks in D.C. next week unless negotiations this weekend go well. Photo: Lintao Zhang/Getty Images

Chinese Vice Premier Liu He is scheduled to come to D.C. next week to continue trade discussions, as announced by the White House on Monday. However, the trip may be delayed now.

What's happening: The Financial Times reported today that senior commerce official Wang Shouwen is in D.C. for preparatory negotiations through the weekend, likely on what Beijing can do to lower Washington’s $337 billion trade deficit with China.

  • The FT says these discussions "will determine whether Mr. Liu goes ahead with his trip."
“It’s more likely than not,” one person familiar with the discussions told FT. “But if these talks with Wang don’t go well, that will raise questions about whether [Mr. Liu] will still come.”

My thought bubble: Very high on Liu's agenda — which I hear is coming directly from Chinese President Xi Jinping himself — is a request that the U.S. lighten the punishment against ZTE. In the wake of the U.S. Department of Commerce sanctions, ZTE has now ceased major operating activities.

  • Perhaps I am too pessimistic, but I still think the structural issues around the Chinese economic model and technology development are unresolvable. However, as long as the two sides keep talking, the markets will likely believe a true trade war can be averted.
  • The June 12 summit between President Trump and North Korean leader Kim Jong-un in Singapore may help delay any tougher U.S. trade actions as Trump has tweeted he may meet Xi soon, and since he will be in the region it's quite possible his trip will include a visit with Xi.

One thing to pay attention to: Chinese officials and media keep saying that when looking at the U.S.-China trade imbalance, people also take into account the role of U.S. companies’ subsidiaries in China. In a recent interview with Caixin magazine Yi Gang, governor of the People's Bank of China, said:

"In 2015, U.S. exports to China were about $165 billion. In the same year, sales of U.S. companies’ subsidiaries in China totaled $222 billion. If we put them together, we will see a dramatic decline of the overall imbalance."

Quick take: I read these repeated mentions of the U.S. companies' subsidiaries in China as a clear signal that if it comes to tit-for-tat tariffs, the U.S. firms with big businesses in China will be hit hard.

Go deeper: Read my full story here.

2. China's long game for Middle East influence

Illustration: Sarah Grillo/Axios

Axios' Erica Pandey writes: China has stayed out of regional conflicts in the Middle East for decades, but with its massive international infrastructure plan, Beijing is finally ramping up involvement — and it's determined to win influence.

Between the lines: If it's successful, a big reason will be that China hasn't taken sides or made enemies in the Middle East. The question is how long that can last.

The U.S. exit from the Iran deal leaves a lane open for China.

  • Beijing is the top consumer of Iranian crude oil and is deeply invested in the region for its energy resources.
  • Washington's sanctions on companies and countries that do business with Iran will hit European firms the hardest. That leaves room for China and Russia, both well-positioned to evade U.S. sanctions, to strike deals with Iran.
  • The China National Petroleum Corporation partnered with the French oil and gas company Total to develop Iran's South Pars oil field, and if Total loses its stake in the deal due to U.S. sanctions, China could take over.

The big picture: Middle Eastern countries are interested in seeing what China's up to, but they're all hedging, says Barbara Slavin, who leads the Atlantic Council's Future of Iran Initiative. Still, they can be much surer about Xi's longevity than they can about that of Trump, she says.

Go deeper: Read Erica's full story here.

3. What keeps Xi up at night

Axios' Mike Allen writes: When was the last time you heard a U.S. leader talk about 2050? Well, that's something that Xi does quite often.

A recently released 272-page book of Xi's remarks on “national security” includes previously unreleased comments that give a stark view of the president’s motivations, NYT's Chris Buckley and Paul Mozur report from Beijing.

The gritty details, per NYT:

  • In 2013, Xi credited technology for Western domination. "Our technology still generally lags that of developed countries. ... In core technological fields where it would be impossible for us to catch up by 2050, we must research asymmetrical steps to catch up and overtake."
  • Also in 2013, he made clear he was alarmed by U.S. surveillance capabilities exposed by Edward Snowden."Whether we can stand our ground and win this battle over the internet has a direct bearing on our country’s ideological and political security.”
  • In 2014, Xi warned Chinese military officials that they risked being eclipsed technologically by the U.S. "The United States is accelerating development of ... advanced weaponry has technologically broken through spatiotemporal boundaries. Once they are deployed for actual combat, they will fundamentally transform the traditional array of offense and defense in warfare.”
  • And in 2016, he said he worries about debt. "[R]isks are accumulating from ... government debt, and internet financing ... The United States subprime crisis erupted in a night. If we’re going to have big trouble in the future, it could well be in this area."

Go deeper: Read Mike's full piece here and subscribe to his AM newsletter here.

4. China's looming water crisis

Chinese villagers carry bottled drinking water due to a drought in 2010. Photo: STR/AFP/Getty Images

An analyst is calling for China to address its impending water shortage problem.

What's new: China hand and former U.K. government official Charlie Parton has written a new report for chinadialogue on the problem. Parton notes that:

China’s overall water resources are reasonable. At over 2,000 cubic metres (m3) per person they are above the level where water stress starts (1,700 m3), well above water scarcity (1,000 m3) and acute water scarcity (500 m3). They are roughly equal to those of the UK.
The problem is that 80% of the water is in southern China, meaning that eight northern provinces suffer from acute water scarcity, four from scarcity, and a further two (Xinjiang and Inner Mongolia) are largely desert. These 12 provinces account for 38% of China’s agriculture, 46% of its industry, 50% of its power generation (coal and nuclear use a lot of water), and 41% of its population.

Read the whole report here.

5. Social credit system 101

China’s social credit system has attracted much attention over the last year. There has been confusion about what it does and how it will be implemented.

Scholar Rogier Creemers published a new academic paper, "China's Social Credit System: An Evolving Practice of Control," explaining the system and dispelling some of the myths. Creemers, who also tweeted a summary, concludes:

it is perhaps more accurate to conceive of the SCS as an ecosystem of initiatives broadly sharing a similar underlying logic, than a fully unified and integrated machine for social control. It also finds that, intentions with regards to big data and artificial intelligence notwithstanding, the SCS remains a relatively crude tool. This may change in the future, and this paper suggests the dimensions to be studied in order to assess this evolution.

One of the social credit initiatives is a “youth credit system” developed by central committee of the Communist Youth League of China (CYLC), National Development and Reform Commission (NDRC), and the People's Bank of China. An NDRC official told Xinhua:

"The youth credit system is a comprehensive project," said Chen Hongwan, an NDRC official. "Dossiers will be created to carry good credit records of trustworthy young individuals, who will be favored or receive incentives when applying for student or startup loans or when looking for a job."

Be smart: The systems may be disparate and crude now, but do not expect them to stay that way.

One fun thing: Stephen Colbert weighed in earlier this week on China's Social Credit Scores.

6. The Party wants more internet control

Earlier this week Xu Lin, the head of the Cyberspace Administration of China (CAC), oversaw the launch of the China Federation of Internet Societies (CFIS), a grouping of 300 organizations and enterprises.

Who's who: The president of the federation is Ren Xianliang, former number two at CAC. Among the 14 vice presidents are Jack Ma of Alibaba, Pony Ma of Tencent and Robin Li of Baidu.

Between the lines: Participation is billed as “voluntary” but, of course, it's not for any company that wants to remain in good standing with regulators. According to David Bandurski at the China Media Project:

such industry groupings in China are never voluntary or independent. For many years the Party has used such intermediate structures as vehicles to assert control through means that appear more autonomous and legitimate.

The legal counsel of the Internet Society of China told that Global Times:

"The CFIS, highlighting its role to promote Party spirit in the industry, is significant for internet companies to maintain internet security to avoid political risks, such as to prevent foreign spy agencies or extreme forces from manipulating Chinese netizens. ”

Why it matters: As tight as the regulation of the Chinese internet may seem already, the party believes it needs to exercise even more control and this new organization fits into the trend of increasing censorship and regulation.

7. China's box office beats North America's

For the first time ever, Chinese movie theaters earned $3.14 billion, exceeding the North American box office totals by 42% in the first quarter of 2018, Caixin reports.

Caixin has the details:

The high revenue of the China market was largely down to a historic February that smashed the worldwide monthly box office record for a single market thanks to popular domestic blockbusters during the weeklong Lunar New Year holiday.
The five top-grossing films during the first quarter were all domestic productions, led by action movie “Operation Red Sea.” In recent years, it has become the norm for only domestic movies to be released during the holiday.

What's next: "Avengers: Infinity War" opens this weekend in China and analysts predict it may be the biggest box-opening ever in China and the first film to have a $200 million debut, according to Bloomberg.

My thought bubble: Another few hundred million more reasons for Hollywood executives to self-censor to ensure Communist Party censors approve their films...

Go deeper: Here are Marvel's first Chinese superheroes, per Quartzy.

8. New resource about women working on China

Female television journalist reports live ahead of the opening session China's legislature March 5. Photo: Nicolas Asfouri/AFP/Getty Images

NüVoices says it's offering "a new editorial collective gathering veteran and emerging writers, journalists, translators and artists to celebrate and support the diverse creative work of women working on the subject of China.”

  • One of the group’s first initiatives is a directory of nearly 500 female experts on Greater China.

No more excuses for Chinese "manels" or "marticles"

Bonus: Worthy of your time

Candles in front of ruins in Beichuan county for the 10-year anniversary of the earthquake, which killed around 70,000 people. Photo: Wang He/Getty Images

Tyler Cowen in Bloomberg View — China proves Marx right, but not how you might expect

Xinhua — CPC pledges to fully incorporate core socialist values in legislation

Chublic Opinion — Brave the enemy’s gunfire, rejuvenate!

The New Yorker — Don Blankenship, Donald Trump, and the “China People”

War On The Rocks — Wind in the Sails: China Accelerates Its Maritime Strategy

Jamestown — In Drive for Tech Independence, Xi Doubles Down on Civil-Military Fusion

Variety — ‘Dead Souls’ Review: A Momentous History of Chinese Re-Education Camps

Caixin — P.F. Chang’s Thinks China Has Big Appetite for Its ‘American Bistros’

Foreign Policy — How China Managed to Play Censor at a Conference on U.S. Soil

Bloomberg — Jack Ma's Ant Financial Snags Carlyle for $10 Billion Funding, Sources Say

The Guardian — Chinese broadcaster loses Eurovision rights over LGBT censorship

Recent issues of my Sinocism China Newsletter

Bethany Allen-Ebrahimian