Welcome back to Axios China. Today we've got Caterpillar's Xinjiang connection, China's commercial space industry, U.S. stock exchanges and lots more.

Situational awareness: China has just passed a feared national security law allowing authorities to crack down on dissent in Hong Kong. The full text of the law was just released moments ago.

  • 📷 I spoke with Niala Boodhoo, the host of our new podcast "Axios Today," about the fears of political terror that are unfolding in Hong Kong. Listen here.

Today's newsletter is 1,576 words, a 6-minute read.

1 big thing: Exclusive — Caterpillar sourced clothes from Xinjiang factory involved in coerced labor

Illustration: Annelise Capossela/Axios

A China-based supplier of clothing items to U.S. construction equipment manufacturer Caterpillar participates in a coercive labor program known as Xinjiang Aid, according to documents and evidence reviewed by Axios.

Why it matters: It is against U.S. federal law to import products made through forced labor.

What's happening: Summit Resource International, the exclusive wholesaler of Caterpillar-branded men’s and women’s clothing to retail, received multiple shipments of tens of thousands of pounds of Triton jackets and Trademark trousers from Xinjiang Ainuoxin Garment Co. and Jinan Ainuoxin Garment Co. between August 2019 and June 2020, according to research compiled by Worker Rights Consortium, an independent labor monitoring organization, and reviewed by Axios.

  • These two factories participate in Xinjiang Aid, a Chinese government labor transfer scheme that has been widely denounced by researchers and human rights groups as coerced labor and a forced assimilation campaign targeting Uighurs, a predominantly Muslim ethnic minority.
  • It's difficult to trace whether Uighurs working at the factories were directly involved in the production of Caterpillar-branded clothing.
  • "Caterpillar’s decision to continue sourcing from Xinjiang is a display of gross irresponsibility," said Penelope Kyritsis, assistant research director at Worker Rights Consortium.

What they're saying: "Caterpillar believes the risk of modern slavery is low in its operations and those of its direct suppliers," the company has said in its online statement on slavery and human trafficking.

  • "Caterpillar currently does not utilize a third party in its verification process. We also do not currently perform on-site audits for social compliance," the online statement read. Caterpillar instead asks its suppliers to perform self-assessments.
  • Caterpillar declined to provide further comment.

Background: Xinjiang Ainuoxin Garment Co. is located in Yarkant County in southern Xinjiang, where the Chinese Communist Party has rounded up hundreds of thousands of Uighurs and kept them in mass internment camps, eventually transferring some into forced labor facilities under the guise of "alleviating poverty."

  • The Xinjiang Aid program takes former detainees, as well as Uighurs from surrounding villages, and puts them to work in factories where they are often subject to political indoctrination, Chinese language classes (part of a region-wide effort to weaken Uighur cultural identity through reducing their reliance on the Uighur language), and extremely tight surveillance under the constant supervision of security guards.

Details: The Yarkant County Poverty Alleviation and Development Office stated on July 2, 2019, that the local Chinese Communist Party secretary helped bring in Xinjiang Ainuoxin Garment Co. as part of the county's "poverty alleviation" program, according to a document provided to Axios by Adrian Zenz, a leading expert on Xinjiang mass detention camps and forced labor policies.

  • Subsidies: Xinjiang Ainuoxin Garment Co. is included on a list of companies receiving subsidies for their participation in Xinjiang Aid, according to a notice issued by the Yarkant County government.
  • Labor transfers: Xinjiang Ainuoxin has also engaged in labor transfers, according to official media reports.

The big picture: Many state media reports cast Xinjiang Aid as a benevolent program focused on poverty alleviation and skills training, featuring quotes from grateful Uighurs.

  • But the program "isn’t designed for the benefit of the Uighurs," Vicky Xiuzhong Xu, the lead author of the Australian Strategic Policy Institute report "Uyghurs for Sale," said in an interview with Axios.
  • Rather it intends to achieve state objectives through total surveillance and threat of detention in Xinjiang's ubiquitous internment camps for anyone who pushes back, she says.

Go deeper: The U.S. has the tools to fight Uighur forced labor

2. China's commercial space industry takes flight

Illustration: Aïda Amer/Axios

China’s commercial space ambitions stretch far beyond the industry’s current domestic focus, with plans to use private space capabilities to help bring Chinese influence to the world, writes Axios' Miriam Kramer.

Why it matters: Space is a cornerstone of the global race for tech supremacy and China wants to dominate from both a governmental and commercial standpoint.

  • China's future in space could be, in part, defined by private companies that help to wield the country's soft power and influence on Earth.

What's happening: At the moment, the Chinese space industry is mostly focused on working to get a foothold regionally and provincially before potential global expansion, experts say.

Background: Chinese companies have been able to move faster after learning from U.S. successes in commercial space.

  • SpaceX's first successful orbital launch occurred about six years after its founding; the Chinese launch company iSpace performed its first successful orbital launch three years after it started.

The big picture: China is already using its state-owned enterprises to pedal influence around the world when it comes to space.

  • The nation's rockets launched satellites for Nigeria and others, training their scientists along the way.

Between the lines: The industry may be due for a shakeout in the coming years, with at least 80 satellite, rocket and other space companies competing in China today.

  • Once that happens, the Chinese government may exert more influence on the winners, providing support.

3. China's influence operations are getting harder to hide

Illustration: Eniola Odetunde/Axios

Beijing's political influence operations — quiet attempts to sway public opinion and policy in foreign countries — are receiving intense scrutiny in the United States.

Why it matters: Scrutiny can bring transparency, which analysts say is key to combatting authoritarian influence.

Driving the news: On June 10, the Republican Study Committee, a House caucus with about 150 conservative Republican members, called for sanctioning top officials in the United Front Work Department, a Chinese Communist Party bureau tasked with political influence, for their role coordinating influence operations around the world.

A case study: The China-United States Exchange Foundation, a Hong Kong-based organization headed by Tung Chee-Hwa, the former chief executive of Hong Kong, has long sought to sway the U.S. political environment in China's favor.

According to FARA filings, its activities have included:

  • Crafting a "short-medium term U.S. campaign to influence key constituencies (politicians, academics, and experts) as well as general public opinion regarding China's true efforts and intentions in Tibet," including analyzing how "four leading United States high-school textbooks" portrayed Tibet and China, and then writing up recommendations for "countering the tide of public discourse."
  • Sending former U.S. government officials on trips to China and then facilitating these "third party supporters" to write "positive opinion articles on China" in national media outlets.

The big picture: These are the hallmark methods and goals of Chinese Communist Party influence strategies.

  • But until 2018, FARA filings did not disclose Tung's long-standing role as vice chair of the Chinese People's Political Consultative Conference, a political advisory body under the indirect control of the United Front Work Department that plays a key role in achieving the department's aims.

Read the full story.

4. China, public markets and secrecy

Illustration: Aïda Amer/Axios

National security concerns drove a recent bipartisan Senate vote to crack down on Chinese companies that can hide their books from U.S. regulators even though they are publicly traded on U.S. exchanges, according to interviews with six current and former US. officials, Zach Dorfman of the Aspen Institute and I report.

The big picture: The Holding Foreign Companies Accountable Act, which the Senate passed May 20, targets fraud and aims to promote transparency. But U.S. officials are also hoping to uncover hidden links between these companies and the Chinese government.

  • Supporters have characterized the bill as a way to protect American investors from fraudulent Chinese business activity, such as the recent scandal over Luckin, a Chinese coffee startup and former “unicorn” that received delisting notices from the Nasdaq after fabricating hundreds of millions of dollars in sales.
  • But the legislation is also about putting these companies “on the horns of a dilemma,” says a former national security official: They can stop cooperating with Chinese security services or lose access to Western capital.

Between the lines: By listing themselves on U.S. exchanges, Chinese companies are gaining access to Western capital markets and becoming intermingled in pension funds and other investment vehicles for U.S. workers.

  • But U.S. officials believe that stringent auditing of some of these companies may reveal far closer government links than is publicly known. The closer the links, the likelier these companies are working with China’s security services.
  • Such links could potentially involve the transfer of private company data to China’s intelligence services or the use of these companies’ infrastructure as surveillance or intelligence collection platforms, more than half a dozen current and former U.S. officials told Axios.

Read the full story.

5. What I'm reading

Lots of big news over the past week, here's a brief roundup of the highlights, plus some other stuff I think is worth your time.

Demographic genocide: China cuts Uighur births with IUDs, abortion, sterilization (Associated Press)

Tit for tat: India bans nearly 60 Chinese apps, including TikTok (New York Times)

  • My thought bubble: It may feel easy to crow over China getting a taste of its own "internet sovereignty" medicine, but it's hardly good news to see that China's model is gaining acceptance even in a democratic country like India.

Pay to play: Political donors linked to China won access to Trump, GOP (Wall Street Journal)

  • David Tian Wang, the founder of Chinese Americans for Trump, is a central figure in this story.

Fall in line: Mao’s "Magic Weapon" casts a dark spell on Hong Kong (Bloomberg Businessweek)

  • The United Front is putting pressure on Hong Kong companies to support the new national security law.

Concerns about a U.S.-China race to the bottom:

U.S.-China gap: How to help forestall a nuclear arms race (Carnegie Endowment for International Peace)

No "Beijing Consensus": Why the U.S. risks a Pyrrhic victory in confronting China (SupChina)

6. 1 pride thing: Chinese-language LGBTQ films

Image credit: Radii China

Happy pride, Chinese speakers! The folks over at Radii China have a great roundup of nine Chinese-language films with LGBTQ themes. Here are a few:

  • "Fish and Elephant" tells the story of a lesbian zookeeper.
  • "Green Snake" is a Chinese folktale about two snake deities — with a twist.
  • "A Woman is a Woman" follows the lives of two trans women in Hong Kong.

Why it matters: The movies listed "represent a diversity of lives and stories, from mythical romances to tales of the city, subverting the tropes that dominate Western LGBTQ+ cinema to reveal the queer possibilities of Chinese storytelling," writes Radii China's Matthew Baren.

P.S. Hong Kong's national security law takes effect at midnight their time, which is noon on the U.S. East Coast.

  • If you've never heard it, take a moment to listen to "Glory to Hong Kong," the anthem of the protesters. It's hard not to weep.