December 14, 2018

Situational awareness: China has decided to temporarily cut tariffs on U.S. autos from 40% back to 15%, where it was before the July, amid increasing signals from China that it may be moving to make real concessions to the U.S. to pause the trade war.

In response, President Trump tweeted this was "because of our Trade War with them" and that a deal could happen "rather soon."

Thanks for reading, and if you want a daily and deeper look at China, please check out my daily Sinocism China Newsletter, now with a special discount for Axios readers, and follow me on Twitter @niubi.

1 big thing: This week's China whirlwind

Illustration: Rebecca Zisser/Axios

Axios' David Lawler spoke with me for his piece on how just as signs emerged that China was softening on trade this week, Beijing seemed to ramp up its retaliation over the arrest of a top Chinese tech executive in Canada.

Between the lines: This confusing week in U.S.-China relations has shown there may be signs of a major climbdown from China over trade, in parallel with a major escalation. As I told Dave, the Chinese are really trying to keep Huawei and trade separate.

On the one hand ...

  • We learned on Wednesday that China has detained a second Canadian citizen, apparently in retaliation for Canada's arrest of Meng Wanzhou, CFO of Chinese telecom giant Huawei.
  • Meng was released on bail on Tuesday, but still faces extradition to the U.S. over fraud charges tied to U.S. sanctions on Iran. Her arrest infuriated Beijing, which has targeted its ire primarily at Canada, rather than the U.S.

On the other hand ...

  • The Wall Street Journal reports that China is "preparing to replace" its "Made in China 2025" initiative to dominate key high-tech sectors "with a new program promising greater access for foreign companies."
  • That follows news that China has begun to buy U.S. soybeans again and is reversing tariff hikes for U.S. autos. Trump is preparing to declare victory, telling Fox News today, "They're going to open the whole country. They want to please President Trump.

My thought bubble: I'd already heard that the Chinese are planning to make big concessions, because they understand U.S. Trade Representative Robert Lighthizer won't "accept warmed-over promises."

  • And, now it appears this could be true, as indicated by the temporary cuts in tariffs on U.S. autos, mentioned in the intro above.
  • So as long as Trump keeps his resolve there may actually be a chance for some significant concessions on trade, moves that Chinese President Xi Jinping can spin domestically as not due to U.S. pressure but as part of the deepening of reform.

Go deeper:

2. "The campaign to kill Huawei"

Over the last few months there has been what looks like a coordinated campaign by key Western allies to "de-Huawei" their telecom networks.

The intrigue: It turns out there is one, and it had come together over a lobster dinner earlier this year. Australian journalists Chris Uhlmann and Angus Grigg have the scoop...

Spy chiefs from the Five Eyes nations had come to a secure resort in coastal Nova Scotia for an informal evening after intense talks in nearby Ottawa...
In the months that followed that July 17 dinner, an unprecedented campaign has been waged by those present – Australia, the US, Canada, New Zealand and the UK – to block Chinese tech giant Huawei from supplying equipment for their next-generation wireless networks...
Since that July meeting there has been a series of rare public speeches by intelligence chiefs and a coordinated effort on banning Huawei from 5G networks...
All the evidence before the spy bosses at the dinner in Canada pointed to a rising superpower mounting the most comprehensive campaign of espionage and foreign interference that any had witnessed.

Read more of the whole story in the Sydney Morning Herald.

Related: China's ZTE taps Joe Lieberman for D.C. damage control.

3. Q&A: James Mann on China "engagement"

James Mann in 2014. Photo: VOA YouTube via Wikipedia

Author James Mann, whose views once stirred controversy about a decade ago when he suggested prosperity might not bring the PRC closer to Western liberal ideals in his book "The China Fantasy," now appears vindicated by the evolution of the relationship between the two superpowers.

Back then, Mann posed the questions:

"What if, twenty-five or thirty years from now, a wealthier, more powerful China continues to be run by a one-party regime that still represses organized political dissent much as it does today? ... What if, in other words, China becomes fully integrated into the world’s economy, yet it remains also entirely undemocratic?"

What's new: I interviewed Mann this week about the current state of U.S.-China relations, to compare with his older premise (which was one of three possible scenarios) that Western elites misrepresented the benefits of engagement with China.

Q: In the last year we have seen lots of discussion and handwringing about the “failure” of the engagement policy. Why has it failed, and why were you treated as almost a pariah in the China-watching world when you wrote this book?

To answer that, we have to start with the history of​ what “engagement”  is, or was. Does an “engagement” policy mean simply having contacts with China — going to meetings, talking? Or does it mean a policy based on the belief that those contacts would lead “inevitably” (that was the word Bill Clinton used) lead to political change in China?
So why did engagement (in this second sense) fail? It failed because the political change vaguely held out as a prospect was never in the running. The Communist Party wasn’t going to give up power. And the idea that the party would reform itself from within was precisely what had been rejected, with violence, when Zhao Ziyong was ousted from power in 1989.
The assumption that things would gradually open up in China turned out to be harmful American policy. It provided comfort to American officials and prevented them  from focussing on or preparing for other possible scenarios — that, in fact, China could become more tightly controlled and less interested in integrating in the existing international order.

Q: Who do you see as the key drivers of China policy in the Trump administration, and how are they doing?

Not necessarily the faces you see on TV. If you watch, or read the news coverage, you'd think that under Trump, the main drivers of China policy are people like Robert Lighthizer and Peter Navarro — essentially the trade agencies and constituencies. 
But that coverage is misleading. I do think Lighthizer is important — Navarro not so much, except as a convenient demon for those who oppose the policies.
Matt Pottinger at the NSC may be more important than either of them. But more broadly, the other, largely uncovered constituencies behind the changes in China policy are the high-tech community, the intelligence community and the Pentagon. They're the ones who have been increasing upset — and this dates back before Trump -- about China's theft of American technology, including weapons systems and technology with military applications. 

Read my full interview.

4. Trump's Africa plan targets China and Russia

President Trump and Nigerian President Buhari. Photo: Chip Somodevilla/Getty Images

National Security adviser John Bolton unveiled the Trump administration's Africa strategy yesterday, Axios' Shannon Vavra writes.

Quick take: The plan is largely designed to counter China and Russia. Bolton accused them of using "bribes," "opaque agreements" and "corruption" to gain competitive advantage over the U.S. in Africa.

"Africa is incredibly important to the U.S. If we didn’t understand it before, the competition with China and Russia should highlight it for us. Which is why I think it’s a turning point for us."
— John Bolton, speaking at Heritage Foundation

What's happening:

  • The U.S. was the largest source of foreign direct investment in African countries last year, per EY. However, as Quartz points out, "there is not always transaction transparency" in Chinese deals, which are "arranged between governments."
  • "China became the continent's top trading partner nearly a decade ago and has invested billions of dollars in high-profile infrastructure projects," per AP.
  • Russian investment has ticked up over the last two years, and includes military cooperation deals and weapons sales in exchange for mining and resource extraction contracts.

Bolton said the U.S. would overhaul its aid and investments in the continent by investing in specific sectors in African nations instead of providing "indiscriminate assistance across the entire continent."

My thought bubble: The U.S. has to offer real economic incentives and market access to African countries, not just make it "China bad, America good." The PRC leadership works very hard to court Africa, avoids calling some of the countries "sh*!holes", and offers all sorts of economic inducements and opportunities.

Evan Feigenbaum, vice chairman of the Paulson Institute and a state Department official during for former President George W Bush, commented on Twitter:

Prediction: this argument that “China stunts the economic growth of your country” will not get anywhere near the traction the administration thinks it will.

Go deeper: Transcript of National Security Advisor Bolton's speech.

5. China and Russia inch closer together

You should see my nuclear stockpile. China President Xi shakes hands with Russia President Putin. Photo: Mikhail Svetlov/Getty Images

While Washington prepares for new cold wars, America’s two major rivals are warming up to one another, Axios' Dave Lawler writes.

What's happening: As mentioned in the story above, the Trump administration laid out an Africa strategy that is tied almost entirely to blocking Chinese and Russian influence.

  • Trump used the word “China” 20 times in a relatively brief Fox News interview.
  • U.S. foreign policy is increasingly defined by confrontation and competition with China and with Russia.
  • But what about the third leg of that “great power” triangle?

Between the lines: Dave sat down earlier this week with Alexander Gabuev, a China expert at Carnegie Russia, who says the two giants are moving closer together — in part as a response to an increasingly confrontational Washington.

  • There are "three elements of geopolitical tinder that allow Russia and China to swipe right every time," Gabuev says. They are the need for security on their 2,000-mile border, the complementary natures of their economies, and the similarities in their authoritarian approaches.
  • Those elements provide the foundation for a relationship that is growing deeper and is characterized by the phrase, "not necessarily for each other, but never against each other."

The long-standing issues of tension — like competition for influence in Central Asia or China's copycat approach to Russian military technology — have largely been put aside, Gabuev says.

  • In September, China took part for the first time in Russia’s Eastern Economic Forum (EEF) and its massive Vostok war games, where Xi and Putin donned aprons and made pancakes..
  • On Nov. 30, Putin and Xi met again at the G20 on Nov. 30, though their conversation was overshadowed by Trump’s high-stakes dinner with Xi and last-minute cancellation of his Putin meeting.

The bottom line: I asked Gabuev if there's an existential fear of a China-led world in Moscow, as there is in Washington. He said Russian officials tend to view the U.S.-led world order as "finished," but don't believe China will simply replace America, in part because Europe and Japan won't get in line behind Beijing.

  • In the meantime, Moscow sees U.S.-China competition working to its advantage. If Russia can keep its seat at the table as a second-tier power with a big nuclear stockpile, it can ultimately live with a Chinese superpower

6. Australia's latest Netflix show with China theme

The silver lining of going down with a nasty bug may be binge-watching Netflix. On Wednesday, I discovered Netflix's "Pine Gap," a thriller set in a key Five Eyes signals intelligence facility in Australia.

China and the pressures its rise is placing on the region and the U.S.-Australia alliance feature prominently.

The official trailer is here.

7. Worthy of your time

ReutersAhead of China anniversary, trade war fans calls for faster market reforms

Xinhua — Xi presides over Politburo meeting on economy, anti-corruption

Yan Xuetong in Foreign Affairs — How China Wants to Reshape the World Order

The New York Times — A Chinese Tycoon Sought Power and Influence. Washington Responded

Council on Foreign Relations' Brad Setser — Why Hasn't China Needed to Intervene in its currency More This Year?

WSJ — FBI Says Chinese Espionage Poses ‘Most Severe’ Threat to American Security

SCMP Beijing slams US legislation demanding easier access to Tibet for American journalists, tourists

Nikkei Asian Review — China sparks suspicion as it holds release of statistics

Fairbank Center for Chinese StudiesInfographic: China’s Economic Governance

MacroPoloIntro: China's AI Dream

Power 3.0 Podcast — New Frontiers in Digital Censorship: A Conversation with Glenn Tiffert

AP — Police Confirm Chinese Photographer Lu Guang Arrested in Xinjiang, Wife Says

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