Wednesday, 11 December 2019

The role of AI in China’s crackdown on Uighurs

What counts as a terrorist in Xinjiang is ultimately decided by humans, not machines

In the past month, a trove of leaked internal documents has revealed the Chinese government’s plans in the border region of Xinjiang, where about 1.8 million members of the country’s Muslim minority have been detained. The leaks have further exposed the centrepiece of China’s surveillance state in Xinjiang, a vast database with information on the background and behaviours of millions of residents. In the wake of the leaks, IJOP, an “integrated joint operations platform”, has been described as a form of “predictive” policing that uses “big data” and artificial intelligence. Yet while AI does aid the inputting of data — through tools such as facial-recognition cameras — there is no evidence so far that it is used by the IJOP to form decisions about individuals. In associating China’s repression in Xinjiang with sophisticated, AI-driven policing models, we may be assuming too much. The IJOP’s technology is at root driven by political objectives that are blunt and indiscriminate. As Edward Schwarck, a PhD student researching Chinese public security at the University of Oxford, says: “Calling it intelligence-led or predictive policing draws attention away from the fact that what is happening in Xinjiang is not about policing at all, but a form of social engineering.”

 China has high ambitions for the use of big data in national security and set up a series of labs, starting in Xinjiang’s Urumqi, to research the topic. But officers lament that their systems are a mess. Crimes such as political dissent are so loosely interpreted that one may never be able to predict them precisely. The stated intention for the government’s security clampdown is to prevent terrorism and separatism. For the IJOP to incorporate an AI model that spots terrorists, humans would have to decide what counts as a terrorist, feed examples of terrorists into the IJOP’s AI model, and then ask the platform to find matches of people with similar characteristics. What counts as a terrorist in Xinjiang? This is the central question, and it is ultimately decided by humans, not just machines. The government boasts there have been no terrorist attacks in Xinjiang since 2016. So for this AI model to even work in theory, there must be humans deciding that certain people — who have not yet committed terrorist crimes — are terrorists or future terrorists. Under Beijing’s vague criminal categories, “terrorism” or “separatism” can include not just plots to harm people but simply holding or attending private religious gatherings.

But, from various leaks, we know that a vast range of traits can lead to someone being tagged as suspicious, including having family living abroad or having certain foreign apps like WhatsApp installed on one’s phone. More broadly, the behaviours that the police are punishing are Uighur Muslim customs, from practising the religion to celebrating the language and culture. At the very least, China is trying to make Uighurs more like the Han Chinese majority. The fact there are 1.8 million people in mass detention camps in Xinjiang should itself suggest the Chinese state is not interested in precision or predictive policing. For AI models to be meaningful, the objective has to be defined to include a cost for inaccuracy to avoid false positives. If you don’t care about accuracy, you don’t need AI to achieve your goals. The most devastating feature of the IJOP is not how the data is processed, but how it is gathered. Input sources range from government-assigned groups of 10 households asked to inform on each other, to police extracting data from smartphones, to facial-recognition surveillance cameras. The effect of surveillance on this scale is to make people feel that they are constantly being watched, and to fear they might be doing the wrong thing — even when “wrong” is not well defined. When I was last in Xinjiang, a Uighur man told me he was no longer able to pray in the mosques, since many had closed. He could only pray at home, and even then, he added, “they” would know. I didn’t ask why he believed he was being watched at home, fearing the consequences for him of speaking to a journalist. But for the government to eradicate Uighur customs, it doesn’t matter whether people are actually being watched, so long as they believe they are.
 Yuan Yang is the FT’s China tech correspondent in Beijing

China’s smaller banks forced to act to support shares 
Stream of obligatory stock buybacks underscores challenges facing banking sector

A flurry of Chinese banks are being forced to buy back shares to stabilise their stock prices following a series of bank bailouts and mounting pressure on the country’s financial system. At least 10 small, listed banks have been required by local regulations to purchase their own shares after their stock traded below net asset value per share for more than 20 consecutive days. The share purchases, called “stock price stabilisation plans”, are mandatory for companies whose stocks perform poorly within the first three years after listing, and are common among China’s listed companies. However, the sharp declines by many small bank stocks and the steady stream of forced buybacks in recent months has exposed the plight of China’s banking industry, which is experiencing a wave of defaults with economic growth at its slowest in three decades.

 While asset quality at larger banks has remained stable, a number of mid-tier and smaller banks have been saddled with high rates of non-performing loans, some exceeding 40 per cent of total assets. Several banks, such as Baoshang Bank and Bank of Jinzhou, have required state bailouts — a measure not taken by the central government in about 20 years. Other small institutions, including Yingkou Coastal Bank, have experienced bank runs as confidence among Chinese people about the safety of their savings wanes. Funding for banks has also dried up. Investors have abandoned the shares of smaller banks over the past three months, leading to swift price drops that have required buybacks by the lenders. Michael Chang, director of China financials research at CGS-CIMB Securities in Hong Kong, said: “With economic indicators weaker this year compared to last year, plus with some banks needing bailouts or capital injections earlier this year, this has placed pressure on bank share prices.” Most recently, shares in Jiangsu Zijin Rural Commercial Bank tumbled 13 per cent over three days of trading, prompting expectations among analysts that the bank, which listed in Shanghai earlier this year, will be obliged to eventually buy back shares. That followed an announcement from central China-based Bank of Zhengzhou last week that its share price had traded below its net asset value per share for more than 20 days, and that it would enact a stock price stabilisation plan. Its shares were trading at Rmb4.54 in Shanghai on Wednesday, 43 per cent below their listing price when the bank went public last year. Nine other lenders in recent months have been forced to undertake similar share buybacks.

 Maintaining stability in China’s financial system is a priority for policymakers in Beijing, who view banking and markets upheaval as a threat to social order. Regulators have played down the problems facing small banks across the country but China’s central bank warned late last month that about 13 per cent of lenders, or 586 institutions, presented a “high risk” for financial distress.

Tuesday, 10 December 2019

The Chinese Yuan: Always the Global Currency Bridesmaid, Never the Bride

Small FishThe yuan's role in currency transactions is smaller than the Indian rupee's, relativeto each country's import and export heft.Ratio of foreign exchange turnover to trade valueSource: Bank for International Settlements
Chinese yuanIndian rupeeKorean wonEuroCanadian dollarBritish poundJapanese yenU.S. dollar0 times50100150200250300
China’s yuan is on the rise: a future challenger to the global supremacy of the dollar, or at the very least, the herald of a new multipolar currency system—or so we’re told.
A look at the data on the actual international use of the yuan, and its achingly slow development over the past decade, is a sobering experience.
Data highlighted by the Bank for International Settlements this week are the latest to cast the yuan’s global role in a pessimistic light. Relative to its size as the world’s largest trading nation, China’s currency punches far below its weight.
Total yuan foreign-exchange turnover runs to around 14 times the value of China’s imports and exports. That compares with nearly 40 times for the euro—in a bloc where much trade is done between countries that use the same currency—160 times for the Japanese yen and around 273 times for the dollar.
Dim OutlookOffshore Chinese yuan bonds market has shrunk and stagnated.Market value of the FTSE Dim Sum IndexSource: FactSetNote: 100 billion yuan=$14.2 billion
.billion yuan2012’13’14’15’16’17’18’19’20050100150200250300
International Monetary Fund data produced earlier this year showed that China ranks above all other assessed countries in terms of the share of its trade invoiced in dollars. Even emerging markets such as Brazil and Indonesia record a greater diversity of currency invoicing.
True believers might assert that the yuan’s influence is small, but growing. But the data doesn’t bear that out much either: Offshore trading in the yuan—conducted in jurisdictions where both sides of the transaction are outside China—rose 25.3% between April 2016 and April 2019. That’s less than the growth of the Indian rupee, Brazilian real, Korean won or Russian ruble, albeit from a higher base.
Stories about the internationalization of China’s yuan tend to be covered frenetically at first, but with little follow-up, giving the impression of a constant path forward. In reality, many initiatives wither or die on the vine.
Total yuan foreign-exchange turnover runs to around 14 times the value of China’s imports and exports. PHOTO: JOHANNES EISELE/AGENCE FRANCE-PRESSE/GETTY IMAGES
Almost a decade ago, the big development was the dim-sum bond market—yuan-denominated debt issued offshore. U.S. companies like McDonalds and Caterpillar dipped their toes into the market. By the end of 2014, the FTSE Dim Sum bond index had burgeoned in size to over 280 billion yuan ($39.78 billion).
Today, the novelty has worn off and the index is worth less than 115 billion yuan. It shrank in 2016 and 2017, and has ossified since. McDonalds and Caterpillar no longer have any outstanding yuan bonds. Almost two-thirds of the bonds included in the index currently were issued either by the Chinese government or by major state-owned banking institutions.
The strength of a currency for international use rests on what holders can do with it. In the case of the yuan, a largely closed capital account and ultraspeculative asset markets are relatively uninviting.
Unless that changes, expect discussions of the yuan’s international role to keep producing more hot air than headway, and take any pronouncements of its coming role in global finance with a pinch of salt.