Saturday, 19 September 2020



CLSA’s Five-Year Plan Shows Communist China Is in Charge

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  • Beijing’s tighter grip has fueled an exodus of senior talent
  • Clampdown raises questions on international ambitions

Before CLSA Ltd. was acquired in 2013, the Hong Kong brokerage’s research division issued a warning to investors in Chinese financial companies: beware of “high-frequency interference” from the Communist Party.

Nearly a decade on, there’s no better example of how the Chinese government can transform a financial firm than CLSA itself.

The latest case in point: CLSA executives have for the first time been ordered by their bosses at state-owned Citic Securities Ltd. to participate in China’s five-year planning process, a ritual that Communist Party leaders have used to guide the nation’s economy since the 1950s, people familiar with the matter said. Major state-owned enterprises are required to submit five-year plans to the government, and CLSA’s outlook will now feed into Citic’s report to Beijing, which is unveiling a new road map in October, one of the people said.

The diktat adds to a series of steps by Citic to overhaul CLSA, a Hong Kong icon that’s long been known for its independent-minded research and raucous investor conferences. Some observers have portrayed the moves as a financial-industry microcosm of the Chinese government’s broader clampdown on the former British colony.

Citic’s leaders have argued that the changes at CLSA are needed to improve discipline and coordination on everything from hiring to deal making and risk management. Yet the upheaval has also contributed to a steady exodus of senior talent and made it more difficult for the firm to retain even recently hired investment bankers from international competitors.

After CLSA Chief Executive Officer Rick Gould left in August, just a handful of division heads who pre-date the Citic takeover remain, including Shaun Cochran, now head of research, and Edward Park, who runs institutional equities. Much of the original leadership team, including long-time CEO Jonathan Slone, departed in early 2019 after clashing with Citic Chairman Zhang Youjun.

CITIC Securities (L to R) Chairman Zhang Youjun and Head of Finance Department Huang Yonggang attend their FY2015 Annual Results at  JW Marriott in Admiralty. 24MAR16 SCMP/Edmond So
Zhang Youjun, left, in Hong Kong in 2015. Photographer: Edmond So/South China Morning Post via Getty Images

“Converting a freewheeling investment banking business into an SOE structure amounts to real value destruction,” said Chen Zhiwu, director of the Asia Global Institute at the University of Hong Kong. “CLSA can’t compete internationally any more and will have to rely on what its parent company feeds to it.”

A spokeswoman at CLSA declined to comment. Citic Securities didn’t immediately reply to an email seeking a comment.

The five-year plan ordered up from Beijing includes growth and hiring targets, an assessment of risks and opportunities in major markets and an analysis of the competitive landscape, the person familiar said, asking not to be identified discussing internal matters.

Chinese President Xi Jinping and other senior Communist Party leaders are expected to lay out their 2021-2025 strategy for the entire country in October.

CLSA’s planning directive follows other recent changes that include direct reporting lines from Hong Kong to Beijing and a more restrictive approval process for capital investments and hard underwriting decisions, the person said. Client non-disclosure agreements also need approval from a quality control team, whereas previously they only needed a sign off from a director or a licensed representative. To encourage collaboration between staffers in Hong Kong and Beijing, their bonus pools have been combined.

What the changes will mean for CLSA’s bottom line is hard to say, given that the unit doesn’t disclose detailed financial statements. One thing that seems clear, however, is that the firm is becoming increasingly China-centric.

While Zhang has pushed CLSA to build a stronger presence in India, Southeast Asia and Japan, his overseas ambitions aren’t as grand as those of his predecessor, Wang Dongming, who orchestrated the 2013 acquisition. The firm’s primary goal now is to serve Chinese clients and help foreign investors navigate China, the person familiar said.

That strategy still requires executives and deal makers with overseas experience, a cohort that CLSA has struggled to retain. Gould lasted just 16 months as CEO even though he was appointed by Zhang, who at the time deemed it important to have a non-Chinese CEO to maintain the firm’s international image. In April, Zhang installed former Vanguard executive Charles Lin, a Chinese native, as CLSA vice chairman. Lin, based in Hong Kong, has now assumed many of Gould’s responsibilities.

Citic also earlier appointed Li Chunbo, its head of research and equities and trading, as chairman of institutional equities and research at CLSA.

The firm has seen some gains this year. Citic Securities ranks fifth in arranging stock sales in Hong Kong this year, rising from 11th in 2019, data compiled by Bloomberg show.

Andrew Hartley, who worked for almost 15 years at CLSA and most recently oversaw Singapore, left earlier this year. Richard Taylor, the former head of corporate finance and capital markets, quit around the same time.

The exodus bodes ill for CLSA’s ability to attract overseas clients and deals, according to Asia Global Institute’s Chen. “Investment banking is totally a people business,” he said. “Once the key people are gone, so is its main business.”

Friday, 18 September 2020


How to expose cover-ups in rural China

Floodwater at feet of the Leshan Giant Buddha statue. Reports of a nearby gas leak were initially downplayed by officials
Floodwater at feet of the Leshan Giant Buddha statue. Reports of a nearby gas leak were initially downplayed by officials © Lu Zhongiun/China News Service/Getty Images

The day after floodwaters in southern China rose to lap the feet of the Leshan Giant Buddha, I was passing near the city in my friend’s car. As we cruised along the empty, dry highway, his girlfriend Leilei rang: “Are you past Leshan yet?” she shouted down the phone. “If you’re not past, go home immediately. There’s been a gas leak. Everyone is trying to get out. The entrance to the highway has been blocked off.”

My friend, in the driving seat, was stumped: the roads were clear, and we were a little past the danger zone already. We tried our best to reassure his girlfriend over the phone. There was no point in doing anything but going forward. She hung up, and I dozed off as we left the highway and entered the winding mountain roads.

When we arrived at our destination, a farmhouse in the mountains of Sichuan, I asked our hosts if they had heard about the leak. “It’s fake news,” they replied, “the Leshan government has already said there was no problem.” We went back to shelling walnuts and eating them in their moist cream-coloured skins. Breathing the damp mountain air, nobody had further reason to worry. If I had been on a reporting assignment, I would have started scouring social media, calling local residents, trying to unknot the contradictions. But I was on holiday, and I was experiencing the news as most people do: as it happens to you.

In the evening, Leilei arrived at the farmhouse and set out the facts as she saw them: there had in fact been a gas leak. The city officials had initially denied there was a problem, saying there had been no explosion, and asking people not to spread rumours.

This was little comfort for the locals. “You can say what you want, but you can’t deny the people their senses when they say they can smell something terrible in the air,” said Leilei. “It’s just like Wuhan.” I later learnt the official narrative from a local state media journalist: there had been a leak, but it was all under control now.

Over dinner, I asked Leilei why the local government officials felt the need to give false reassurances. She launched into her account of imperial Chinese history. “It’s always been the case in China: no official wants their boss to hear bad news. So they’ll cover it up all the way along the chain.”

“There are only two ways a cover-up ends,” Leilei continued. “The emperor hears, or a journalist finds out.”

Perhaps China’s would-be emperor Xi Jinping had this in mind when embarking on the tightening of speech in the media. Indeed, journalists were the first to voice their dissent over his decision to remove his term limits in February 2018, albeit in the subtle way that protest occurs under authoritarianism. In a since-deleted tweet, the state news agency Xinhua first told the world of the end of Xi’s term limits, singling it out among other policy changes and releasing it ahead of any Chinese-language state media coverage. It was a complete disruption of process in a tightly scripted propaganda machine, and Xinhua was wracked internally over the affair.

Under Xi, China’s best independent investigative newspapers have been in effect closed down. One miraculous exception is Caixin, which broke stories in Wuhan throughout the start of the epidemic. This year, the government has unleashed the biggest attack on foreign media for decades, expelling around 16 US journalists so far and threatening to do so to more. Most of the expulsions came after the US started restricting Chinese journalists’ visas. My Chinese journalist friends, working in the US for a range of foreign and Chinese media, are still waiting for their visa renewals.

The more polarised the outside view of a country is, the more important it is to humanise its inhabitants

The security services are also increasing their incursions into the media. Last month, Cheng Lei, an Australian journalist for China’s state television agency CGTN, was detained in China’s system of hidden jails on undisclosed national security charges. And only last week, two Australian journalists fled China after national security agents turned up on their doorsteps at midnight.

Under these circumstances, friends abroad often ask me what it is like to report in China in 2020. While we don’t self-censor, our interviewees who live here have to. Many topics that years ago were mundane — from the economy to semiconductors — have become highly sensitive, meaning even retired academics refuse interviews for fear of losing their pensions. Not only are interviews cancelled through fear, but also through suspicion of foreign media. Hostility now emanates from all ideological sides. Last week, one commentator called my front-page story Chinese Communist party propaganda while another source declined an interview, saying he did not want to be used “for US propaganda”.

Despite all this, when travelling around China’s smaller cities and countryside, I feel it is a place where my profession is celebrated. Journalists, particularly foreign journalists, are seen as a kind of multi-tool for resolving problems with the local government. Since the legal system doesn’t give Chinese people much protection from abuses of government power, there was a saying used in the 1990s: “a journalist is more useful than a lawyer”.

Like Leilei, many people in China believe that miscarriages of justice are local in nature, and can be resolved by appealing to more benevolent rulers in Beijing. This can be done indirectly through the media, or through the formal process of “petitioning”, with a government office that receives letters and complaints. The further I travel from the capital, the more likely it is that a petition will be pressed into my hands, with the writer asking me to send it on my return to Beijing.

Social inequality also creates greater reliance on journalists. There are almost 300m migrant workers in China, nearly all of whom cannot access the state’s meagre social security provisions. For many of them, meeting a journalist is a rare interaction with a middle-class professional who is interested in their lives. We receive questions we can only try to answer: how do I get my loan back; how do I report my sexual assault; what’s wrong with my work contract. I often prove much less useful than a lawyer, but at least I can recommend some.

Media coverage, many locals think, is the fastest way of resolving their problems: someone higher up is bound to hear. Sometimes it is not the coverage itself, but the mere appearance of a foreign journalist on the scene, that gets officials to start listening intently to their problems.

At the local level, concerns of international politics fade away. On a reporting trip to Liangshan, one of the poorest parts of China, I sat down on the side of a road with villagers and a local official, whom the villagers accused of not delivering on the promise of housing. The official warned them we were foreigners, and that there were some things they should not say to us. They ignored the warning; when the person sitting in front of you owes you a house in your own village, what do you care for the reputations of presidents in faraway capitals?

The idea the official was nodding to, that one shouldn’t air dirty laundry in front of strangers, is a common reaction to foreign media in China. But China’s problems aren’t allowed to be aired publicly at home, either. Travelling around China, I find the constituency that is most vocally critical of the Communist party at a local level are the small merchants, who are easily taken advantage of by local officials. But higher up the chain, it’s the retired, well-educated officials who are the most disappointed in Xi’s China, because of the lack of space for criticism or alternative voices.

Across all the groups of people I speak to, there’s a common wish to be heard: either to resolve a problem, or for the act of being remembered

Across all the groups of people I speak to, there’s a common wish to be heard: either to resolve a problem, or for the act of being remembered. I often wish I could open a small news outlet on the side, the “Provincial Financial Times”, to capture all of these stories, instead of having to explain to fishermen in a southern Chinese village why their licensing dispute isn’t going to be a priority area for our readers.

But I do feel increasingly grateful to still have a journalist visa: new ones will not be processed at all until China’s borders open, which means a freeze on new foreign correspondents arriving in China. I think this gives us a great responsibility, too, to educate our readers about the nuances of China. The more polarised the outside view of a country is, the more important it is to humanise its inhabitants. And the fewer newspapers there are that can hold the emperor to account, the more important it is for us to do so.

 In light of Xi Jin Ping's recently enunciated priniple of "dual circulation" as a model for the Chinese economy of the future, here is a reprint of our post on 'The Dual State' which we published earlier this year. Please note that Prof. Pettis in his recent FT article reposted here this week adverts to the possibility that the Chinese Dictatorship may seek to balance the lack of internal demand by pushing external surpluses,  a desperate tactic that can only lead to explosive confrontation with the West that will hasten the demise of the Chinese Empire ! 


It is abundantly clear that the Chinese economy is not, strictly speaking, a capitalist economy, if for no other reason at least for the universally accepted fact that it is not a market economy but is better described as a command economy. The notion of “command” implies a level of administrative and bureaucratic co-ordination of the Chinese economy emanating from the highest echelons of the Chinese Dictatorship whereby the operation of the economy is subjected first and foremost to overriding or “prerogative” goals that, again, over-ride or take precedence over the investment and productive choices of other economies, such as those of the industrial capitalist West, that are run to a far greater degree according to the requirements of “market competition”.

But what are these over-riding or “prerogative” goals that make us characterise the Chinese economy not as a model capitalist market economy but rather as a capitalist command economy? We can list a few of these goals at least preliminarily here:

The first goal, surely, has to be that of internal political stability so as to ensure the legitimacy and continued support of the Dictatorship on the part of a strategically important section of Chinese society – and most specifically the membership, numbering up to 100 million people, of the Chinese Communist Party.
The second goal is the provision for the industrial-military complex with the People’s Liberation Army as its essential mainstay. The aim of this goal is to prepare the Chinese Dictatorship for readiness to wage war and ensure vital supplies to the Chinese Empire in case of war, both domestically and from other countries. It is clear that in normal times the expenses associated with the pursuit of this goal would not and could not be justified in terms of the enormous burden they pose to Chinese capitalist enterprise and to the rest of what remains an extremely poor, indigent population, except as the promise of future returns on investment from foreign direct or indirect empire – in other words, either through formal empire or by means of the extraction of economic value from other nation-states through the violent imposition of terms and conditions of trade advantageous to the profitability of Chinese capitalist industry. 

Whether or not the Chinese Dictatorship will be able to ensure the sufficient profitability of these industrial-military investments, the fact remains that, given its totalitarian autarkic (“command”) economy which is already subject to “prerogative” rather than “market” or normative productive and investment choices, the Dictatorship must be prepared to sacrifice resources to this goal at least temporarily until in a foreseeable future it is ready to unleash its military might to arrogate and appropriate for itself and its “capitalist” class of businesses and entrepreneurs resources that are at present not under its direct control for exploitation. In this sense, the expenses associated with the diversion of current social and productive resources toward the military-industrial complex of the People’s Liberation Army – which are known widely as “State-Owned Enterprises” – must be seen as “long-term investments” that will not yield a direct profitable return in the near term but rather in the medium term (say, ten to twenty years). Of course, a concomitant benefit of this investment “goal” is that the reinforcement of the Chinese Dictatorship’s industrial-military apparatus and Army allows it to maintain and strengthen the loyalty of a significant portion of the Chinese population and to assure the maintenance of social order through the direct and indirect threat posed by the PLA on the rest of the Chinese population.

Given the dictatorial totalitarian nature of the Chinese regime, it is entirely obvious that its economy cannot be allowed to run along lines characteristic of Western industrial capitalist societies. The paramount prerogative nature of Chinese industrial activity must therefore answer to the overriding aims of political stability of the regime (the first goal) and its preparedness to wage wars of conquest to appropriate and secure external resources once the exploitation of its own working population has reached the ultimate limits imposed, first, by the availability of labour force and other natural resources and, second, by the limits if realizing profits through foreign trade made possible by the exploitation of its domestic labour force. This second limit is posed by the inevitable resistance of other nation-states to the continuous under-pricing and dumping of goods in their markets to the detriment of their own national bourgeois elites and working classes. Another limit is posed by the realisation among Chinese elites themselves that such imperialist investments quickly become unproductive because the recipient countries are unable to repay them (e.g. Venezuela, $65 billion, Pakistan, $65 billion, Africa, $160 billion, and so forth) – and therefore they represent bad debts that result in a catastrophic loss of hard currency for the Chinese people (already very poor) and for the Dictatorship itself which is fast running out of hard currency in its desperate attempt to rescue the sinking renminbi!
Once the Chinese Dictatorship has reached this internal limit, which we call, following Paul Krugman, “the mobilization of resources”, and then the external limit, which we may call “mercatilist exhaustion” – once these two limits are reached, the only option left to the Chinese Dictatorship  to preserve these two goals is that of imperialistic expansion either through predatory direct investment or else through actual military occupation of foreign countries.

But before this final limit is reached, last but not least, the other over-riding or “prerogative” goal of the Chinese Dictatorship must be to maintain the competitivity of its existing industries in international capitalist markets. This goal is absolutely fundamental because it is essential for the Dictatorship to be able to accumulate the economic value or “surplus” in terms of its current and capital account to be able to earn “hard currency” – US dollars, Euro, Yen, gold – that will enable it to finance its military-industrial complex, especially any supplies, equipment, resources and military materiel that is not domestically available given the vast deficiencies and backwardness with respect to the West of Chinese technology especially in the military sphere.

The Prerogative and the Normative State, or The Dual State of the Chinese Dictatorship

We may hypothesize now, in accordance with our characterization of the overall policy goals of the Chinese Dictatorship, that the Chinese state and economy are administered in accordance with a “Dual State” divided into a “Prerogative State” that sets out the paramount or prerogative goals of the Dictatorship in terms of the eventual strategic and military domination over as much of the globe as it can in order to extract the surplus economic value needed to maintain and hopefully expand its rule and command over the Chinese Empire itself; and then, subordinate to this State, is a “Normative State” that runs and is allowed to function along market-capitalist lines. As the terminology implies, the Normative State is subordinate to the Prerogative State for the essential reason that the Normative State administers the part of the Chinese economy that deals with external global capitalist markets where it is bound to follow the legal normative rules of competition laid down by the capitalist West to regulate the capitalist world market. Because, as we have explained time and again, capitalist markets must operate with a minimum of democratic rule in that workers as “consumers”  are “free” to set the “price” of their labour-power and also have to play a role in the decision as to what goods are produced (guns or butter?) and how (polluting or clean industries?) – because of this essential “democratic” component of the world market, the Chinese Dictatorship has to run a State that is parallel yet subordinate to the Prerogative State and that is “Normative” because, to repeat, unlike the domestic autarkic totalitarian Prerogative State, it has to follow the rules of the external quasi-democratic capitalist world market!

Quite obviously, the two States will almost always run in opposition to each other for the simple reason that the “prerogative” strategic goals of the one will be opposed, sometimes be even contradictory, to the goals of the “normative” or legal State. The question then arises as to why the Chinese Dictatorship would allow such a Normative State to function in opposition to its totalitarian Prerogative State. The answer is simple. First of all, the Chinese Dictatorship knows and is bitterly determined for its own survival to ensure that the Prerogative State will always take precedence to the Normative to ensure the internal domestic stability of the regime and of the Chinese Empire. Secondly, and this is the important point, to the extent that the Chinese Dictatorship is still by far much less powerful and dominant than the capitalist West in all kinds of domains – from the economic to the financial to the technological and the military – the Dictatorship knows full well that it has no other option than to accept the “rules of the world market” set by Western powers.
Furthermore, thirdly, the Chinese Dictatorship knows full well that for its domestic economy to function efficiently so as to maintain internal stability and to enhance its military-industrial complex (the SOEs and the PLA), then this domestic economy has to subject itself to the international “bench-marks” of competitive capitalist productive standards set in the Western-dominated world market! This is a point of the utmost, cardinal importance that must be fully digested for a proper understanding of how the Chinese Dictatorship works. The Chinese Dictatorship is wisely unwilling to follow the catastrophic example of the Soviet Union and cut itself off from the capitalist world market because such isolation of the Chinese military-industrial complex would simply spell the rapid and cataclysmic decline of the Chinese war machine! Such isolation would sound the death-knell of the Chinese Dictatorship’s “China Dream” to dominate the entire world! Not only! But the Dictatorship knows that even from a purely financial standpoint, its “China Dream” of world domination necessitates the constant accumulation of “hard currency” (again, US dollars, euros, yen and gold) to enable it to acquire the raw materials and technologies and military materiel needed to fuel and sustain the growth of its military-industrial complex (SOEs run by the PLA).

Thus, it becomes quite clear now why the Chinese Dictatorship needs its totalitarian state apparatus to run and function along dual or binary lines – the Prerogative and the Normative. It is because excessive concentration on the autarkic totalitarian Prerogative State would condemn it to economic isolation and inevitable rapid decline, whilst excessive emphasis on the Normative State (trade, opening of capital markets) would render it entirely dependent on the Western capitalist world market and, consequently, induce the liberalisation of its internal markets which, in turn, especially for what regards the labour market and worker participation in wage determination and consumer choice, would force it to expand democratic parliamentary representation, in clear contradiction with the world-domineering ultimate goals of the Chinese Dictatorship and eventual abandonment of the autarkic totalitarian model altogether! As many have put it, the dilemma of the Chinese Dictatorship is “Save the Communist Party and lose the country (Empire) or save the country (the Chinese Empire) and lose the Communist Party”!


Former British spy in Chinese influence probe

Belgium’s state security service said the case should be ‘a clear signal that anyone who is involved in espionage in Brussels will sooner or later be on the radar of the intelligence services’ © Getty Images

A former British spy is under investigation by UK and Belgian intelligence agencies over a suspected influence-buying operation by China, in the latest sign of European fears about Beijing’s sway on the continent. 

Fraser Cameron, who now runs the EU-Asia Centre think-tank in Brussels, is alleged to have been involved in selling sensitive information to Chinese spies — actions that posed a “clear threat towards the European institutions” based in the Belgian capital, the country’s state security service said. 

Mr Cameron had been a member of the UK’s Secret Intelligence Service, known as MI6, until the early 1990s, according to a person familiar with the investigation. He then worked for the European Commission, where he specialised in foreign policy and had a spell in Washington. He retired from the commission in 2006 to pursue a career in think-tanks and consultancy work. 

Mr Cameron has denied any wrongdoing and has branded the allegations “bizarre”.

I have had no access to any secrets or confidential information. There is a bit of a China paranoia thing going on at the moment

Fraser Cameron

The investigation into his alleged links with Chinese intelligence officials was run jointly by MI5, the UK’s domestic spy agency, and the Belgian state security service. MI5 has now issued an “espionage alert” to warn overseas intelligence agencies and governments that Mr Cameron poses a potential security risk.

Although he is not accused of leaking classified information, one person familiar with the investigation said it had raised concerns that the ex-spy had a “willing relationship” with members of the Chinese intelligence services.

Belgium’s state security service said the case should be “a clear signal that anyone who is involved in espionage in Brussels will sooner or later be on the radar of the intelligence services and will not be able to continue his activities with impunity”.

Mr Cameron is alleged to have been paid for information by two accredited Chinese journalists in Brussels who were also intelligence agents, according to people familiar with the probe first reported in Belgian media and Politico. The Belgian-British investigation has been going on for several years, but it may be that the alleged behaviour — even if proved — would not constitute a crime under either country’s laws. 

The case comes as some European countries, under US pressure, are toughening their security policies towards China through actions such as curbing Huawei’s involvement in next-generation 5G mobile telecoms networks. 

Brussels has become a particular focus for European concerns about Chinese influence because it hosts the headquarters of the EU and the Nato military alliance. 

Mr Cameron told the FT the claims were “ludicrous”, “utter nonsense” and “without any foundation”. He denied he had been paid for information and said he had only learnt of the investigation when he started to receive questions about it from journalists this week. 

“This is a complete surprise,” he said. “I have had no access to any secrets or confidential information.”

He added: “There is a bit of a China paranoia thing going on at the moment.”

The Chinese EU mission and the European Commission did not immediately respond to requests for comment. 

The UK government has long been under pressure from intelligence agencies to toughen the Official Secrets Act, and is expected to introduce an Espionage Bill to provide prosecutors with stronger powers against those passing information to hostile states. Belgian security services are also keen to modernise espionage laws first written in the 1930s. 

Andrew Parker, who stepped down earlier this year as director-general of MI5, was quoted in a parliamentary report this summer telling MPs that the Official Secrets Act, some of which dates back to the first world war, had become “dusty and largely ineffective” and needed to be updated to reflect modern challenges such as combating influence operations.


U.S. Pushes Large Arms Sale to Taiwan, Including Jet Missiles That Can Hit China

The administration is proposing the packages as President Trump’s strategists try to paint him as being tough on China despite soft actions earlier.

Members of Taiwan’s air force running to an American-made F-16V fighter jet during a military exercise on the island in January.
Members of Taiwan’s air force running to an American-made F-16V fighter jet during a military exercise on the island in January. Credit... Chiang Ying-Ying/Associated Press
Edward Wong

WASHINGTON — The Trump administration is pushing the sale of seven large packages of weapons to Taiwan, including long-range missiles that would allow Taiwanese jets to hit distant Chinese targets in the event of a conflict, say officials familiar with the proposals.

If approved by Congress, the packages, valued in the billions, would be one of the largest weapons transfers in recent years to Taiwan. The administration plans to informally notify lawmakers of the sales within weeks.

By law, the United States government is required to provide weapons of a defensive nature to Taiwan, a self-governing, democratic island. China, which claims Taiwan as part of its territory, has escalated its military activity near the island after Taiwan’s president, Tsai Ing-wen, won re-election in January by beating a candidate viewed as friendlier to Beijing.

The proposed sales come as President Trump and his campaign strategists try to paint him as tough on China in the run-up to the election in November. They are eager to divert the conversation among American voters away from Mr. Trump’s vast failures on the coronavirus pandemic and the economy, and to paper over his constant praise for Xi Jinping, China’s authoritarian leader, and his earlier encouragement or tolerance of some of Mr. Xi’s most repressive policies, including in the regions of Xinjiang and Hong Kong.

Some administration officials see bolstering Taiwan as an important part of creating a broader military counterweight to China in Asia. Taiwan has strong bipartisan support in Congress, so administration officials expect lawmakers to approve the arms sales.

Relations between the United States and China have plummeted to their lowest point in decades, as the two nations openly challenge each other on a wide range of issues, including trade, technology, diplomatic relations and military dominance of Asia.

The most sensitive weapon system of the proposed packages to Taiwan is an air-to-ground missile, the AGM-84H/K SLAM-ER, made by Boeing. Because of its range, it can be fired by jets flying beyond the reach of China’s air defense system. The missiles could hit targets on the Chinese mainland or at sea, including warships trying to cross the Taiwan Strait. The proposed sale of the missile, which is likely to cause concern among Chinese military officials, has not been previously reported.

The missiles can be used with F-16 fighter jets that the United States has sold Taiwan. The Trump administration announced last year that it was selling to Taiwan 66 such jets at $8 billion, one of the single largest arms packages to the island in many years.

Officials said the current proposed sales include surveillance drones that are an unarmed version of the Reaper model made by General Atomics; a truck-based rocket artillery system made by Lockheed Martin; land-based Harpoon anti-ship missiles from Boeing; and sea mines. Reuters reported aspects of the packages on Wednesday.

“The U.S. is increasingly concerned that deterrence is weakening as Chinese military capabilities grow,” said Bonnie S. Glaser, a senior adviser for Asia at the Center for Strategic and International Studies. “The items in this package will help increase Taiwan’s ability to prevent a Chinese invasion — essentially to hold out longer.”

But, she said: “Weapons procurements are only one part of that equation. The U.S. is also urging Taiwan to rebuild its reserves and conduct more real-world training.”

China traditionally denounces arms sales to Taiwan, and it could send a warning by increasing the intensity of exercises the People’s Liberation Army conducts in the area. Last month, it fired a barrage of medium-range missiles into the South China Sea during a series of military exercises, and on Wednesday, it sent two anti-submarine aircraft into Taiwan’s air defense identification zone.

China might also announce sanctions against the American companies involved in the proposed sales. In July, it said it would penalize Lockheed Martin after the Trump administration had announced it was approving a $620 million arms package to Taiwan that involved upgrades by the company to surface-to-air missiles. But Lockheed Martin barely does any business with China and has supplied weapons and defense equipment to Taiwan for many years.

If China imposed sanctions on Boeing, however, that could deal a blow to the company, which sells commercial jets to the country.

Evan S. Medeiros, a professor at Georgetown University who was a senior Asia director on the National Security Council in the Obama administration, said China might impose sanctions on a few companies, “but strategically they are focused on preserving stability in U.S.-China relations right now.”

Mr. Medeiros and other American officials have pressed Taiwanese officials over the past decade to buy weapons that would enhance deterrence and increase the island military’s abilities to hold off Chinese forces in a meaningful way. In June 2019, the Trump administration, at the request of Taiwanese officials, proposed a $2 billion package of arms that included 108 M1A2 Abrams tanks. Those sales have been widely criticized by U.S. experts on the Chinese military, who say the tanks would not be of great use in the event of an invasion by the People’s Liberation Army.

With the current proposed sales, though, “Taiwan is finally buying what it really needs to implement its asymmetric defense strategy,” Mr. Medeiros said. “It’s a bit tardy to this garden party, but Taiwan’s leaders are finally committing serious resources.”

Some of the biggest proponents of strengthening Taiwan’s military are in the White House. Robert C. O’Brien, the national security adviser, and Matthew Pottinger, his deputy, are advocates of this. Mr. O’Brien’s predecessor, John R. Bolton, has gone further, pushing for the United States to formally recognize Taiwan.

Administration officials are reluctant to take that step, but they do aim to bolster Taiwan’s diplomatic standing in the world. In March, officials persuaded Mr. Trump to sign the bipartisan Taipei Act passed by Congress, which commits Washington to helping Taiwan improve its international status. On Thursday, Keith J. Krach, the under secretary of state for economic growth, energy and the environment, arrived in Taiwan to attend a memorial service for Lee Teng-hui, a former president.

Last month, Alex M. Azar II, the U.S. secretary of health and human services, met in Taipei with Ms. Tsai, in the highest-level visit by an American official to the island since Washington broke off formal diplomatic relations in 1979.

Taiwanese officials hope that a new economic dialogue with the United States will result in a free-trade agreement.



Trump administration bans WeChat, TikTok from App stores beginning Sunday

The Tencent Holdings Ltd. WeChat app is displayed in the App Store on a smartphone in an arranged photograph taken in Arlington, Virginia, U.S., on Friday, Aug. 7, 2020. President Donald Trump signed a pair of executive orders prohibiting U.S. residents from doing business with the Chinese-owned TikTok and WeChat apps beginning 45 days from now, citing the national security risk of leaving Americans' personal data exposed. Photographer: Andrew Harrer/Bloomberg
The Tencent Holdings Ltd. WeChat app is displayed in the App Store on a smartphone in an arranged photograph taken in Arlington, Virginia, U.S., on Friday, Aug. 7, 2020. President Donald Trump signed a pair of executive orders prohibiting U.S. residents from doing business with the Chinese-owned TikTok and WeChat apps beginning 45 days from now, citing the national security risk of leaving Americans' personal data exposed. Photographer: Andrew Harrer/Bloomberg (Andrew Harrer/Bloomberg)
September 18, 2020 at 10:30 p.m. GMT+10

The Trump administration said Friday that it is banning China’s TikTok and WeChat from mobile app stores beginning this Sunday, Sept.r20, in a move that will sharply raise tensions with Beijing.

The White House will take other action to curb WeChat’s use beginning Sunday, and will give TikTok until Nov. 12 until further bans kick in. Western companies and bankers are still wrangling with TikTok’s owner, the White House and Chinese authorities to try to arrange a sale of some of TikTok’s business.

“Today’s actions prove once again that President Trump will do everything in his power to guarantee our national security and protect Americans from the threats of the Chinese Communist Party,” U.S. Department of Commerce Secretary Wilbur Ross said in a statement. “At the President’s direction, we have taken significant action to combat China’s malicious collection of American citizens’ personal data, while promoting our national values, democratic rules-based norms, and aggressive enforcement of U.S. laws and regulations.”



Trump Administration to Ban WeChat Use in U.S. After Sunday Night

Commerce Secretary Wilbur Ross cites national security and data privacy concerns

U.S. Commerce Secretary Wilbur Ross. PHOTO: GETTY IMAGES
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The Trump administration said Friday that it will ban downloads of the Chinese-owned video-sharing app TikTok and the U.S. use of China’s popular messaging and electronic payment app WeChat after Sunday night over national security and data privacy concerns.

Commerce Secretary Wilbur Ross said on Fox Business News that his office will order a full ban for TikTok by Nov. 12 but noted that discussions for a deal that would incorporate data safeguards could enable U.S. users continued access of TikTok.

“China has been taking all kinds of data…that’s what we’re trying to squelch,” he said.



Trump Administration to Ban TikTok and WeChat From U.S. App Stores

The Trump administration issued new rules Friday morning that will cripple the operation of two popular Chinese-owned apps in the United States.

President Trump campaigning in Mosinee, Wis., on Thursday.
President Trump campaigning in Mosinee, Wis., on Thursday. Credit... Al Drago for The New York Times
Ana Swanson

WASHINGTON — The Trump administration said Friday it would bar the Chinese-owned mobile apps WeChat and TikTok from U.S. app stores as of Sunday, striking a harsh blow against two popular services used by more than 100 million people in the United States.

The restrictions will ban the transferring of funds or processing of payments through WeChat within the United States as of Sunday. In the case of WeChat, the restrictions will also prevent any company from offering internet hosting, content delivery networks, internet transit or peering services to WeChat, or using the app’s code in other software or services in the United States.

Those same prohibitions on providing services go into effect on Nov. 12 for TikTok.

“Today’s actions prove once again that President Trump will do everything in his power to guarantee our national security and protect Americans from the threats of the Chinese Communist Party,” Commerce Secretary Wilbur Ross said in a statement.

The actions follow an Aug. 6 executive order by the president, in which he argued that TikTok and WeChat collect data from American users that could be accessed by the Chinese government.

TikTok is currently in talks to be acquired by the American software maker Oracle, and could announce a deal that assuages the administration’s national security concerns. In its announcement, the Commerce Department said that the president had given until Nov. 12 for TikTok’s national security concerns to be resolved, and if they were, the prohibitions in the order could be lifted.

Oracle and TikTok did not immediately respond to requests for comment.

Mr. Ross, in an interview on Fox Business Network, said that the ban would initially have a much greater impact on WeChat.

“For all practical purposes it will be shut down in the U.S., but only in the U.S., as of midnight Monday,” Mr. Ross said.

TikTok will also face some changes, but will still be allowed to function until Nov. 12, Mr. Ross said, at which point it would face the same ban as WeChat if there is no deal that satisfies the administration’s concerns.

“As to TikTok, the only real change as of Sunday night will be users won’t have access to improved updated apps, upgraded apps or maintenance,” he said.



TikTok to be banned from US app stores from Sunday

The Trump administration has ordered TikTok and WeChat to be removed from US app stores © FT montage; Getty Images

TikTok will be removed from US app stores from Sunday as Washington moves to implement executive orders from President Donald Trump that will also target WeChat, a Chinese social media app, according to a person briefed on the plans.

The US commerce department, which will issue the orders, stopped short of forcing Apple and Google to remove the Chinese versions of TikTok and WeChat from their app stores in China.

The imminent removals come as Oracle and ByteDance, the owner of TikTok, continue talks with the Trump administration over how to resolve its concerns over the video app. Any deal will also have to be approved by Beijing.

Oracle and ByteDance have submitted a proposal that would involve TikTok’s global business being spun out into a separate US company, with an all-American board and a security committee headed by a person with government security clearance. The new company would initially be majority owned by ByteDance, but would look to list publicly in the US.

Mr Trump has already raised concerns about the continuing Chinese ownership of the app, while several US senators have complained that the deal would allow ByteDance to retain control of the algorithm that selects which videos to show to each user.

The removal of TikTok and WeChat from US app stores implements the first two executive orders issued by Mr Trump, which said US companies would be barred from dealing with the apps from September 20. The president later issued a third order that gave ByteDance until November 12 to divest its interests in TikTok in the US.

One person familiar with the situation said existing users would be able to keep the apps on their phones for now. But he added that WeChat would quickly become unusable because software updates would not be available through the app stores.

People with TikTok on their phones will also be able to continue to use the app, but the person said that the experience would degrade over the next two months unless a deal was approved by Mr Trump.

The battle over TikTok is the latest example of the much tougher stance Mr Trump has taken against China in recent months. Some critics question why he is targeting an app such as TikTok that is largely used by teenagers, but experts said that the data the app gathers on its users threatened US security.

“Big data is the core of intelligence now,” said James Lewis, a cyber expert at the Center for Strategic and International Studies. “This is the most intense espionage campaign against the US since the Reagan administration. We are engaged in an intense espionage contest — a spy war — with China.”

Mr Trump last month said TikTok posed a security threat by “potentially allowing China to track the locations of federal employees . . . build dossiers of personal information for blackmail and conduct corporate espionage”.



U.S. Curbs WeChat Transfers, Freezes TikTok as Deadline Looms

The U.S. will ban some transactions over the Chinese-owned WeChat app while freezing TikTok’s app starting Sunday, Commerce Secretary Wilbur Ross said.

Ross said Friday that the U.S. will prohibit U.S.-to-U.S. transactions related to WeChat and its parent company Tencent Holdings Ltd. but that will not impact activity in China. Transactions prohibited as of Sept. 20 including distribution, maintenance and updates of WeChat or TikTok through app store in the U.S.

The Commerce Department in a release Friday said the president has provided until Nov. 12 for national security concerns posed by ByteDance Ltd.’s TikTok to be resolved. If they are, the prohibitions in this order may be lifted.

In August, President Donald Trump issued executive orders prohibiting U.S. residents and firms from doing business with Tencent’s WeChat and ByteDance’s TikTok.

ByteDance has been negotiating with Oracle Corp. to take a stake in a reconfigured TikTok to alleviate the president’s concerns about data on the app’s American users being exposed to China.

“WeChat U.S., for all practical purposes, will be shut down,” Ross said on Fox Business. Americans will still be able to use WeChat for payments in China, he said. “The basic Tiktok will stay intact until November 12,” although users won’t be able access upgrades from Sunday night, he said.

Thursday, 17 September 2020



Why China’s recovery is not what it seems


This is a guest post by Michael Pettis, a finance professor at Peking University and a senior fellow at the Carnegie-Tsinghua Center. His new book ‘Trade Wars are Class Wars’ was co-authored with former FT Alphavillain Matt Klein and is available at all good book stores.

On Tuesday, China’s National Bureau of Statistics released August data on the Chinese economy. It showed that while retail sales -- a proxy for domestic consumption (although it includes other things) -- was down 8.6 per cent for the first eight months of 2020, it nonetheless posted its first monthly year-on-year increase in 2020, with retail sales 0.5 per cent higher than last year.

The data also showed that industrial production was 5.6 per cent higher. Add to that a 4.16 per cent rise in fixed asset investment and a 19.3 per cent increase in August’s trade surplus, and the data left most analysts convinced that China’s recovery from the ravages of the Covid-19 pandemic was both solid and sustainable.

But this is not what the data suggest. In fact they indicate just how lop-sided and vulnerable China’s recovery has been so far. As the graph below shows, before 2020 retail sales had grown slightly faster than industrial production, indicating a slow rebalancing in an economy that urgently needed it. But in 2020 that relationship has inverted, with industrial production now growing so much faster than retail sales that it threatens to reverse the past two to three years of China’s limited rebalancing.

While industrial production for the first seven months of 2020 had been less than during the same period in 2019, the gap has been closing fast since June. The sharp increase in August’s production meant that for the first time in 2020, total production year-to-date had exceeded last year’s figure. If the production side of the economy were the constraint in China’s economic growth, as it was in the 1980s and 1990s, this would have been a clear sign it had recovered, and that is how most analysts are mistakenly reading it.

However, it’s been a long time since the production side of the Chinese economy has been the constraint. Even Beijing has publicly admitted for over a decade that the real constraint is the demand side: specifically domestic consumption, along with the private sector investment driven by said consumption. Since the turn of the century total Chinese production has so far exceeded the level it can sustainably manage. This has forced the economy into running huge trade surpluses and/ or extraordinarily high levels of public sector infrastructure spending to absorb the gap.

What the past few months of economic data tell us is that, not only has sustainable domestic demand barely recovered from the pandemic, but that even this limited recovery has been driven by Beijing’s substantial boosting of the production side of the economy. By expanding public sector investment in logistics and infrastructure, underwriting an expansion of credit to businesses, and otherwise subsidising production, Beijing has bolstered production to create the employment that has indirectly boosted consumption.

Put differently, economic recovery in China (and the world, more generally) requires a recovery in demand that pulls along with it a recovery in supply. But that isn’t what’s happening. Instead Beijing is pushing hard on the supply side, mainly because it must lower unemployment as quickly as possible. It is this push on the supply side that is pulling demand along with it.

The problem with this strategy is that it necessarily increases the gap between sustainable demand and total supply, as the graph clearly indicates. There are only two ways to resolve this. Either by a rapid increase in China’s trade surplus, which weakens the recovery abroad and forces an increase in foreign debt burdens, or by faster growth in Chinese public-sector investment, which, because most of it is no longer productive, increases the Chinese debt burden.

And this is exactly what we’ve been seeing in the data. Fixed asset investment is up, led by an even faster rise in public-sector investment, and China’s trade surplus is up sharply, now running at roughly 4-5 percent of GDP.

China’s “recovery”, in other words, is largely an exacerbation of the problems that have long been recognised by Beijing. It is a supply-side recovery in an economy that urgently needs more domestic demand but that has found it politically very hard to manage the wealth transfers that it requires.

This recovery isn’t sustainable without a substantial transformation of the economy, and unless Beijing moves quickly to redistribute domestic income, it will require either slower growth abroad or an eventual reversal of domestic growth once Chinese debt can no longer rise fast enough to hide the domestic demand problem.

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