China Week in Review
Week of Oct. 8, 2018
China and the world
- The United States and its allies are calling greater attention to the Chinese Communist Party threat, and are in the process of applying countermeasures.
- Mike Pompeo announces “real progress” on North Korean denuclearization after visiting Pyongyang, Seoul, Tokyo, and Beijing. We believe that there is a good chance that the second Trump-Kim summit is held before the year’s end (likely in December).
Oct. 7:
- U.S. Secretary of State Mike Pompeo meets with North Korean leader Kim Jong Un. Kim said after their lunch in Pyongyang that “It’s a very nice day that promises a good future, for both countries.”
- Stephen Biegun, the new special envoy for North Korea, said that he was in discussion with his North Korean counterpart over specific dates and location of a second Trump-Kim summit.
- President Donald Trump tweeted that Pompeo “had a good meeting with Chairman Kim today in Pyongyang,” and there was “progress made” on the Singapore summit agreements. “I look forward to seeing Chairman Kim again, in the near future,” he added.
Oct. 8:
- In Seoul, Pompeo reports progress in denuclearization talks after meeting. He said that “both the leaders believe there’s real progress that can be made, substantive progress can be made at the next summit.”
- Chinese foreign minister Wang Yi and Secretary Pompeo met in Beijing. Wang criticized the Trump administration’s toughening stance on China, and said that U.S. “actions have damaged our mutual trust.” Pompeo replied he had a “fundamental disagreement” with the issues raised by Wang, and added that he looked forward to discussing with Wang actions taken by China “because this is an incredibly important relationship.”
- According to state media reports, Wang Yi noted that China and the U.S. should strengthen cooperation and not get “embroiled in conflict” on the issue of North Korean denuclearization.
- BBC World Service broadcasts the first part of “Who To Believe? China’s Organ Transplants,” an investigative report into the source of organs in China. Journalist Matthew Hill interviews a surgeon with first-hand experience in removing organs from executed prisoners, Falun Gong adherents, and researchers of forced organ harvesting in China.
Oct. 9:
- Yossi Appleboum, a security expert working for a major U.S. telecommunications company, told Bloomberg News that his firm had “discovered manipulated hardware from Super Micro Computer Inc. in its network and removed it in August.” Appleboum’s revelation, which he backed with documents, analysis and other evidence, follows Bloomberg’s publication of an investigative report into how China’s intelligence services had ordered subcontractors to insert malicious microchips in Supermicro server motherboard.
- In Washington, Secretary Pompeo said he made “real progress” at his recent trip to North Korea. “While there’s still a long way to go and much work to do, we can now see a path to where we’ll achieve the ultimate goal, which is the full and final verified denuclearization of North Korea,” he said.
Oct. 10:
- At a congressional hearing, Homeland Security Secretary Kirstjen Nielsen said that “China absolutely is on an unprecedented – or exerting unprecedented effort to influence American opinion.” FBI Director Christopher Wray said: “China in many ways represents the broadest, most complicated, most long-term counterintelligence threat we face. Russia is in many ways fighting to stay relevant after the fall of the Soviet Union. They’re fighting today’s fight. China’s is fighting tomorrow’s fight.”
- The U.S. Justice Department announced the arrest of Yanjun Xu, a Chinese Ministry of State Security operative. He had targeted several U.S. aerospace companies, including GE Aviation, since December 2013. Xu was charged with conspiring and attempting to commit economic espionage and steal trade secrets.
- The Congressional-Executive Commission on China (CECC) releases its annual report on human rights in China. CECC co-chair Rep. Chris Smith (R-N.J.) called on the Trump administration and the United Nations to take action to stop the “continued downward trajectory” of human rights in China. Smith and CECC chairman Marco Rubio also submitted a joint letter to FBI director Christopher Wray to investigate claims of intimidation by the People’s Republic of China against Uyghur Americans and the Chinese-American diaspora in America. Further, Rubio and Smith announced a new bill on the Xinjiang crackdown which urged the U.S. government to consider sanctions against Chinese officials.
Oct. 11:
- The U.S. imposed new restrictions on nuclear exports to China after a National Security Council-led review of U.S. nuclear policy toward the People’s Republic of China (PRC) found that the regime was stepping up efforts to illegally gain technology for military and commercial use, as well as improperly divert U.S. nuclear technology to other countries.
Oct. 12:
- White House National Security Advisor John Bolton said in a radio interview that the U.S. sees “China as the major issue of this century.” He also said that “we are very worried about the question of Chinese interference not just in individual elections, but more broadly trying to influence the American political discussion with an influence campaign that I think could well be unprecedented.”
- The Five Eyes intelligence alliance (Australia, Canada, New Zealand, the U.K., and the U.S.) has been swapping classified information on the PRC’s foreign activities with other like-minded countries since the start of 2018, according to a Reuters report. “What might have started as ad hoc discussions are now leading to more detailed consultations on best practices and further opportunities for cooperation,” a U.S. official told Reuters.
- South Korean leader Moon Jae-in told the BBC that Kim Jong Un plans to abolish all of North Korea’s nuclear weapons, materials, and facilities. Moon added that North Korea sees no reason to possess nukes as long as the safety of the regime is guaranteed. Also, Moon said that “there is consensus between South Korea and the United States that it is desirable to make the end-of-war declaration at an earliest possible date” to facilitate denuclearization.
Sino-U.S. trade war
- Under U.S. “maximum pressure,” the PRC appears to be seeking out opportunities for further negotiations (including allowing the Chinese ambassador to America to “air grievances” on Fox News). The Trump administration, however, does not seem to be impressed by PRC advances. Mutual trust on trade is palpably lacking.
- The Trump administration might yet play the “currency manipulator” card in the Sino-U.S. trade war.
Oct. 9:
- According to the Financial Times, U.S. officials told China that President Trump will not have trade talks with Xi Jinping at the G20 summit in November if Beijing does not produce a detailed list of concessions. Meanwhile, Chinese officials say they do have a list, but will not present it without a guarantee of the list being “received in a stable political climate in Washington.”
Oct. 10:
- U.S. Treasury Secretary Steven Mnuchin and People’s Bank of China (PBoC) governor Yi Gang met on the sidelines of the World Bank conference in Bali. The PBoC said that they discussed “relevant economic and financial issues.” That day, Mnuchin told the Financial Times that the U.S. Treasury is monitoring currency issues “very carefully” and that he wishes to talk about currency with Beijing as part of trade discussions.
Oct. 11:
- The White House informed Beijing in recent days that it would proceed with a summit between Trump and Xi at the G20 leaders’ summit in Buenos Aires, according to the Wall Street Journal. The Journal also reported that the U.S. Treasury is not expected to declare China a currency manipulator this week.
President Trump told Fox News that U.S. tariffs on Chinese products “had a big impact,” and that the Chinese economy “has gone down very substantially and I have a lot more to do if I want to do it.”
Oct. 14:
- Cui Tiankai, PRC ambassador to the U.S., said in an interview on Fox News that talking trade with the Trump administration is “very confusing” because the PRC does not know which U.S. negotiator is the “final decision maker.”
- White House economic advisor Larry Kudlow told Fox News that he is “very involved in the trade talks with China” and that “those talks have been unsatisfactory.”
Politics
- The public appearance of retired officials with the Jiang faction after the announcement of Interpol chief Meng Hongwei’s arrest suggests that the CCP factional struggle could be in a critical period (see our analysis).
Oct. 7:
- Wu Bangguo, a former Politburo Standing Committee member and National People’s Congress chairman, made a public appearance at his ancestral home in Anhui’s Feidong County, according to Duowei News.
Oct. 8:
- China’s Ministry of Public Security convened a meeting of its Party committee in the early hours of the morning to discuss the investigation of Interpol chief and vice public security minister Meng Hongwei.
Oct. 10:
- According to Hong Kong tabloid Apple Daily, several family members of elite cadres in the Chinese Communist Party’s current and former Politburo Standing Committee (including Xi Jinping and Hu Jintao, but not Jiang Zemin and Zeng Qinghong) own property in Hong Kong worth over 1 billion Hong Kong dollars.
Economy
- The steep drop in Chinese stocks and the continued devaluation of the yuan after U.S. Vice President Mike Pence’s major policy speech on China are indicators that the Chinese central bank’s fresh injection of liquidity is an inadequate band-aid to China’s economic woes.
- Dismal housing sales and slashed property prices during China’s National Day holiday suggest that the housing market has reached an inflection point.
Oct. 7:
- China’s foreign exchange reserves fell by $22.7 billion between end August to end September this year, according to the latest PBoC data.
- The PBoC cuts reserve requirement ratios by 100 basis points effective Oct. 15, a move which will release a total of 1.2 trillion yuan in liquidity.
Oct. 8:
- Mainland media report that sales of property in first and second-tier Chinese cities were bleak during the National Day holiday week, usually a peak period for sales. In contrast, there were increasing numbers of people had signed up for the housing lottery in the first half of the year.
- Chinese stock markets plunged on the first business day after the National Day holiday. At the close of the exchanges, foreign investors had sold 9.7 billion worth of A shares.
Oct. 9:
- The State Council held an executive meeting to discuss lifting the level of export tax rebate to 16 percent. The policy shift will go into effect on the first day of November.
- Beijing Huaye Capital announced that it was overdue 888 million yuan in accounts receivable because the company was the victim of a massive accounts receivable scam.
Oct. 11:
- More than 1,000 Chinese stocks (over one in four) fell by the daily limit, and the Shanghai Composite Index closed below 2,600, a four-year low. Meanwhile, China’s benchmark equity gauge closed 5.2 percent lower, or the biggest loss since February 2016.
- Xilin Steel Group, the largest steel company in Heilongjiang Province, filed for bankruptcy after incurring serious liabilities. In 2012, Xilin ranked 459th out of 500 top Chinese enterprises; 246th out of 500 top Chinese manufacturers; and 125th out of China’s 500 leading private companies. In 2014, Xilin workers went on strike after the company fell behind in paying workers’ wages.
Oct. 12:
- After falling for nine consecutive days, the onshore renminbi exchange rate broke through the 6.9 mark (6.9167), the lowest level since March 15, 2017.
- A-shares fell sharply in the week, with 2,160 stocks falling by over 10 percent. The decline in total market value surpassed 4 trillion yuan.
Society
- Clashes between the authorities and civilians continue to break out across China, a trend that shows no sign of slowing.
Oct. 4-7:
- On Oct. 4, 38 military veterans from Shangdong’s Pingdu City who were about to travel to Beijing to make petitions were intercepted by local police and roughed up. This incident inspired over a thousand veterans from across the country to travel to Pingdu to protest. On Oct. 6 and Oct. 7, the local authorities in Pingdu mobilized thousands of police to suppress the veterans’ protest, resulting in fierce skirmishes. At the time of writing, the local authorities had suppressed the protesters and blocked a road leading to Pingdu.
Oct. 9:
- Riots broke out in Guangdong’s Shantou City over a case of suspected police brutality when enforcing the law. Residents were seen chasing and hitting police officers, and a chaotic scene unfolded with thousands of onlookers.
Oct. 10:
- Nearly a hundred auxiliary police organized a protest demanding better treatment and working conditions outside local government buildings in Henan’s Sanmenxia City.
