China Week in Review
Week of Dec. 10, 2018
China and the world
- Huawei is dropped by some telecom operations around the world in the wake of CFO Meng Wanzhou posting bail and the detention of two Canadian citizens in China. According to some news reports, the “Five Eyes” nations had in July agreed to “contain” Huawei’s global reach.
- The U.S. has not shown signs that it is relaxing pressure on China despite the ongoing 90-day Sino-U.S. trade talks. If anything, Washington is stepping up efforts to expose the threat of CCP penetration of America.
Dec. 10:
- Japan’s top three telecommunications operators will not use current and 5G equipment from Huawei or ZTE, according to Kyodo News.
- The U.S. Treasury Department sanctions three senior North Korean officials, including Choe Ryong Hae, the number two official for the Workers’ Party of Korea; Pak Kwang Ho, director of the Propaganda and Agitation Department; and Jong Kyong Thaek, North Korea’s minister of state security.
- In an interview on the Hugh Hewitt Show, U.S. Secretary of State Mike Pompeo said that “China presents the greatest challenge that the United States will face in the medium to long-term.”
Dec. 11:
- Trump told Reuters that he may intervene with the U.S. Justice Department in the case against Huawei CFO Meng Wanzhou. “If I think it’s good for the country, if I think it’s good for what will be certainly the largest trade deal ever made – which is a very important thing – what’s good for national security – I would certainly intervene if I thought it was necessary,” he said.
- Trump also told Reuters that there may be another meeting of “top people of both sides” during the 90-day period of Sino-U.S. discussions. “If it’s necessary, I’ll have another meeting with President Xi, who I like a lot and get along with very well,” he said.
- Rep. Mike Gallagher (R-WI) and Rep. Ruben Gallego (D-AZ) introduced a bipartisan Telecommunications Denial Order Enforcement Act to get President Trump to impose denial orders banning the export of U.S. parts and components to Chinese telecom companies that violate U.S. laws.
- The U.S. Senate passes the Reciprocal Access to Tibet Act, which requires the Secretary of State to identify Chinese officials responsible for excluding Americans from Tibet and ban them from entering America. The bill passed the House of Representatives in September.
- The State Department’s Global Engagement Center launched a new effort to counter propaganda and disinformation campaigns from Russia, Iran, and China.
- Western news reports say that Chinese hackers working on behalf of the Ministry of State Security were behind a cyber attack on Marriott that collected personal details of about 500 million guests.
- A Canadian granted bail of 10 million Canadian dollars to Meng Wanzhou. Meng will be subject to 24-hour physical and electronic surveillance, including GPS monitoring. She will also be placed under curfew between 11:00 p.m. and 6:00 a.m.
- Members of an independent tribunal concluded after a three-day evidence gathering session that forced organ harvesting is taking place on a “substantial scale.” Former English judge and tribunal chair Geoffrey Nice QC said that the tribunal members “are all certain, unanimously, beyond reasonable doubt” that “in China forced organ harvesting from prisoners of conscience has been practiced for a substantial period of time, involving a very substantial number of victims . . . by state organized or approved organizations or individuals.”
- Reuters reported that Michael Kovrig, an analyst with the International Crisis Group and a former Canadian diplomat, had been detained in China.
Dec. 12:
- Vancouver Chinese consul general Tong Xiaoling and three other Chinese officials visit Meng Wanzhou at her Vancouver home. According to media reports, the Chinese officials brought flowers and Meng personally invited them into her house.
- The International Crisis Group think-tank said that Michael Kovrig was detained on Dec. 10 by the Beijing bureau of the Ministry of State Security.
- Bill Priestap, the assistant director of the FBI’s counterintelligence division, told the Senate Judiciary Committee that China is “the most severe counterintelligence threat facing our country today.” He added: “What hangs in the balance is not just the future of the United States, but the future of the world.”
- Senator Kamala Harris (D-CA) introduces the Deterring Espionage by Foreign Entities through National Defense (DEFEND) Act, which expands the ability of U.S. prosecutors to charge foreign offenders with economic espionage.
Dec. 13:
- U.S. National Security Advisor John Bolton accuses China and Russia in laying out the Trump administration’s strategy for Africa. “China uses bribes, opaque agreements and the strategic use of debt to hold states in Africa captive to Beijing’s wishes and demands,” he said. “We are already seeing the disturbing effects of China’s quest to obtain more political, economic and military power.”
- China detains a second Canadian citizen, Michael Spavor. Spavor is a businessman based in Dandong City and has ties to the North Korean government.
- South Korea’s unification ministry announces that South Korea and North Korea will hold a groundbreaking ceremony to connect railways and roads across the inter-Korean border on Dec. 26.
Dec. 14:
- Speaking at a press conference, Secretary Pompeo said that China’s unlawful detention of two Canadians was “unacceptable” and that they “ought to be returned.”
- ZTE loses its biggest contract in Germany with mobile operator O2.
- Taiwan introduces amendments to existing laws which target the spread of disinformation on the island.
- Chinese hackers are breaching U.S. Navy contractors to steal classified and highly sensitive data about advanced military technology, according to The Wall Street Journal.
- According to news reports, spy chiefs from the “Five Eyes” countries ( Australia, Canada, New Zealand, the U.K. and the U.S) agreed to contain Huawei during a meeting in Canada in July.
Sino-U.S. trade war
- Foreign companies in China are considering withdrawing production on the mainland in light of the trade war.
- The PRC seems to be taking steps to fulfill Xi’s commitment to Trump on trade within the 90-day negotiation period.
Dec. 10:
- GoPro begins shifting production of U.S.-bound action cameras out of China. The company hopes to finish the transition by summer 2019.
Dec. 11:
- The U.S. and China start the latest round of trade negotiations with a phone call between Treasury Secretary Steven Mnuchin, U.S. Trade Representative Robert Lighthizer and Chinese vice premier Liu He. According to The Wall Street Journal, China is “considering making changes to the Made in China 2025 plan” while Liu will travel to Washington after the new year.
- Liu He said that China will cut its tariffs on U.S. autos from 40 percent to 15 percent, and buy more U.S. soybeans.
- Trump tweets: “Very productive conversations going on with China! Watch for some important announcements!”
Dec. 12:
- Samsung Electronics announced that it is shutting its mobile phone plant in Tianjin.
Dec. 13:
- China purchases 1.5 million tonnes of U.S. soybeans.
- Apple Inc. is considering moving iPhone production out of China if the U.S. raises tariffs from 10 percent to 25 percent.
Dec. 14:
- China announces a 90-day suspension of tariff hikes on $126 billion of U.S. cars, trucks and auto parts.
- China may purchase at least 3 million metric tons of U.S. corn as soon as January 2019, according to Bloomberg.
- Trump tweeted: “China just announced that their economy is growing much slower than anticipated because of our Trade War with them. They have just suspended U.S. Tariff Hikes. U.S. is doing very well. China wants to make a big and very comprehensive deal. It could happen, and rather soon!”
Politics
- Xi Jinping steps up the rhetoric on “strictly governing the Party” (“cong yan zhi dang”) and anti-corruption, likely in an effort to ensure the success of coming economic reforms.
Dec. 13:
- Xi Jinping chairs a Politburo meeting on economic work in 2019. During the meeting, the Politburo also reviews work reports from the Central Commission for Discipline Inspection and discusses Party building and anti-corruption work for the coming year. (For analysis see the Dec. 13 edition of this newsletter.)
- The Politburo holds the eleventh study session on deepening reform in the national supervision system. During the sessions, Xi stresses the need to curb misuse of power and non-performance, as well as maintain high-alert in clamping down on corruption.
Dec. 14:
- Wanda Group announces that it is building a 12 billion yuan, revolutionary-era theme park in Yan’an to cash in on “red tourism” to the former headquarters of the Chinese Communist Party.
Dec. 15:
- State mouthpiece Xinhua says that Xi Jinping will deliver a major speech on the 40th anniversary of China’s reform and opening up.
- State media air the fifth episode of a documentary series commemorating reform and opening up entitled, “The Only Way.” The episode touches on the anti-corruption campaign, and notes that 440 civilian and military cadres at the provincial-level and above (including inside Party central) have been investigated for discipline violations in the past five years. Nine “big tigers, including Zhou Yongkang, Bo Xilai, Guo Boxiong, Xu Caihou, Ling Jihua and Sun Zhengcai, are featured in the episode.
Dec. 16:
- According to the official WeChat account of the semi-official Beijing Daily, the Party secretaries of Hunan, Jiangxi, and Yunnan separately visited a Huawei branch in their respective province between Dec. 11 to Dec. 14. The Party secretaries praised Huawei for being the pride of the country and for making “immense contributions” over the past 30 years.
Economy
- Official economic data released in November confirms that China’s economy is continually worsening and may deteriorate even further in 2019 if current trends persist.
Dec. 10:
- The PBoC skips reverse repo for the 32nd trading day, citing sufficient liquidity in the banking system. This is the longest stretch without a reverse repo since early 2016.
- The 3-month Hong Kong Interbank Offered Rate (HIBOR) hits 2.2889 percent, the highest since November 2008.
Dec. 11:
- Cumulative sales for top Chinese property developers Evergrande, Country Garden, Vanke, and Sunac reach a record high in the first 11 months of 2018, according to publicly available data. However, only Vanke made sales for the month of November; Evergrande, Country Garden, and Sunac saw sales decline 22.61 percent from the previous month and 23.29 percent from a year ago.
Dec. 13:
- The Politburo announces during an economic meeting that it will keep China’s economic growth “within a reasonable range” in 2019.
- PBoC president Yi Gang said that China’s monetary policy must be kept “relatively loose” to support the slowing economy. “In the face of external shocks, we must take timely measures to prevent market instability and especially to stabilize public confidence,” he said in a lecture at Tsinghua University.
- China’s foreign direct investment in November fell 26.3 percent year-on-year to 92.11 billion yuan, according to data from the commerce ministry. FDI fell 1.3 percent in the first 11 months of 2018 to 793.27 billion yuan.
- China’s domestic cellphone shipments in November fell by 8.2 percent from a month ago and 18.2 percent from the previous year, according to sales data from the China Academy of Information and Communications Technology.
Dec. 14:
- According to data from the national statistics bureau, China’s industrial output grew at 5.4 percent in November, the lowest in three years.
- Total retail sales increased by 8.1 percent year-on-year in November, the lowest since 2003.
- In November, China’s total exports grew by 10.2 percent, down 9.8 percent from a month ago. Imports grew at 7.8 percent, down 17.9 percent from October.
- Automobile production in China shrinks 3.2 percent from the previous year.
- China’s total grain output for 2018 was 657.89 million tons, a drop of 3.71 million tons (0.6 percent) from 2017.
- According to PBoC data, China’s reserves rose by $9 billion to $3.062 trillion (21.5 percent growth YoY) in November, the first gain since July.
Society
Dec. 10:
- According to news reports, the authorities in Chengdu City detain pastor Wang Yi of Early Rain Covenant Church and over 100 of the church’s 500 members on Dec. 9
Dec. 11:
- China’s taxation authorities have sought back taxes from several top Chinese celebrities, according to Hong Kong newspaper Apple Daily. While popular actor Deng Chao and his wife Sun Li “took initiative” in paying 250 million yuan worth of back taxes, the taxation authorities recently sought an additional 150 million yuan. Actress Yang Mi was made to pay 500 million yuan while director Feng Xiaogang paid 600 million yuan. Actor Huang Xiaoming and his wife paid a total of 700 million yuan. Even Taiwanese celebrities like Chen Chiao-en and Wallace Huo Chien-hwa were reportedly instructed to pay hundreds of millions of yuan in back taxes.
Dec. 13:
- Chinese authorities detain Jiang Rong, the wife of Early Rain Covenant Church founder Wang Yi, for allegedly “inciting subversion of state power.”
- Huawei publishes some statistics on its website which generated a buzz on Chinese social media. In particular, a snippet on the “100-plus customers who use Huawei video cloud storage solutions” indicates that at least half of Huawei’s clients include local public security bureaus, prisons, police academies, government offices, as well as state-owned enterprises and street-level authorities.
Dec. 14:
- Mao Yushi, a prominent Chinese economist and honorary chairman of the Unirule Institute of Economics, told Voice of America that economic development in China must have clear political protection to ensure progress. He said: “In this era, the zeitgeist of communism has passed. I’ve also realized that I no longer want to be inside the Party. Many intellectuals have similar thinkings.”
Dec. 16:
- Over 60 police and officials raided the Rongguili Church in Guangzhou and confiscated over 4,000 books and other church property.
SinoInsight 1
On Dec. 16, Xinhua reported that Xi Jinping will deliver a major speech at the Great Hall of the People from 10:00 a.m. EST on Dec. 18 to mark the 40th anniversary of China’s reform and opening up.
OUR TAKE
1. We wrote on Dec. 5: “Xi must hold a Fourth Plenum to set the reform agenda. If no Fourth Plenum is held, this means that the factional struggle is extremely intense and Xi is in grave danger.”
With Xi set to make a speech on Dec. 18, it does not seem likely that a Fourth Plenum will be held before the year’s end. And if Xi is unable to hold a Fourth Plenum, this means that the CCP elite is still deeply divided on the issue of reform and Xi’s commitments to President Trump in Argentina.
2. Xi could be thinking of using the 40th anniversary of reform and opening up speech to get around the Central Committee and drag the Party “across the Rubicon” on the issue of making structural reforms and market openings.
