SinoInsight 1
While in London for a NATO summit, U.S. President Donald Trump appeared to send mixed signals on the Sino-U.S. “phase one” trade deal. On Dec. 3, Trump said that “in some ways, I think it’s better to wait until after the election with China.” The following day, he said, “discussions are going very well and we’ll see what happens.” Trump’s comments caused stock markets to fall.
Meanwhile, the Trump administration’s top external China advisor Michael Pillsbury said in an interview on Fox News on Dec. 4 that “something the President [Trump] has spoken about, and I favor myself,” is to “substantially increase the tariffs now before Dec. 15, and probably another increase as well to get the Chinese attention.”
And on Dec. 2, prominent Harvard professor Niall Ferguson published an opinion piece in The New York Times titled, “The New Cold War? It’s With China, and It Has Already Begun.”
OUR TAKE
1. The idea of a “new cold war,” or intensifying Sino-U.S. rivalry, will not be unfamiliar to long-time SinoInsider readers. We have been warning about the shift in Sino-U.S. relations since at least January 2018 and elaborated on why we believe a “new cold war” has begun in our Special Report. Professor Ferguson’s article in the Times indicates that our view on Sino-U.S. relations is becoming mainstream.
2. In September we wrote that “businesses, investors, and governments must filter out signal from the noise of ‘progress’ or ‘backsliding’ in the trade talks, and plan for long-term competition between the U.S. and the PRC.” We hold the same view with regard to Trump’s latest remarks on the Sino-U.S. trade deal at the NATO summit in London, particularly in considering U.S. Secretary of State Mike Pompeo’s “China Challenge” speech, increased U.S. naval spending with an eye on China, the Trump administration’s persistent efforts to warn the world about Huawei and PRC-produced 5G technology and equipment, as well as other recent moves by the Trump administration to counter the CCP worldwide.
To mitigate risks and discover new opportunities, businesses, investors, and governments must filter out trade war signals from noise and account for intensifying Sino-U.S. rivalry in decision-making.
3. We do not rule out the possibility that President Trump could increase tariffs before the Dec. 15 tariff deadline as his advisor Michael Pillsbury suggested. In fact, we believe that there is a good chance of Trump ramping up tariffs early if the PRC side decides to play hardball before Dec. 15 instead of finding a way to get the “phase one” deal done as soon as possible and to Trump’s liking. And in the event that a trade deal is signed (we are pessimistic about this outcome), we believe that Trump will more likely than not turn to tariffs again because it is characteristic of the CCP to find all sorts of ways of not fully living up to its commitments.
Once Trump adds tariffs, the Sino-U.S. “Battle of Waterloo” will likely begin in earnest.
SinoInsight 2
According to a Dec. 3 report by Taiwanese media NextTV, Xiang Xin, executive director of China Innovation Investment Limited, and Kung Ching, his wife and company alternate director, have decided to stay in Taiwan and are “obediently” cooperating with investigations. The couple is also not appealing their detention in Taiwanese court.
Xiang and his wife were earlier detained by the Taiwanese authorities at the Taoyuan International Airport when they were trying to leave the country. Defecting Chinese spy Wang Liqiang claims that Xiang Xin is a PRC military intelligence officer and that he had worked for Xiang for five years carrying out various political interference operations in Hong Kong and Taiwan.
According to overseas Chinese language media reports, Peter Mattis, Deputy Staff Director of the U.S. Congress-Executive Commission on China and former CIA analyst, said at a Dec. 3 book launch event that if news of Xiang Xin and his wife “choosing to remain in Taiwan of their own accord” are accurate, then they could be “finding a way out for themselves” because there is precedent of exposed spies being dealt with by the CCP. “Once you are caught, it’s over. Chinese intelligence doesn’t stand behind you,” said Mattis according to Chinese language media.
OUR TAKE
1. If the information about Xiang Xin and his wife not appealing being taken into custody and cooperating with Taiwanese investigations are accurate, then this affirms our Dec. 1 analysis where we laid out the possibility of Xiang seeking a defection.
We wrote: “If Xiang Xin continues to be ‘very cooperative’ with the Taiwanese government and even decides that it is in his best interests to defect, then the CCP would likely be in serious trouble. Xiang’s ‘cooperation’ or defection could disastrously compromise the CCP’s external political interference operations and the intelligence apparatus itself. Meanwhile, the Xi Jinping leadership would gain an unimpeachable excuse to purge the intelligence ranks to clear out would-be ‘traitors,’ a move that would hurt factional interests and escalate the CCP factional struggle. Heightened political crisis in the CCP and the unraveling of the CCP’s spy system and external interference operations could inspire America and the world to take a bolder stand in confronting the CCP regime over its pernicious behavior. Over time, intensifying geopolitical and domestic pressures could become a prelude to regime collapse.”
2. Going by conventional wisdom, the Sino-U.S. “new cold war” should be a long-term affair given intertwined economies and fears on both sides of a “hot” war. However, Black Swan events like the Wang Liqiang and Xiang Xin spy cases and the anti-extradition bill protests in Hong Kong will likely trigger even more Black Swan events for the CCP regime, which is already facing an unprecedented political crisis. As Black Swan events pile up for the CCP, the “new cold war” could potentially be over before the world properly acknowledges and reacts to the Sino-U.S. rivalry.
Businesses, investors, and governments must closely track the CCP factional struggle and other related political developments to lower their exposure to political risk and discover hidden opportunities.
