SinoInsight 1
On Dec. 5, Western media outlets reported that Sabrina Meng Wanzhou, the chief financial official of Huawei and daughter of Huawei founder Ren Zhengfei, was Vancouver on Dec. 1 and is sought for extradition by the United States.
The U.S. has been taking an increasingly tough stance on Huawei this year. The Justice Department is investigating whether the company violated U.S. sanctions on Iran, according to an April 2018 report in The Wall Street Journal. In November, the Journal reported that the U.S. was carrying out an “extraordinary outreach campaign to foreign allies” to convince them to avoid using Huawei telecommunications equipment due to cybersecurity risks.
On Dec. 6, Chinese and English-language media reported that Zhang Shoucheng, a physics professor at Stanford University and founding partner of Danhua Capital, had passed away “unexpectedly” on Dec. 1 at age 55 “after fighting a battle with depression.” According to Sina.com, local police “believed that it was a suicide case.”
Zhang was hand-picked to join an expert panel for the PRC state-run “Thousand Talents” program in 2009. He was also invited to be a professor at Tsinghua University.
Zhang’s Danhua Capital is identified as a Chinese venture capital firm that helps the PRC engage in technology transfers in the U.S. Trade Representative Office’s November 2018 update to the Section 301 investigations on China.
OUR TAKE
1. Sabrina Meng, who Forbes magazine listed as the eighth most outstanding businesswoman in China in 2017, recently emerged as a potential successor to Huawei founder Ren Zhengfei. Her extradition to the U.S. would be a blow to the PRC’s tech advancement push, particularly Huawei’s effort to get countries to adopt its 5G networks. In other words, Sabrina Meng’s arrest is more severe than the U.S. business ban on ZTE earlier this year.
2. Huawei and ZTE supply telecommunications equipment to the People’s Liberation Army, and Ren Zhengfei once served in the PLA. The U.S. House Intelligence Committee opened investigations into Huawei in November 2011, and the U.S. government likely has information on the company’s involvement with Iran after Commerce Department obtained internal ZTE documents in 2016. Reports this year that the Justice Department is investigating Huawei on violating Iran sanctions suggests that the U.S. government likely has sufficient evidence to take action against Huawei if needed.
3. It might be noteworthy that Zhang Shoucheng’s passed away “unexpectedly” on the same day that Sabrina Meng was arrested. According to mainland news reports on April 1, 2017, Huawei Terminal (Dongguan) chairman Yu Chengdong specially made a trip to an IT leaders summit in Shenzhen to pick up Zhang, who was a participant at the summit. There are also unconfirmed rumors on Chinese social media and from media outlets that Sabrina Meng was supposed to meet with Zhang Shoucheng in Argentina on Dec. 1.
If the rumors about the Meng and Zhang meeting are not speculation, then foul play cannot be ruled out in Zhang’s death. And if there is foul play at work, possible actors include the CCP intelligence system or American interest groups with shared interests with the CCP.
5. We believe that the arrest of Sabrina Meng will not affect the ongoing Sino-U.S. trade negotiations. In fact, the incident may turn out to be an early “Christmas present” for President Donald Trump and Xi Jinping.
We noted in our Dec. 5 analysis that Xi has no option but to push through structural reforms after making commitments to Trump in Argentina. Xi has now more incentive to deliver on his commitments in the hopes of possibly preventing the complete collapse of Huawei. Otherwise, the demise of Huawei would prove very problematic for the PLA, which relies on Huawei equipment.
Meanwhile, Trump has gained a “trump card” to play against the CCP and secure a real trade deal with China.
SinoInsight 2
On Dec. 5, the PRC State Council issued a decision on promoting employment. Key points in the decision include:
Companies that participate in social security schemes can get a 50 percent rebate on unemployment insurance premiums for the previous year if they do not lay off, or lay off lesser staff this year.
Persons who qualify for self-employment applications may apply for a 150,000 yuan guaranteed business loan.
Small and micro enterprises that meet requirements can apply for up to 3 million yuan in guaranteed business loans if they employ up to 25 percent of their current workforce (15 percent for enterprises with over 100 employees) during the year and sign a one-year labor agreement.
The authorities will implement a three-year youth internship program to grant employment apprenticeships to unemployed youths between age 16 to 24.
The authorities will subsidize unemployment training and timely unemployment assistance.
OUR TAKE
1. The State Council’s decision on unemployment comes after plans to step up social security collection were announced and social problems stemming for local government revenue shortage were exposed earlier in the year.
In other words, the CCP authorities have indirectly revealed that the problem of business failure and unemployment is severe, a phenomenon that we called attention to recently.
2. China’s worsening economy has raised the unemployment numbers and also the levels of political risk facing the CCP regime. Because the CCP tied its political legitimacy to economic performance after the Cultural Revolution, Xi Jinping faces the option of doing nothing and provoking a real revolution from below, or carrying out genuine structural reform to delay the Party’s demise. Thus, we believe that Xi has incentive to show America concrete results within the 90-day negotiation period, or at least make enough effort to prove to Washington that Beijing is serious about reform.
