China in and versus the World; Chinese political intimidation & penetration

[DougMacG]

A string of defaults by Chinese state-owned companies has sent shockwaves across the world’s second-largest credit market.

https://www.bloomberg.com/news/articles/2020-11-23/these-aaa-rated-chinese-bonds-are-tumbling-as-default-fears-grow?sref=nXmOg68r

[Crafty_Dog]

November 24, 2020
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China Stares Down a Financial Reckoning

Beijing thinks the pandemic illustrated the superiority of its approach to financial stability.
By: Phillip Orchard

One has to wonder what Jack Ma was thinking when, in a speech in Shanghai in late October, the Alibaba and Ant Group founder ripped into overzealous Chinese regulators, accusing them of having a “pawnshop mentality” and stifling innovation. Beijing promptly suspended Ant Group’s upcoming initial public offering, which was expected to be the largest in history, costing Ma personally an estimated $3 billion. Days later, Beijing unveiled sweeping new anti-monopoly legislation that will hit much of Ma’s sprawling empire.

That Ma’s comments struck a nerve was not surprising. As Chinese tech conglomerates like Ant Group have rapidly expanded into fintech and financial services, they’ve effectively become lightly regulated banks. And Chinese President Xi Jinping’s administration is obsessed with curbing financial risk. Though Beijing needs these companies’ innovations to get liquidity to corners of the economy that the Chinese banking system struggles to service, these inevitably make it more difficult to stave off a cascading financial crisis. When forced to choose between dynamism and stability, Beijing almost always chooses the latter.

Curiously, though, in the weeks that followed Ma’s comments, Beijing mostly sat on its hands when state-owned enterprises (SOEs) across multiple sectors began publicly announcing defaults on corporate bond obligations. Defaults by Chinese state-backed firms are exceedingly rare, given their VIP access to state credit. Thus, any hints that SOEs are about to default, or state banks about to fail, tends to push Chinese financial markets to the brink of panic. This came a week after Xi had praised Chinese SOEs as proving themselves even more reliable than their private counterparts in responding to the COVID-19 pandemic, pledging to make them bigger, better and stronger.

The confluence of events speaks volumes about the high-wire path Beijing is walking to stave off a financial reckoning. But it also suggests that Beijing thinks it has found a model of state capitalism that lets it eat its cake and have it too.

The Problems

In 2017, Xi elevated financial stability to the level of national security in terms of the Chinese Communist Party’s priorities. There’s a good reason for this fixation: No country in history has amassed so much debt so quickly as China has without succumbing to a financial meltdown, according to the World Bank. So long as China’s economy was galloping ahead at double-digit growth, with the corporate sector awash in easy profits to paper over inefficiencies and an immature system for pricing risk, the chances of an uncontrollable financial crisis were low. But as the Chinese growth model shifted from one driven by exports and land liberalization to investment, and as gross domestic product growth entered into a long, if gradual, slowdown, the margin for error began to narrow considerably. Things became particularly hairy after the 2008 global financial crisis, when Beijing unleashed a staggering amount of stimulus, effectively giving local governments a blank check, and then found itself incapable of scaling back without sending the entire system into a tailspin.

Since 2017, Xi's administration has attempted to implement a suite of ambitious “de-risking” reforms. These have included overhauling the regulatory apparatus, sending the anti-graft authorities after wayward officials and tycoons, and hammering local and provincial governments and banks to clean up their books and eschew “shadow lending” practices. It also gave the central bank free rein to tinker endlessly with the system in search of an elusive balance between liquidity and control. But this effort has been bedeviled by two chronic problems, both a result of Beijing’s insistence on maintaining a state-centric system.

One is a distorted banking system that’s heavily incentivized to focus on the needs of China’s more than 150,000 SOEs (the bulk of which are owned by provincial and local governments) and projects that banks suspect will be prioritized by the party – and thus guaranteed not to bust – at the expense of everything else. As a result, the system is not particularly good at pricing risk or distributing credit to areas of the economy that don’t have implicit state backing. It’s particularly bad at meeting the needs of households and small and medium-size enterprises, which tend to have scant credit histories or assets available for collateral but which now make up the overwhelming share of employment in China. This forces businesses and cash-strapped local governments to seek funding via shadow lending vehicles (the opacity of which makes Beijing nervous) and households to rely on things like peer-to-peer lending platforms (the volatility of which makes Beijing very nervous as a potential source of social upheaval). It also created an opening for fintech firms like Ant Group to fill the void in consumer-facing finance.

Mapping China's Shadow Banking
(click to enlarge)

All this forces regulators to tread carefully when implementing new de-risking measures. Move too far, too fast, and the private sector may face a credit crunch – as it did in 2018 and 2019, even before the pandemic – and China’s cherished growth may grind to a halt. Move too slow, and household savings – the great stabilizer and safety net of the Chinese economy – may fall away, speculative real estate bubbles may pop, and any number of interlocking fault lines may rupture at once.

The other core problem is moral hazard. Put simply, given Beijing’s existential fear of unemployment and social unrest, lenders and investors understandably just assume that the state will more often than not come to the rescue if things go sideways and pose any degree of systemic risk. Beijing also realizes that if people think that the state is guaranteeing their deposits or investments, and the state doesn't live up to its promise (implicit or otherwise), people are likely to direct their ire not at poorly run banks or companies but at the state itself. Naturally, this encourages all sorts of risky lending and investment activity. This is particularly true with SOEs and state banks. Beijing sees such entities as invaluable tools for soaking up surplus employment and funding or carrying out projects prioritized for social development or diplomatic goals, as well as for brokering factional peace and deepening dependence on the party’s goodwill. It is willing to tolerate a lack of profit and efficiency in the state sector in service of these ulterior goals. Local governments, meanwhile, rely on the state firms they control to get around regulatory constraints and meet employment and growth targets set from above.

Regulators may grouse about the state sector’s profligate ways, but they’ve generally been unwilling to expose it fully to market forces and leave state banks, in particular, on the hook for losses. The handful of times they’ve tried, things have gone badly. The closest China has come to having its own Lehman Brothers moment was in June 2013, for example, when Beijing briefly declined to intervene following a technical default between two small banks. This sent interbank lending rates soaring, grinding lending to a halt and sparking a liquidity crisis that began to spread into the rest of the economy. Beijing quickly backed down, and the merry circus continued.

The Solutions

The past month’s events are just the latest iteration of this push and pull between market and state. But, as is usually the case with China, it’s always difficult to discern whether unusual developments are a sign of Beijing’s weakness or strength. Does the crackdown on tech conglomerates betray a growing fear in Beijing that their growing wealth and control over data and information (things the Communist Party of China wants to monopolize) will translate into political power and rupture China’s historical regional and socioeconomic fault lines? Or is Beijing merely flexing in service of a prudent policy? (Ant Group quickly acquiesced, after all.) Does letting SOEs default suggest that the scale of China’s debt woes is surpassing Beijing’s ability to respond, or has Beijing’s financial de-risking campaign been so successful that it feels it's high time to teach profligate state-owned firms a thing or two about accountability?

In most cases, there’s an element of both. A permanent sense of intertwined crisis and opportunity is the foremost driver of the Communist Party’s behavior. But what’s different this time around is that Beijing appears to truly feel that its measures are working. The pandemic was the ultimate stress test of the Chinese system. And the system by and large has emerged unscathed – even stable enough to risk a market panic by letting SOEs fall on their swords or to risk another liquidity crunch by saddling fintech innovations with new regulations. It’s done this without resorting to 2008-style stimulus. It’s done this while cracking down on Hong Kong despite the risk of scaring off much-needed foreign investment. It’s done this as the focus of U.S. economic pressure on China has shifted from trade to finance.

Bond Defaults by Chinese Corporates
(click to enlarge)

Number of Chinese Zombie Firms
(click to enlarge)

Indeed, Beijing thinks the pandemic, like the 2008 global financial crisis, has in many ways illustrated the superiority of the Chinese approach to financial stability – or at least what Beijing hopes the system will become, with some additional technocratic tweaking, some purging of corrupt elements and regular injections of party ideology to get everyone marching in the same direction. And to be sure, Beijing deserves credit for empowering its regulators to take on painful reforms before the crisis hit and for implementing a countercyclical regulatory system designed to adjust on the fly, tightening and relaxing control as changing conditions demand. It can count real successes in curbing shadow lending and shutting down “zombie enterprises” in a relatively controlled manner. What the system lacks in market incentives to act prudently, Beijing has been able to offset, to an extent, by introducing fear of Xi. Perhaps this is one of the benefits of living in constant fear that an existential crisis is just around the corner – you’re far less likely to get caught flat-footed.

The core contradictions embedded in China’s model remain, though. It’s unlikely to ever embrace a cleansing but potentially destabilizing recession. It’s not about to reduce the role of state banks and enterprises. It’ll remain enormously difficult to weed out moral hazard altogether, and to persuade financial institutions to act against their own self-interest, so long as it sees a state-centric economy essential for party survival. There’s an inevitable trade-off between dynamism and control. Even if this model remains adept at staving off a cataclysmic crisis, a long slowdown will be hard to avoid. In other words, China’s financial reckoning probably can't be avoided forever, but it's likely to look a lot more like Japan’s Lost Decades than what was faced by South Korea and much of Southeast Asia during the 1997 Asian financial crisis. Given what the consequences of the latter would look like in China, it’ll happily make that trade.

[DougMacG]

https://www.scmp.com/news/asia/east-asia/article/3112024/china-gave-covid-19-vaccine-north-koreas-kim-jong-un-us-analyst

China gave Kim Jung Un the vaccine.

Pretty high trust level the other direction.  Would you let the PRC give you an injection?

[Crafty_Dog]

Australian Bill's Passage Would Turn up the Heat With China
6 MINS READ
Dec 3, 2020 | 21:18 GMT
HIGHLIGHTS
The impending passage of a new law meant to limit Chinese government deals with subnational governments in Australia portends an even greater deterioration in ties....

With Australia-China relations at a low point and diplomatic tensions bleeding into the trade realm, Canberra's impending passage of a new law meant to limit Chinese government deals with subnational governments in Australia shows Canberra's continued resolve to confront China — spelling an even greater deterioration in ties. Australia's Federal Parliament is nearing passage of a controversial new law that would allow the Foreign Ministry to strike down agreements by states, territories, public universities and local governments with foreign governments or government entities. This law, currently the Foreign Relations (State and Territory Arrangements) Bill 2020, was directly motivated by federal government concerns about current and potential subnational-level agreements with the Chinese that could undermine the Commonwealth government's ability to counter Chinese domestic influence.

In contrast to the federal government's policy to keep Australia out of China's Belt and Road Initiative, the Victoria state government has moved forward with several unilateral moves to join the infrastructure initiative. In November 2018, Victoria state government Premier Daniel Andrews signed a nonbinding memorandum of understanding with China to formally join Belt and Road following his 2017 attendance at the Belt and Road forum. Victoria established a working group with plans to release a roadmap on partnership opportunities by mid-2020, but that has yet to materialize.


Australian Prime Minister Scott Morrison announced the "veto" law plans in late 2020, with the bill put before parliament in September after a rushed process. The bill has enjoyed relatively strong bipartisan support, with both the ruling Liberal-National Coalition and opposition Labor Party favoring more federal powers to shape Chinese influence.

Some in the opposition, however, have called for limits to the law to prevent Foreign Ministry overreach. In the Senate, Labor Party members aligned with Greens and crossbench senators to amend the law to include judicial review. The Senate is the weaker body in the Australian system, and the Liberal-National Coalition will now work to garner one more vote in the House of Representatives in hopes of forcing it through without the change.


The new law would increase federal government scrutiny on a host of lower-level agreements as part of an overall hard-line policy toward China. This will augment several new laws put in place in recent years by the federal government to restrict foreign influence in the form of political donations, influence peddling and even investment, using these powers to investigate Chinese journalists, Australian politicians, and investment deals in infrastructure and agriculture.

In terms of the veto law, while Victoria state's Belt and Road memorandum of understanding will be in the crosshairs, Morrison has said over 130 deals with 30 countries could be reviewed. In addition to regional governments, this will open up the possibility that the federal government will strike down deals between universities and Chinese entities such as Confucius Institutes.

Also in 2018, Australia increased restrictions on foreign investment into farmland and the electrical grid in response to Chinese-owned companies gaining ground in these sectors, requiring mandatory reviews by the treasurer, Foreign Investment Review Board and the Department of Home Affairs. This formalized increased scrutiny by the federal treasurer followed a high-profile 2015 deal granting a 99-year lease of the Port of Darwin and a controlling share in the port operator to a Chinese company.

Australia recently used its 2018 National Security Legislation Amendment (Espionage and Foreign Interference) Act for the first time to counter alleged Chinese domestic influence. In November, the government charged a leader in the ethnic Chinese community. In June, authorities reportedly searched the homes of Chinese journalists from state-run Xinhua, China Media Group and China News Service linked to an investigation into a New South Wales politician.

Australia's rapid efforts to pass the veto legislation point toward a long-term, hard-line China policy unlikely to be derailed by ongoing Chinese economic pressure on Canberra. Although Australia-China tensions have been mounting since at least 2017, 2020 has seen them reach new heights with diplomatic spats and Chinese trade restrictions. Like those of the United States, Australia's concerns about China are long-term and strategic. In addition to fears of economic and political influence from China, Australia also fears that China's regional expansion will jeopardize Australian defense by eroding Australia's standing in its near abroad, namely in Southeast Asia and the Pacific Islands. Over the long term, Canberra also fears that China's rise will hinder the ability of the United States, Australia's key ally, to protect Australia in the event of conflict and ensure the free flow of commerce, which is vital to the Australian economy.

Over the course of 2020, China has engaged in increasing restrictions on the import of Australian products, taking advantage of the fact that 33 percent of Australian exports go to China. China has hit out at Australian barley and wine most aggressively, slapping barley with over 80 percent tariffs in May 2020 and in November 2020 hitting many wine exporters with major tariffs as well. It has also put informal bans in place on shipments of copper ore, copper concentrates, lobster, coal, timber and sugar.
To a degree, however, China has remained restrained in its trade pressure on Australia. An all-out trade war could significantly hamper Australian growth, but China's actions have fallen short of that. While barley and wine are pain points for key Australian regions and these tariffs have a longer shelf life, the informal ban on Australian exports may not be sustained in the long term as Beijing's appetite for these commodities rebounds from the COVID-19 pandemic. Most notably, China has avoided limitations on Australian iron ore exports, which are essential to Canberra and account for 40 percent of all commodity exports.


Given its need to link into the lucrative and growing Chinese market, however, Australia will pursue a balanced foreign policy. Even as it works to gain powers to counter Chinese influence, it will also work to deepen trade links with China and the rest of the region, something the recent completion of the Regional Comprehensive Economic Partnership confirms. At the same time, Australia will cooperate with U.S.-led initiatives to counter China as it has done previously by joining the Quadrilateral Security Dialogue, banning Huawei from its 5G network and criticizing China's COVID-19 response, South China Sea expansion, and conduct in Hong Kong and Xinjiang.

[DougMacG]

https://justthenews.com/world/asia/pro-democracy-media-magnate-jimmy-lai-charged-under-national-security-law-hong-kong?utm_source=justthenews.com&utm_medium=feed&utm_campaign=external-news-aggregators

[DougMacG]

It has not taken long for the wheels to come off the Belt and Road Initiative. As recently as May 2017, China’s leader Xi Jinping stood in Beijing before a hall of nearly 30 heads of state and delegates from over 130 countries and proclaimed “a project of the century”. This was not hyperbole. China has promised to spend about $1 trillion on building infrastructure in mainly developing countries around the world — and finance almost all of this through its own financial institutions. Adjusted for inflation, this total was roughly seven times what the US spent through the Marshall Plan to rebuild Europe after the second world war, according to Jonathan Hillman, author of The Emperor’s New Road. But according to data published this week, reality is deviating sharply from Mr Xi’s script. What was conceived as the world’s biggest development program is unravelling into what could become China’s first overseas debt crisis. Lending by the Chinese financial institutions that drive the Belt and Road, along with bilateral support to governments, has fallen off a cliff, and Beijing finds itself mired in debt renegotiations with a host of countries. (via Financial Times, Yale University Press)
https://www.ft.com/content/d9bd8059-d05c-4e6f-968b-1672241ec1f6

[DougMacG]

https://www.thegatewaypundit.com/2020/12/breaking-list-communist-party-members-around-world-leaked-reported-australia-news-will-released-today/

[Crafty_Dog]

Let's be sure to follow this.

[DougMacG]

https://www.skynews.com.au/details/_6215946537001

[Crafty_Dog]

https://www.dailywire.com/news/breaking-huge-data-leak-exposes-chinese-communist-party-members-embedded-in-western-companies-and-governments?fbclid=IwAR2rEvcxdDhJKF4vXiIfR22QvVcOegmW08wZrIJd8StcPOg23jEVc2xdwjs

[DougMacG]

He has an article at ForeignAffairs.org I'm not able to pull up.. this has the gist of it.
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Politico.com
https://www.politico.com/news/2020/06/24/robert-obrien-xi-jinping-china-stalin-338338

Robert O’Brien, President Donald Trump’s national security adviser, equated Chinese President Xi Jinping to Soviet dictator Josef Stalin on Wednesday in an aggressive speech that lambasted China for what he described as a malevolent role in world affairs.

“The Chinese Communist Party is Marxist-Leninist,” he said. “The party General Secretary Xi Jinping sees himself as Josef Stalin’s successor.”

O’Brien faulted both political parties for underestimating the threat from China for decades and not seeing that the Chinese government is aiming to “remake the world” in its image. American policymakers were wrong, he said, to assume that as China developed economically, it would eventually democratize and pursue liberalization. Instead, he argued that the opposite has occurred: China has only become more wedded to its communist ideology.

“We could not have been more wrong — and this miscalculation was the greatest failure of American foreign policy since the 1930s,” he said.

Against the backdrop of a new book by his predecessor John Bolton alleging that Trump said he didn’t care about the Tiananmen Square crackdown and didn’t want a White House statement commemorating the 30th anniversary of the 1989 massacre, O’Brien said in his speech: “We downplayed China’s gross human rights abuses, including Tiananmen Square.”

The national security adviser’s remarks are the first in a series of speeches senior Trump administration officials are making about China during the next few weeks. Secretary of State Mike Pompeo, Attorney General William Barr and FBI Director Christopher Wray will also address the topic.

His speech, delivered in the swing state of Arizona, where Trump trails Joe Biden in the polls, also comes as Republicans seek to portray the former vice president as soft on China. That effort has been undercut by the accusation in Bolton’s book that Trump explicitly asked Xi for help in winning reelection, a charge the president’s team has denied.

O’Brien’s sweeping indictment of the Chinese government is the latest example of the president’s aides going well beyond their boss in casting China as a comprehensive danger to the United States. Trump has tended to describe the threat of China in narrower economic terms as he seeks to remedy what he says are Beijing’s unfair trade practices.

Deputy national security adviser Matt Pottinger, a former Wall Street Journal reporter who covered China, and the National Security Council's Asia team helped write the speech, which has been in the works for weeks, according to an administration official. The Chinese Embassy didn’t immediately respond to a request for comment on O’Brien’s remarks.

While Trump has often praised Xi as great leader, O’Brien condemned his rule as authoritarian and dangerous. During the first three months of this year, the Chinese government has charged almost 500 Chinese citizens for speaking out about the coronavirus, which in the speech O’Brien called the “Wuhan virus” several times.

Beijing’s malign influence extends deep into American politics and society, O’Brien warned. People in more than a dozen American cities hear “subtle pro-Beijing propaganda” on FM radio stations, he said, recounting the story of how a U.S. soldier and her family in Maryland needed a security detail to protect them from death threats after Chinese disinformation convinced some Americans the soldier had originally brought the coronavirus to Wuhan.

While Bolton’s book, where O’Brien isn’t even mentioned, said that Trump told Xi to proceed with building concentration camps for Uighurs, O’Brien condemned the Chinese government for doing exactly that.

“It locks up millions of Muslim Uighurs and other minorities in reeducation camps where they are subjected to political indoctrination and forced labor, while their children are raised in Party-run orphanages,” he said. “This process annihilates family, religion, culture, language and heritage.”

O’Brien tried to disabuse Americans of the notion that they are outside Beijing’s reach, saying the Chinese Communist Party seeks to “control thought beyond the borders of China” and target and blackmail people to serve the party’s interests.

“This is ‘micro targeting’ is beyond an advertiser’s wildest dreams,” he said. “China, unlike advertisers, will not be stopped by government regulations. The Chinese Communist Party simply wants to know everything about you—just like it knows almost everything about China’s citizens.”

As proof of that, he recounted that the Chinese hacked Anthem insurance to get information on 80 million Americans, hacked the Office of Personnel Management to get data on 20 million American government employees, hacked credit rating agency Equifax and hacked Marriott hotels to get information on millions of guests. A Chinese company in 2016 even bought gay dating app Grindr to get its data before the U.S. government forced the company to divest the app on national security grounds.

O’Brien praised Trump and the administration for taking “decisive action” to counter Beijing by barring Chinese companies closely linked to the government’s national security apparatus, such as telecom giant Huawei, from accessing Americans’ personal data. He also hailed the administration’s moves to enact export and travel restrictions on Chinese government entities, companies and certain officials who are helping repress Uighurs and other minorities.

The State Department has recently cracked down on Chinese journalists in the United States, to which Beijing has responded by ejecting journalists working for American news outlets. O’Brien hinted that more such steps countering China would be coming soon, though he did not specify what or when.

Advertisement
With China moving to sharply curtail Hong Kong’s political autonomy, the Trump administration is in the process of deciding how to adequately respond and how to avoid hurting regular Hong Kong people, who have protested in huge numbers against growing encroachment on their freedom of speech and assembly.

O’Brien emphasized that his criticism of the Chinese government doesn’t extend to regular Chinese.

“We have deep respect and admiration for the Chinese people,” he said. “The United States has a long history of friendship with the Chinese nation. But the Chinese Communist Party does not equal China or her people.”

[DougMacG]

Xi Jinping is 2020 Man of the Year
Credit to Mark Stern yesterday for that point. I was in and out of the car when he gave his reasons, but you can imagine.

At the start of 2020, China had its back against the wall.  Trump had cornered him on trade, stepped up alliances and America's military position in the region.  We were waiting for Xi to finally say no tariffs and an enforceable agreement to stop technology theft and forced technology transfers, and his nemesis President Trump was cruising to reelection against the weakest opponent imaginable.

Meanwhile Xi was sitting on the information of a nation threatening and world threatening health crisis.  He conspired with the WHO to keep it quiet while figuring out how to contain it in China while spreading it to the world, and pushing the disinformation campaign that this is all Trump's fault.

Now Xi has exports growing again, economy growing again and his main rivals, US and Europe, in a downward lockdown spiral and his only existential threat, Trump in the US Presidency, looking like a sore loser and headed into retirement.

Man of the Year.  Sad state of affairs, understatement.
----------------------------------------

To be fair, Steyn has named Joe Biden, Basement Dweller of the Year.  No one has achieved more, ever, from their basement.
https://www.steynonline.com/10858/time-basement-dweller-of-the-year
Yesterday's show podcast at the link.

[Crafty_Dog]

https://www.dailymail.co.uk/news/article-9063943/Chinas-trade-war-Australia-backfires-country-plagued-blackouts-cold-winter.html

[Crafty_Dog]

https://asiatimes.com/2020/12/how-india-could-tweak-china-in-the-south-china-sea/?fbclid=IwAR3AMfhWCH--yKezrluJg0z2wtVbb-Rg8AwJ2o7EjekuQUnL2re39I5cbIM

[Crafty_Dog]

https://www.nationalreview.com/2020/12/the-coming-global-backlash-against-china/?utm_source=Sailthru&utm_medium=email&utm_campaign=MJ_20201228&utm_term=Jolt-Smart

[Crafty_Dog]

The Fate of Trump’s China Tariffs Under Biden
5 MINS READ
Dec 28, 2020 | 16:21 GMT
Containers are seen stacked at a port in Qingdao, China, on Jan. 14, 2020.
Containers are seen stacked at a port in Qingdao, China, on Jan. 14, 2020.

(STR/AFP via Getty Images)
HIGHLIGHTS

The Biden administration will probably maintain many of the existing U.S. tariffs on China, ushering in a lengthy period of restrictions that will likely prompt businesses to consider shifting their supply chains and operations outside China. While President-elect Joe Biden says he intends to review the tariffs U.S. President Donald Trump placed on China, he has said he will not make any "immediate moves" regarding them. Nevertheless, as the phase one trade deal between the U.S. and China winds down and concludes in 2021 and China continues to remain far behind committed levels of purchases, the Biden administration is not likely to add significantly more tariffs on China to those already existing....

The Biden administration will probably maintain many of the existing U.S. tariffs on China, ushering in a lengthy period of restrictions that will likely prompt businesses to consider shifting their supply chains and operations outside China. While President-elect Joe Biden says he intends to review the tariffs U.S. President Donald Trump placed on China, he has said he will not make any "immediate moves" regarding them. Nevertheless, as the phase one trade deal between the U.S. and China winds down and concludes in 2021 and China continues to remain far behind committed levels of purchases, the Biden administration is not likely to add significantly more tariffs on China to those already existing.

The United States is likely to shore up its China trade policy by seeking some alignment in trade policy via World Trade Organization reform, partnering with countries including Japan, the European Union, the United Kingdom, South Korea and Australia. But such reforms will take time, and require consensus that China can effectively block. The Biden administration could use existing tariffs as collective leverage against China while encouraging like-minded allies to join a multilateral effort for WTO reforms. A strategy in which both the European Union and the United States advocate changes to both WTO rules for developing countries, as well as some of the rules related to industrial subsidies and state-owned enterprises (SOEs), could blunt Chinese efforts to skirt existing WTO rules. Such a strategy, however, would take time, as WTO reform has become increasingly difficult. The Doha Round of trade negotiations, for example, lasted some 14 years before effectively ending in failure.

WTO reform must be sanctioned through member consensus, effectively giving China veto power. Other mixed economies and developing countries would also oppose many U.S. and European proposals against China.

In 2020, the United States significantly expanded its actions against Chinese tech companies by widening export controls on Huawei and SMIC, China's largest semiconductor manufacturer.

Leaks on China's next Five-Year Plan, which was approved in October, indicate that financial support for chip manufacturers and the tech sector are an integral component of its economic strategy document.
The Biden administration will probably consider direct negotiations with China as the phase one trade deal ends in 2021. Any significant pullback of sanctions is unlikely, as Washington will also be under pressure to address Beijing's failure to honor its phase one commitments relating to increased imports from the United States. The Biden administration will focus on structural reform, such as stripping direct support for Chinese SOEs, which China is likely to continue to reject. If the Biden administration maintains such demands for an extended period, negotiations will stall until the United States focuses on China's commitments to purchase more U.S. goods. Additionally, any trade deal that results in a lower value of committed purchases than the deal that Trump negotiated will be politically unpalatable in the United States. China, however, will be willing to sign a trade deal that includes expanded commitments on purchases as a way to string along negotiations and reduce diplomatic tensions ahead of the 2022 Winter Olympics in Beijing and the 100th anniversary of the founding of the Communist Party of China. In a best-case scenario, the United States and China could roll over the trade deal and the United States could perhaps slightly relax some of the tariffs on China. But it is unlikely to secure the kinds of reforms necessary to fully lift tariffs.

Under the phase one trade deal, China promised to increase imports of U.S. goods by a combined $200 billion over 2017 levels in 2020 and 2021.

Through October 2020, China imported $75.5 billion worth of U.S. goods this year, less than half of the $173 billion worth of U.S. goods China was expected to import in 2020.

Under the deal, China agreed to specific commitments in agricultural, energy and manufactured goods purchases — and it is behind schedule on purchases of all of them.

Because China tariffs are likely to remain politically difficult to remove, businesses in many sectors are beginning to look at long-term strategies to manage their impact, investing outside China while also exploring options to shift production operations outside China. Industries that have relatively low costs of final assembly and packaging and low upfront investment costs in building new manufacturing plants, such as in textiles, would probably be prime candidates to move operations out of China and into neighboring countries like Vietnam. The more apparent it becomes that the tariffs will be long-lasting, the more likely that industries with larger costs of moving production will start to shift business operations.

Southeast Asia continues to be the primary beneficiary of any manufacturers looking to leave or diversify away from China; they do not have to face tariffs that can reach 25 percent on most goods from China.
The textile, automotive, chemicals and machinery industries were the most impacted as the Trump administration’s tariffs focused the most heavily on intermediate goods, not consumer goods.

Consumer goods including electronics are likely to be less affected by the trade war itself, as the Trump administration did not include consumer goods as frequently and electronics were largely spared from tariffs. That said, the electronics industry will be more significantly affected by the tech policy the Biden administration will likely maintain that restricts foreign companies’ ability to sell goods to certain Chinese companies.

[Crafty_Dog]

https://www.thetrumpet.com/23326-australia-a-warning-to-the-world

[ccp]

while still a pipe dream

research is getting closer

and china spend 10 x more
and is hell bent on beating to this technology

if it works they would be unhackable while of course they are probably in ours all day long

it could take them beyond 5 G

https://www.newsweek.com/2020/12/25/china-leads-quantum-computing-race-us-spies-plan-world-fewer-secrets-1554439.html

[DougMacG]

40 page pdf.  Nicely compiled analysis I think consistent with facts and viewpoints posted here on the forum.  Nothing particularly new to us, but a good read.

https://www.atlanticcouncil.org/wp-content/uploads/2020/12/Global-Strategy-2021-An-Allied-Strategy-for-China.pdf

[Crafty_Dog]

https://www.dailymail.co.uk/news/article-9116715/China-denies-entry-team-experts-investigate-origins-Covid-19.html

[DougMacG]

https://www.dailymail.co.uk/news/article-9116715/China-denies-entry-team-experts-investigate-origins-Covid-19.html

That story should be dated Nov 2019.  Today China still denies the world access and information.

[DougMacG]

I always thought of Europe as an ally, but come to think of it, why wouldn't Germany oppose us?
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https://thediplomat.com/2021/01/the-strategic-implications-of-the-china-eu-investment-deal/

The Strategic Implications of the China-EU Investment Deal
The EU-China Comprehensive Agreement on Investment is a win for China, and a blow to transatlantic relations.

January 04, 2021
The Strategic Implications of the China-EU Investment Deal
European Council President Charles Michel arrives for an EU-China Leaders’ meeting video conference at the European Council headquarters in Brussels, Wednesday, Dec. 30, 2020.

Credit: Johanna Geron, Pool Photo via AP
On December 16, 2019, answering a question at an event in Brussels, Chinese Foreign Minister Wang Yi stated that it was unlikely that China could sign an investment agreement with the European Union, because China was a “developing economy.” Fast forward to December 30, 2020. China’s President Xi Jinping held a long-awaited video conference with European Union leaders including Germany’s Chancellor Angela Merkel and French President Emmanuel Macron. After the video call, the European Union announced in a press statement, “The EU and China concluded in principle the negotiations for a Comprehensive Agreement on Investment (CAI).” What happened?

Chinese foreign direct investment (FDI) into the EU has increased exponentially over the last few years, primarily directed to the strategic areas of infrastructure and high technology. According to European Commission data, cumulative flows of Chinese FDI into the EU amounted to almost 120 billion euros. However, EU investment into China was even higher, at more than 140 billion euros. About half of EU FDI in China is in the manufacturing sector, with the German automotive industry as the main investor.

Germany also held the rotating presidency of the EU in the second half of 2020. Merkel had made it a priority to conclude the deal by the end of the German presidency. She was instrumental in persuading the other EU leaders to accept a deal that was so beneficial for German industry. German senior officials within the European Commission drove the negotiations to a successful conclusion. On the Chinese side, Xi unusually stepped in personally and made concessions to clinch the deal. For the EU, this was an opportunity to display its “strategic autonomy” in foreign relations before the new U.S. administration set in. For China, it was a way to drive a wedge between the EU and the United States.  [more at link]

[Crafty_Dog]

In Hong Kong, Mass Arrests Signal an Escalated Opposition Crackdown
3 MINS READ
Jan 6, 2021 | 21:38 GMT

HIGHLIGHTS

A mass arrest of moderate pro-democracy figures in Hong Kong signals an escalation in the application of the city’s national security law to a broader segment of the political opposition, which will increasingly limit the policymaking power of any pro-democracy forces. The first-time detention of a U.S. citizen, meanwhile, will also test whether U.S. President-elect Joe Biden's incoming administration will be able to navigate Hong Kong tensions without jeopardizing its broader relations with Beijing. On Jan. 6, Hong Kong police carried out a citywide operation in which nearly 1,000 officers netted 53 pro-democracy activists and former lawmakers linked to the July 2020 opposition primary for legislative council elections, leveling accusations of subversion under the city’s draconian national security law. ...

A mass arrest of moderate pro-democracy figures in Hong Kong signals an escalation in the application of the city’s national security law to a broader segment of the political opposition, which will increasingly limit the policymaking power of any pro-democracy forces. The first-time detention of a U.S. citizen, meanwhile, will also test whether U.S. President-elect Joe Biden's incoming administration will be able to navigate Hong Kong tensions without jeopardizing its broader relations with Beijing. On Jan. 6, Hong Kong police carried out a citywide operation in which nearly 1,000 officers netted 53 pro-democracy activists and former lawmakers linked to the July 2020 opposition primary for legislative council elections, leveling accusations of subversion under the city’s draconian national security law.

Hong Kong Secretary for Security John Lee said that the arrested activists had planned "mass destruction,” “overthrow” and paralysis of the Hong Kong government during the unofficial primary. Lee was referring to the "35-plus" strategy advocated by many opposition members, which entailed using the primary to consolidate votes to win a majority that could then be used to paralyze the government by blocking the 2021 budget in hopes of triggering more mass protests, international sanctions and the resignation of Chief Executive Carrie Lam.

Those arrested included former lawmakers Alvin Yeung, James To, Andrew Wan, Claudia Mo and Lam Cheuk-ting in addition to professor Benny Tai, who initially outlined the 35-plus plan. Notably, police also arrested the first U.S. citizen under Hong Kong’s national security law, lawyer John Clancey. Clancey is a long-time human rights activist and Hong Kong resident who served as treasurer for the political group Power for Democracy, which was involved in the primary. Subversion under Article 22-23 of the national security law carries up to a life sentence in prison, with varying offenses penalized with three-to-ten year prison sentences.

Police also delivered information requests to at least three media outlets for data linked to the primary: Apple Daily, InMedia and StandNews. Following raids on the Hong Kong Public Opinion Research Institute (PORI), which conducted the primary, PORI said it had destroyed all voter information.

In July, mainland authorities condemned the primary as a challenge to the constitution and the national security law, with pro-Beijing Hong Kong lawmakers calling for an investigation. Hong Kong then derailed any opposition plans by postponing the related legislative council elections, citing COVID-19 risks. After the extended legislature convened, however, authorities moved to expel four sitting pro-democracy lawmakers in early November, prompting the mass resignation of the entire pro-democracy camp, including moderate members.

Hong Kong and mainland authorities appear to be cleaning house, exercising policies that further entrench pro-Beijing power in the city in the hopes of scaring off support for the opposition, while also curbing its capacity and viability as a political alternative. On the tactical level, this includes suppressing protests via the chilling effect of the national security law and mass arrests of dissidents. The long delay in making these arrests suggests that authorities feel as if they can make these moves without spurring major domestic backlash in the form of protests, which have so far been muted. But such measures risk inflaming more radical elements in the Hong Kong protest movement to carry out more violent actions against the government. On a broader level, however, authorities may also pursue reforms to the Hong Kong legislative council that would fundamentally transform the body to curtail the power of elected lawmakers. Motivated by frustration with Hong Kong’s independent judiciary, this may also include judicial reform to limit their ability to check policymakers and to better screen appointees.

[DougMacG]

The timing is not totally unrelated to Washington being in turmoil, Trump powerless and a new President who will not make China pay a price for takeover of Hong Kong.

Europe's reaction?  An open, mutual investment agreement.

Instapundit: Jack Ma could not be reached for comment.
https://www.msn.com/en-us/news/world/as-jack-ma-goes-missing-video-predicting-he-will-either-die-or-go-to-jail-resurfaces/ar-BB1cscgD

Does anyone care about human rights anymore?

[DougMacG]

Chinese Communist Party Officials Delete Wuhan Lab Data, Erase COVID Studies
Details of over 300 studies, many of which focus on investigating diseases that transfer from animals to humans, are missing from the state-run National Natural Science Foundation of China (NSFC).

The purge follows the Wuhan lab altering its database of viral pathogens in December 2019 as COVID-19 began to spread.

https://thenationalpulse.com/breaking/ccp-wipes-covid-data/

[G M]

Chinese Communist Party Officials Delete Wuhan Lab Data, Erase COVID Studies
Details of over 300 studies, many of which focus on investigating diseases that transfer from animals to humans, are missing from the state-run National Natural Science Foundation of China (NSFC).

The purge follows the Wuhan lab altering its database of viral pathogens in December 2019 as COVID-19 began to spread.

https://thenationalpulse.com/breaking/ccp-wipes-covid-data/

Kind of like how the dems handle ballots and voting machines!

[DougMacG]

It Really IS the China Virus

The evidence keeps piling up that the Beijing government is engaged in a gigantic coverup of the origins of the Coronavirus.

This month U.S. officials made it known they’ve concluded the “most credible” explanation for the virus’s origin is that it escaped from a top-secret Chinese lab. China also recently delayed travel permission for a World Health Organization team to visit and investigate the virus. The team had already agreed not to examine the top-secret Wuhan Institute of Virology.

Now Britain’s Mail on Sunday has revealed that details of more than 300 studies carried out by the Wuhan facility are no longer available to researchers.

Among the deleted research are studies conducted by Shi Zhengli, the Wuhan-based virologist who has earned the nickname Batwoman for her efforts to look at how bats can transmit viruses.

Iain Duncan Smith, a former leader of Britain’s Conservative party, told the Mail on Sunday that “China is clearly trying to hide the evidence. It is vital that there is a thorough investigation into what happened but China seems to be doing all it can to stop that happening.”

But don’t worry. We’re sure China-apologist Joe Biden will be hot on the case.

https://www.dailymail.co.uk/news/article-9129681/New-cover-fears-Chinese-officials-delete-critical-data-Wuhan-lab.html

[Crafty_Dog]

https://eastvalleypost.com/worlds-second-largest-hydroxychloroquine-plant-in-taiwan-blows-up/

[ccp]

https://www.breitbart.com/asia/2021/02/04/human-rights-activists-urge-biden-join-boycott-2022-beijing-olympics/

seems like good idea
but will never get beyond an idea with chinese bought and paid for politicians elites media entertainment industry and the likes of Bloomber et al

[DougMacG]

https://www.breitbart.com/asia/2021/02/04/human-rights-activists-urge-biden-join-boycott-2022-beijing-olympics/

seems like good idea
but will never get beyond an idea with chinese bought and paid for politicians elites media entertainment industry and the likes of Bloomber et al

Great idea, but not real likely that we elect a Communist China sympathizer conspirators and then expect them to stand up to China.

Rather than boycott, we should set conditions.  Ane end to the cheat, steal, rape and pillage might be a start.  I would settle for just calling for free and fair elections before winter 2022.

|Since it won't be Biden and Europe doesn't give a bleep, it would be nice if some Asian countries stepped up and led this movement, putting pressure back on Biden to stand up for freedom, consent of the governed and other human-like principles.

[G M]

" I would settle for just calling for free and fair elections before winter 2022."

In the PRC or here?

https://www.breitbart.com/asia/2021/02/04/human-rights-activists-urge-biden-join-boycott-2022-beijing-olympics/

seems like good idea
but will never get beyond an idea with chinese bought and paid for politicians elites media entertainment industry and the likes of Bloomber et al

Great idea, but not real likely that we elect a Communist China sympathizer conspirators and then expect them to stand up to China.

Rather than boycott, we should set conditions.  Ane end to the cheat, steal, rape and pillage might be a start.  I would settle for just calling for free and fair elections before winter 2022.

|Since it won't be Biden and Europe doesn't give a bleep, it would be nice if some Asian countries stepped up and led this movement, putting pressure back on Biden to stand up for freedom, consent of the governed and other human-like principles.

[DougMacG]

" I would settle for just calling for free and fair elections before winter 2022."

In the PRC or here?

Good point.  Start with the PRC.  Then when we host Olympics maybe they will call for that here.   )

[Crafty_Dog]

If you want to drink a toast to freedom, consider an Australian wine. China has taken umbrage at Australia’s criticism of its human-rights record and slammed tariffs on its wines. Among other outrageous demands, Beijing insists that Australia rein in its free press’s coverage of China.

Australia isn’t alone. China has sought to scare off other democracies from criticizing its regime. “If they dare to harm China’s sovereignty, security and development interests, they should beware of their eyes being poked and blinded,” a Beijing spokesman said in November.

These bullying tactics were honed over the past decade by threatening trade repercussions for democratic leaders (including two Danish prime ministers under whom I am proud to have served) who met with the Dalai Lama. Granting the Nobel Peace Prize to Liu Xiaobo put Norwegian salmon out of the China market for years. China is holding two innocent Canadians hostage as political blackmail for Canada’s following up on a U.S. extradition claim on Huawei’s chief financial officer.

China isn’t alone. Russia has used economic blackmail for many years, not least with its regular threats to block gas flows to Eastern Europe during wintertime. The European Union took steps to counter that blackmail through legislation and investment that empowers all EU states to act in solidarity, reverse their gas flows, and speak with one voice through the EU in negotiating gas deals.


There’s a lesson here: We don’t have to allow autocracies to pick off democracies one by one. The free world can and should do more, by agreeing to an “economic Article 5”—similar to the North Atlantic Treaty Organization’s Article 5, which states that a military attack on one ally is considered an attack on all.


How would that work? An “alliance of democracies” would come together and agree on such a framework, perhaps at the Copenhagen Democracy Summit in May or the Summit of Democracy President Biden has proposed. A democracy subjected to economic coercion by an autocracy could invoke the new economic Article 5 to summon the unified support of fellow democracies.

The joint response should have a bite. It would move beyond statements of support to actions, through a catalog of retaliatory trade measures. Australia wouldn’t face China alone but would be aided by the combined trade power of the world’s democracies which make up more than half of the world’s economic might.

Beyond the economic impact, the symbolism of such solidarity would be a potent deterrent. Bullies respond to strength and exploit weakness. A coordinated response would make them think twice before acting.

Such a mechanism shouldn’t be confined to states alone. Businesses also need to be on the front line defending the rules-based international order, which enables them to trade freely and fairly. Companies haven’t been able to escape these values fights, as the Houston Rockets experienced over Hong Kong, and airlines did when Beijing pressured them to change Taiwan’s status on flight maps. The allies in an economic Article 5 would allow companies facing authoritarian trade curbs to draw on a mutual credit facility. That would strengthen their financial position and stiffen their spine.

The democratic world needs a way of dealing with authoritarian bullies from a position of strength. It’s time to tell the bullies that if they poke one of us in the eye, we’ll all poke back.

Mr. Parello-Plesner is executive director of the Alliance of Democracies Foundation.

[Crafty_Dog]

Based on some tips from the Dines Investment Letter, some years ago I had a very successful play in some REE based stocks, so the issues here have been on my radar screen for a while.  China also used this threat against Japan as part of a SCS pressure play.

https://www.theepochtimes.com/china-targets-americas-rare-earth-vulnerability_3700741.html?utm_source=morningbrief&utm_medium=email&utm_campaign=mb-2021-02-18

[Crafty_Dog]

Vaccine blockade. Taiwan is accusing China of pressuring German company BioNTech, which developed one of the leading COVID-19 vaccines with U.S. firm Pfizer, to back out at the last minute of a deal to supply some 5 million doses of its vaccine to the self-ruled island. China is giving up on wooing back Taiwan.

[ccp]

 fundamental human right that is the most real,"

China mocking what happened in Texas:

https://www.yahoo.com/news/texas-weather-crisis-deepens-chinese-111205544.html

[ccp]

https://www.breitbart.com/europe/2021/02/21/farage-chinese-attempting-a-communist-takeover-as-billionaires-buy-up-british-schools/

[Crafty_Dog]

China’s Waning Rare Earths Advantage

Beijing won’t be able to threaten to cut off adversaries from critical supplies of the commodities for much longer.
By: Phillip Orchard

In 1992, during a visit to Inner Mongolia, Chinese leader Deng Xiaoping quipped: “The Middle East has oil, China has rare earths,” referring to 17 elements on the southern end of the periodic table that are essential to the manufacturing of everything from light bulbs to smartphones to fighter jets. China indeed has rare earth metals, oxides and permanent magnets in spades, as well as a preponderance of the world's rare earth refining operations. As recently as 2010, an estimated 97 percent of rare earths came from China. And Deng, who made rare earths a central part of his plans to turn China into a high-tech powerhouse beginning in the mid-1980s, saw this as “of extremely important strategic significance," calling explicitly for China to fully exploit this advantage.

Subsequent Chinese governments in Beijing have never seemed quite sure of how to do so. But last week, the Financial Times reported that Chinese officials were investigating whether a ban on exports of certain rare earths could cripple U.S. production of F-35s and other weapons systems. A few days later, Bloomberg reported that Beijing was considering a ban on rare-earth refining technology. China's hawkish state-owned Global Times then said something to the effect of, “We're not threatening export controls, except maybe we are.” Curiously, on Friday, China announced a 27 percent increase in rare earths production quotas.

China has periodically threatened to weaponize its dominance over the rare earths industry by banning exports in such a manner. It’s rarely followed through, though, and its export controls have often backfired. But Beijing may be facing a “use it or lose it” moment since, one way or another, China's stranglehold on the industry is coming to an end.

China’s Dominance

The first thing to understand about rare earth elements is that they're not particularly rare. They can be found in vast quantities throughout the world, including in the countries most worried about Chinese dominance over the industry. The United States and Australia have more than enough untapped reserves to be self-sufficient. In a single deepwater discovery in 2013, Japan found enough rare earths to meet its needs for centuries (provided it can find a cost-effective way to extract them, anyway).


(click to enlarge)

However, mining operations are exceedingly rare outside of China. Australia is the world's second-largest producer, and it didn't have an active mine until a decade ago. There’s only one operational mine in the U.S., and it’s been mothballed more often than not since the end of the Cold War.

Australia's Rare Earth Resource Potential
(click to enlarge)

Rarer still are rare earths processing operations. Refining rare earths is expensive, complicated and environmentally (and thus politically) problematic. The only major processing plant outside of China is a facility in Malaysia run by Australian rare-earth developer Lynas, and production there has routinely been bogged down by regulatory and political issues. When immense state support began to pay off in the form of Chinese vertical consolidation over the industry in the early 2000s, no one put up much of a fuss, in part, because no one wanted to deal with the headaches of trying to process rare earths themselves.

But rare earths play a role in nearly every aspect of geopolitical competition among modern-day powers. They’re used in hard drives, in telecoms infrastructure, in oil refining, in nuclear rods and wind turbines, and in missile guidance systems. A single F-35 requires some 920 pounds of rare earths elements, according to the Pentagon. An Ohio-class submarine is built with 9,200 pounds of them. China’s dominance over the REE supply chain was always going to generate alarm eventually.

And this is precisely what happened in 2010, starting with, of all things, a ramming of a Japanese coast guard vessel by a Chinese fishing boat (one of its infamous “maritime militia”) around the hotly disputed Senkaku Islands. Amid the bilateral turmoil that followed, China abruptly slashed its rare earths export quotas by around 37 percent. Japan, China’s largest rare earths customer, naturally saw the worst of the supply chain disruption. Whether or not Beijing was actually retaliating – there’s some reason to think China's imposition of export quotas was already planned and driven by domestic need and other routine commercial factors – what matters is the move was widely perceived as a retaliatory embargo. It brought global attention to the issue and drove prices up, sparking a rush among major consumers to stockpile reserves and diversify sources.

In 2014, the World Trade Organization ruled against China’s export quotas, and China removed them a year later. Ironically, this arguably served Beijing’s interests, as the surge of Chinese exports flooded the global market, gutting prices and wiping out a number of Western firms that had sprouted up after prices spiked in 2010. But if the goal was truly retaliatory, it's hard to characterize China’s restriction of exports as beneficial. It didn’t do much damage to Japanese industry, which found ways to get what it needed through re-exports of rare earths from third countries. And global concern about dependence on Chinese weaponization never fully dissipated. Some new diversification efforts survived, particularly between Australia and Japan, so China never fully recovered its near-monopoly on rare earths production. (Today, the share of global output produced by Chinese mines has dropped to around 63 percent, while China's share of processed rare earths has dropped to around 80 percent.)

Use It or Lose It?

Over the past few years, Beijing has continued to probe for opportunities to leverage its rare earths dominance. For example, following a highly symbolic visit by President Xi Jinping to a rare earth facility at the height of the trade war in 2019, the People's Daily explicitly threatened to cut off rare earth exports to the U.S. They were included in 25 percent retaliatory tariffs imposed by Beijing days later.

If Beijing is ever going to make good on its threats of a full embargo, it may be better off doing so sooner rather than later. Supply chain diversification efforts by outside powers have been picking up steam, putting Chinese leverage on a long-term downward trend. There are a half dozen or so processing projects in the works in the U.S. alone, including a Pentagon-backed heavy rare earths separation facility in Texas involving Lynas that received final approval in January. There's also been a flood of money into recycling and stockpiling projects, as well as into research on more environmentally friendly refining processes. Japan has already proved that such efforts can be successful; its cooperation with Australia has reduced its dependence on China by more than a third. Whereas in the past China has often been able to shut down these kinds of diversification efforts by flooding the market, soaring global demand for rare earths and rising strategic impetus to subsidize non-Chinese supply chains are likely to make operations outside China more financially viable going forward.

Ultimately, Chinese domestic needs are likely to be the main driver behind Beijing's rare earth export policies. In some ways, this portends continued restraint from Beijing, which is leery of doing anything that could end up roiling its own economy. The bulk of Chinese rare earths exports return to China at some point as components for electronics and advanced machinery that China needs to keep its other export sectors humming and to continue its climb up the manufacturing value chain. The potential impact of an embargo directly on the Chinese rare earths sector and all the many sectors that depend on rare earths could leave tens of millions of people out of work.

Over the longer term, it also portends a decline in Chinese exports that has nothing to do with Beijing weaponizing its industry dominance. Chinese domestic demand for rare earths is already exploding. If Beijing is going to deliver on any of its many technological moonshots – such as making the vast majority of its vehicle fleet electric by 2035, reaching 1,000 gigawatts of wind power generation by 2050, and building out the missile, submarine and air power capabilities needed to reach military parity with the U.S. – it will need to hoard most of its rare earths for itself. Chinese exports have already declined as a result, including a 24 percent drop in 2020 from the previous year. Indeed, Chinese demand has outpaced Chinese mining production for the past five years, forcing China to import increasing amounts of raw material from Myanmar, Vietnam and even the U.S. This, more than any desire to ease global concern about a potential embargo, is the main reason behind Friday’s expansion of production quotas.

Deng Xiaoping may have been correct that rare earths, like data and semiconductors, are the “new oil.” The thing about oil is that the strategic value of having a lot of it has often been overstated, especially once it became cheap and easy to move around the globe. Supply disruptions from major producers, of course, can still cause enough short-term pain to make importers leery of doing anything that might provoke them. And, if backed into a corner, China may very well think it has little to lose by rocking the global rare earths market with an export ban. But any benefits of such a move would be short-lived and expensive, and it would quickly bring about a future where production of the elements outside of China is anything but rare.

[Crafty_Dog]

https://www.defenseone.com/technology/2021/02/how-chinas-digital-silk-road-leading-countries-away-united-states/172219/

[Crafty_Dog]

https://www.gatestoneinstitute.org/17122/china-buys-western-academics

[Crafty_Dog]

Indo-Pacific deterrence fund. U.S. Indo-Pacific chief Adm. Philip Davidson is asking Congress for some $27 billion to build out its deterrence capabilities across the region. The request includes a $200 million radar system for Palau, the strategically located island nation that, unusually for the region, has been openly lobbying for a U.S. military base. This would tie into a $2.3 billion space-based radar system. There's also a big emphasis on a network of ground-based medium- and intermediate-range missiles across the first island chain, which the U.S. currently is lacking (and also doesn't really have any place yet to put them).

[Crafty_Dog]

https://www.gatestoneinstitute.org/17160/china-tech-war

[Crafty_Dog]

https://foreignpolicy.com/2021/03/18/china-india-japan-quad-biden-indo-pacific-military-geopolitics/?utm_source=PostUp&utm_medium=email&utm_campaign=31555&utm_term=FP%20This%20Week&?tpcc=31555

[Crafty_Dog]

    
How the Tech War Is Driving the US and EU Together
The need to exclude China from accessing certain technology is pushing the two sides to make a deal.
By: Antonia Colibasanu

Earlier this month, the United States and the European Union warned of the need to protect themselves against competition from China in key technologies. The U.S. National Security Commission on Artificial Intelligence issued a report that listed dozens of recommendations to counter China’s growing threat to U.S. dominance in technology, military and economic matters. Days later, the European Commission issued its Digital Compass plan, which aims to reduce the EU’s “high-risk dependencies” on key technologies from the U.S. and China, while also emphasizing the importance of bilateral cooperation with the U.S. through the creation of a new EU-U.S. Trade and Technology Council.

For both Brussels and Washington, the goal here is not to make sure production of digital devices remains close to home – much of that production (including assembly and manufacturing of component parts) is already outsourced anyway. Their real concern is ensuring that China’s rise as a global power doesn’t accelerate through its control of the production value chain used to produce essential goods consumed by Europe and the United States. More important, the U.S. is looking to make sure China doesn’t have access to critical technology, especially technology used to produce semiconductors, that can be used for both civilian and military applications – so-called dual-use technology. For this to happen, the U.S. needs the cooperation of the EU and a certain Dutch company.

Semiconductors and Why They Matter

With the COVID-19 pandemic, digitization has faced its biggest test yet. Unlike the 2007-08 recession, which drove down consumer demand, the pandemic has created a dual challenge, affecting both demand and supply. Companies and organizations in nearly all sectors were forced to implement extraordinary measures to protect their workforce and maintain their operations, creating the need for accelerated digital adaptation and increasing the pressure on the digital production industry. And as the production value chain faced growing pressure, so did the resources on which it depended. For digital products, this includes semiconductors (or chips) – tiny electronic switches that run computations inside any and all computers.

The global market for semiconductors is driven by growing demand for smartphones, tablets, digital TVs, wireless communications infrastructure, network hardware and all other goods that use computers – many of which are produced in China, making it the world’s biggest market for semiconductors. China consumes more than 50 percent of all semiconductors, for both internal use and exports. However, China is heavily reliant on externally produced semiconductors. Chinese manufacturers are capable of meeting only about 25-30 percent of internal demand, which doesn’t include the most advanced chips needed for a lot of what China produces (e.g., smartphones). China-headquartered semiconductor firms supply less than 5 percent of the global market.

This is why the Chinese Communist Party’s five-year plan released in 2011 identified increasing China’s production of semiconductors as a top priority. In 2014, China’s State Council set a goal of becoming a global leader in all segments of the semiconductor industry by 2030. China wants to move up the value chain from assembling final products using imported components to creating advanced technology at home. To do so, it created a $29 billion state-backed fund in 2019 to invest in the semiconductor industry and support talent recruitment and knowledge acquisition. This month, the Chinese government awarded $2.35 billion to the Semiconductor Manufacturing International Corp. for the construction of a new plant, the first major project to emerge from China’s roadmap to self-sufficiency.

However, the majority of semiconductors manufactured by Chinese enterprises are lower-end products, meaning domestic manufacturers need to enhance research and development so they can produce higher-end goods instead of relying on imports. This will be a slow process, but China hopes to speed it up by investing in economic espionage, which includes things like recruiting engineers from producing countries and offering cash incentives for firms that can bring intellectual property from rival companies.


(click to enlarge)

Since Taiwan is the largest manufacturer of semiconductors worldwide, accounting for more than 50 percent of global supply, it has been the primary target of Chinese intelligence. In addition to actively recruiting Taiwanese engineers, China has relied on state-sponsored hackers, who have targeted Taiwan for years. In its latest report released in 2020, Taiwanese cybersecurity firm CyCraft detailed how a hacking campaign named Operation Skeleton Key compromised at least seven Taiwanese chip firms over the past two years. According to the report, the intrusions appeared aimed at stealing as much intellectual property as possible, including source codes, software development kits and chip designs.

Not All Technologies Are Created Equal

China now wants to acquire cutting-edge manufacturing equipment imported by Taiwan from Europe and the U.S. to produce its own semiconductors and the equipment needed to make them. China’s interest in U.S. and European equipment is focused on the technology that makes chip manufacturing possible. The production value chain for semiconductors has three distinct components: design (45 percent of the value chain), front-end fabrication (45 percent) and back-end assembly, testing and packaging (10 percent). For the design element, there are two groups of companies: integrated device manufacturers, which have integrated design with production and therefore have in-house technology to produce semiconductors, and fabless firms, which focus only on chip design and partner with a contract foundry like Taiwan Semiconductor Manufacturing Co. (China’s largest chip supplier) to manufacture them.

Typical Global Semiconductor Production Pattern
(click to enlarge)

While some integrated device manufacturers develop their own production technologies, the foundries rely on equipment, tools and software produced by external firms to make semiconductors. Taiwan Semiconductor Manufacturing Co. (TSMC), like other foundries, is dependent on other companies to supply the equipment needed for production. But only a small number of manufacturers produce this equipment: Five companies account for more than 75 percent of global supply. Three of these companies are based in the U.S. – Applied Materials, Lam Research Corp. and KLA Corp. – and the other two are Japanese firm Tokyo Electron and Dutch company ASML.

Semiconductor Sector Breakdown
(click to enlarge)

The U.S. appears to have a dominant position in the semiconductor manufacturing equipment market, even though the Dutch ASML is the only firm supplying machinery for very high-end chips (used by the military and others). The U.S. companies produce older generation lithography machines that can make less cost-effective chips, and whose exports to China have increased threefold since 2014.

But in May 2020, the U.S. government introduced new rules to restrict exports of all U.S.-made design software and technology, electronic design automation software tools and equipment to China’s Huawei and its affiliates. The ban also included anything using U.S. chipmaking intellectual property, which put U.S. suppliers (ASML and TSMC) in a tight spot. In December 2020, the same restrictions were put on Semiconductor Manufacturing International Corp. (SMIC), China’s top chipmaker. Now, a license approved by the U.S. Defense Department is needed to export “items uniquely required to produce semiconductors at advanced technology nodes, at 10nm [nanometers] or below.”

Ten-nanometer and smaller node chips are advanced chips used by both the telecoms industry and the military. The five U.S. and European equipment manufacturers named above offer machinery that produce such chips. However, only the Netherlands’ ASML can provide the most advanced photolithography technology to produce 7-nanometer and 5-nanometer node chips. These are made using extreme ultraviolet photolithography (EUV), a technology that is not yet in mass production, extremely expensive and high in demand. (There’s a two-year waiting list for EUV machines.) The chips that EUV machinery produce are used in all advanced weaponry that’s under development today: autonomous weapons systems, hypersonic missiles, cyberweapons and surveillance tools, and the latest generation of nuclear weapons. They’re also, of course, used by smartphone and computer manufacturers because smaller chips improve the performance of digital devices. In short, these chips make your smartphone faster and more “intelligent.”

As the only company that supplies the EUV technology that can produce both 7-nanometer and 5-nanometer node chips, ASML is the key player in the market. (TSMC has acquired the EUV technology to produce the 7-nanometer node chips but not the 5-nanometer ones.) While it has offices in the U.S., Japan, Taiwan and even China, ASML is a Dutch company, and as a member of the European Union, the Netherlands is required to comply with EU rules.

An Alliance in the Making?

The U.S. and EU have so far struggled to reach an agreement on digital issues. Over the past 10 years, trans-Atlantic relations have been strained over differences on important policy issues such as data protection and antitrust law and how to deal with China’s Huawei. But a new consensus on semiconductors may be emerging. Here, the U.S. is focused on trade policy, an area that seems more likely to inspire consensus within the EU, especially after the pandemic tested its digital infrastructure.

The European Commission’s report issued in March on the bloc’s digital strategy emphasizes the need to set up an EU-U.S. Trade and Technology Council, which would allow the two sides to establish standards and harmonize definitions on critical technology. This would help the EU create a foundation, a common language and a digital market that could operate across the Continent. For the U.S., it would help increase U.S. influence over the Continent and limit China’s, since having a common language would facilitate the establishment of common policies.

This comes after the European Commission proposed a Transatlantic Agreement on Artificial Intelligence in December 2020. While the EU says it wants to increase European autonomy on technologies like semiconductors, the truth is that Europe has a long way to go. Not only have many EU member states seen delays in deploying both fixed and mobile infrastructure, but Europe also lacks large-scale digital platforms. Europe needs more investors in this field – and the U.S. has a strategic interest in being one of them. The U.S. is, after all, still the EU’s top trade partner in goods and services and plays a major role in its defense as a NATO ally.

Coincidentally, in its report published in March, the U.S. National Security Commission on Artificial Intelligence recommended that the U.S. and Europe increase collaboration, including in research and development and cross-border data sharing. It also said that artificial intelligence interoperability between allies should be promoted through, for example, the creation of an Atlantic-Pacific Security Technology Partnership that would include European and Indo-Pacific countries. On semiconductors, the report says that the U.S., Japan and the Netherlands should align their policies on the export of semiconductor manufacturing equipment, particularly EUV equipment and argon fluoride immersion lithography equipment.

For those knowledgeable in the industry, it might sound strange to have argon fluoride immersion lithography included in the technologies the U.S. wants to keep away from China, considering such technology has been used to produce regular chips – of 10 nanometers and above – that are not used in military applications. But ASML’s newest argon fluoride system, which was first sold in 2020, can produce the 7-nanometer node semiconductor, which has dual use.

ASML recently extended its contract to supply equipment to China’s SMIC to the end of 2021. Last year, ASML’s revenue from Chinese sales totaled 1.9 billion euros ($2.3 billion), or 13.2 percent of its total revenue. That’s a significant market for the Dutch firm, but it’s unclear how much it would be affected by a ban on argon fluoride technology exports since the company’s Chinese sales partly go to fabs owned by non-Chinese companies operating in China. Plus, a ban likely wouldn’t include the less advanced dry argon fluoride equipment. What is clear, however, is that the U.S. relies on the Netherlands to ensure that ASML doesn’t export dual-use equipment to China. As technology advances, there will be a growing need for the U.S. to coordinate with Europe on trade policy toward countries like China. And that can happen only through a formal agreement between the U.S. and the EU.

[Crafty_Dog]

https://patriotpost.us/alexander/78663-chicom-joe-and-the-china-virus-2021-03-24?mailing_id=5712&utm_medium=email&utm_source=pp.email.5712&utm_campaign=alexander&utm_content=header.default

[Crafty_Dog]

https://amgreatness.com/2021/03/24/the-nature-of-chinese-contempt-for-us/

[G M]

https://amgreatness.com/2021/03/24/the-nature-of-chinese-contempt-for-us/

Yup.

[Crafty_Dog]

https://www.gatestoneinstitute.org/17219/china-free-speech-europe

[Crafty_Dog]

In Battle With U.S. for Global Sway, China Showers Money on Europe’s Neglected Areas
Goods are arriving in Europe through a new trade corridor consisting of railroads, airport hubs and ports built with Chinese support
A China-Europe freight train setting out from Tuanjie Village Station in southwest China's Chongqing Municipality. TANG YI/ZUMA PRESS

EMAIL
By Tom Fairless
April 13, 2021 6:39 am ET



DUISBURG, Germany—The struggle between the U.S. and China for global influence has come to Europe’s gritty industrial backwaters, where China is steadily co-opting local economies starting with their railroads.

China overtook the U.S. as the European Union’s biggest trading partner for goods last year, a historic turning point driven in part by Europeans’ hunger for Chinese medical equipment and electronics during the Covid-19 pandemic.

Increasingly, those goods are arriving in Europe through a new trade corridor consisting of railroads, airport hubs and ports built with Chinese support, often as part of China’s Belt and Road Initiative, the giant global infrastructure effort aimed at binding China more closely to the rest of the world.

By greasing the wheels of China-Europe trade, those investments have lifted long-neglected, rust-belt cities in places like Duisburg, Germany, and Liege, Belgium.

Western officials, including in the U.S., have accused China of using the Belt and Road to trap poor countries in debt. The Chinese government has denied those accusations.

While the pandemic has clouded the outlook for Belt and Road, Beijing isn’t likely to abandon it now that the Chinese economy is recovering.

In Europe, China has adapted its approach, sometimes operating below the radar with local authorities and companies. China subsidizes the trains and tracks while big companies such as Alibaba Group Holding Ltd. provide direction and demand.

That might help Beijing tie rich countries even more closely to China. Europe’s trade links with China have already made it reluctant to accede to Washington’s attempts to turn it against the Asian giant.

The number of freight trains running between China and Europe topped 12,400 last year, 50% higher than in 2019 and seven times that of 2016, according to Chinese authorities. Demand for trains has been so high that freight companies have introduced a lottery system to allocate space, according to Chinese state media.

The World Bank estimates that Belt and Road transport infrastructure can boost trade by up to 10% for countries along the route.

Liege and Duisburg are both part of the Belt and Road initiative, although Germany and Belgium haven’t formally signed up to it, according to Chinese state media and local port officials.

“In gray, unglamorous areas like infrastructure and supply chains, there’s a lot less media and political attention, and more understanding that economic integration is necessary,” said Bruno Maçães, a former Portuguese minister who wrote a book on the Belt and Road project.

Europe’s political relationship with China has soured in recent months, notwithstanding a sweeping investment deal they loosely agreed to in December. While many European manufacturers rely heavily on Chinese appetite for autos, luxury products and other goods, they are increasingly alarmed to see China take market share in areas such as advanced manufacturing and engineering.

In infrastructure, however, Europe is much more welcoming of China’s presence and know-how, Mr. Maçães said.



Chinese shipping groups own terminals or share ownership in around a dozen European ports including Antwerp, Rotterdam, Valencia and Marseille.

U.S. officials have warned their European counterparts against excessive dependence on China. The U.S. launched a more limited global infrastructure project in 2019 alongside Japan and Australia.

In Duisburg, a west German steel town that handles more than a third of Europe-China rail freight traffic, trade with China rose 70% last year. A new rail terminal there part-built by China’s Cosco Shipping Holdings Co. will help expand China trade a further 40% to 100 trains a week, according to local officials.

“For Duisburg, it’s manna from heaven,” said Markus Taube, professor of East Asian economics at the University of Duisburg-Essen.

The rail line’s speed compared with the sea route offers a valuable alternative for producers of perishable or time-sensitive, high-value goods like electronics. Chinese internet giant JD.com Inc. is working with the port to export European industrial and consumer goods to China, according to the port’s chief executive, Erich Staake.



“We are currently transporting as much as possible—as much as our tracks allow,” said a spokesman for German rail company Deutsche Bahn AG, which operates trains between 17 European countries and China via Poland, Belarus and Kazakhstan. Some studies suggest that several hundred thousand trains a year could be plying the Europe-China rail route by the 2030s, he said.

The rail route was recently boosted further by the blockage of the Suez Canal.

Chinese investments support 23,000 jobs in the German state of North Rhine Westphalia, home to Duisburg and the Ruhr industrial heartland, while more than 1,000 local companies have invested in China, according to Andreas Pinkwart, the state’s economy minister.

In Liege, a Belgian city that has suffered the downturn in steel partly due to low-cost competitors in China, airfreight volumes are up 50% in the two years since Chinese e-commerce giant Alibaba picked the city as its European hub, said Steven Verhasselt, who runs the airport’s commercial department.


“Every month in 2020 was a record and now in 2021 we are growing 20% year on year,” he said.

With support from Belgian officials, the airport has combined with a sleepy rail station to create a single customs zone. Six trains a week now travel between Liege and China, making it the first dedicated service for e-commerce between the Yangtze River Delta region of China, Central Asia and Europe.

That is all before Alibaba has even completed construction on the new hub. With other Chinese companies also looking at using it, Mr. Verhasselt expects freight volumes to double over the next four years to two million metric tons annually, potentially putting the airport on par with Paris Charles de Gaulle and Frankfurt International.

The airport’s expansion has created around 1,000 jobs over the past two years in a region with high unemployment. Belgium’s postal service and other non-Chinese businesses have become heavy users of the new rail line. And aircraft and trains back to China are filling up with European goods, including milk powder, leather products, salmon and cheeses. Planes that used to return empty are now 80% full.

The rail link to China was one of the requirements that Alibaba had when selecting its European hub, said Mr. Verhasselt. “The Belt and Road is a success story in Liege because of Alibaba,” he said.

An Alibaba spokesperson said the company is investing 100 million euros, equivalent to $119 million, to build a logistics hub at Liege Airport that should be operational this year, as part of an agreement with the Belgian region of Wallonia.

The fast rail link has provided a critical edge for Chinese manufacturers competing in Europe, said Alexander Alban, managing partner at German mechanical parts manufacturer Walter Schimmel GmbH. Italian business executives say they are being squeezed out of Germany’s industrial supply chain by the Chinese, who can now transport heavy industrial goods quickly and cheaply into the heart of Europe.

Chinese exports to the EU jumped 63% in January and February year-over-year, while imports from Europe rose 33%.

However, tensions exist. U.S. officials recently cautioned German officials about China’s plans to expand its activities in Duisburg, according to a person familiar with the matter. In Portugal, where Chinese companies are considering building a container port terminal, the U.S. ambassador warned recently that Portugal must choose between America and China.

Chinese investment in Piraeus, near Athens, has helped transform Greece’s primary port over the past decade from an economic backwater into Europe’s fourth-busiest.

Cosco, which controls the port, has proposed building a fourth container terminal that could allow trade volumes to double again, potentially putting Piraeus on a par with giant European ports such as Hamburg.


Ten trains a week ply a new rail route that connects Piraeus’s port with Eastern European markets including the Czech Republic, transporting around 100,000 containers a year, said Nektarios Demenopoulos, a spokesman for the Piraeus Port Authority.

Greece hasn’t yet approved Cosco’s expansion plans. Greek officials have complained the Chinese company has received most of the benefits. But after Cosco said last month that it would build a children’s playground for local residents, the mayor of Piraeus, Ioannis Moralis, expressed confidence the port would soon be better integrated with the city.

[DougMacG]

We've come to the point where Europe is not our ally anymore.  I don't even know if the US is our ally anymore.