Talks have broken down

Dear Access member,

Aside from our news summaries and compendium of links below, may I direct your attention to this week’s installment of Chinese Corner, Jiayun Feng’s selection of articles and opinion pieces that Chinese people have been talking about in the last week: Topics include used needles, leukemia drugs, and dealing with an unexpected sibling.

Also, if you missed it, you can read the Access chat from Wednesday with Rui Ma and Ying-Ying Lu all about Chinese tech companies and startups, archived here on the Slack channel. Previous archived chats are also reposted there.

—Jeremy Goldkorn, Editor-in-Chief, and team

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1. Talks have broken down — trade war, day eight

The New York Times reports (porous paywall) that the “trade war between the United States and China showed no signs of yielding on Thursday, as Steven Mnuchin, the Treasury secretary…said talks with Beijing had ‘broken down’ and suggested it was now up to China to come to the table with concessions.”

Below is a summary of the latest reporting on the Great Sino-U.S. Trade War of 2018:

Latest Chinese economic data

The trade war has not affected the official numbers. Yet.

• China’s official numbers will show economic expansion of “6.7 percent in April-June when it releases gross domestic product figures on Monday, a survey of 13 economists found,” reports the South China Morning Post. Yesterday, we linked to a Reuters poll of 76 economists who predicted 6.6 percent.

• “China on Friday reported that both its imports and exports with the U.S. rose in the first half of 2018,” according to CNBC.

Trade war costs and victims

There’s something happening here, but what it is ain’t exactly clear:

• Two heavy hitters from the Scowcroft Group, a consultancy founded by Brent Scowcroft, former national security adviser to U.S. President George H.W. Bush, have a piece on Nikkei Asian Review that warns of complacency in the business and analysis community about the damage a trade war will do. They say: “No studies we have seen aggregate the potential disruptions in capital flows, supply chain risks, currency responses, insurance coverage disruptions and the like.”

• “Investors pulled $900m from emerging market equity funds in the week ending July 11, for a total outflow of more than $17bn over the past 10 weeks,” reports the Financial Times (paywall), attributing the capital flight largely to “intensifying trade disputes.”

• “Michigan is caught in the cross hairs” in Trump’s trade war, says the New York Times (porous paywall), “with its ability to remain competitive and develop emerging technologies like autonomous vehicles, robotics and artificial intelligence highly dependent on ties to international markets, including China.”

• The new $200 billion U.S. tariffs on Chinese goods would be more harmful than the first batch, said Piyush Gupta, CEO of Singapore’s DBS Bank to CNBC, “because the targeted Chinese goods include a greater number of finished products, which can be replaced by similar ones from other sources.”

American companies in China

Prominent American companies are forging ahead with new projects in China despite or in some cases because of the trade war.

• Apple and several of its suppliers yesterday announced the $300 million China Clean Energy Fund, which “aims to produce at least 1 gigawatt of energy — or enough to power about 1 million homes — through fully renewable means over the next four years,” according to CNBC.  

• “Tesla and BMW are among the biggest potential losers from Beijing’s retaliatory tariffs on car imports from the U.S. because much of their production is centered in America,” reports Bloomberg (porous paywall), which says they are both now “doubling down in China: this week, Tesla announced its first factory outside the U.S. while BMW is poised to become the first foreign manufacturer to own majority control of a Chinese automobile venture.”

• Tesla CEO Elon Musk yesterday tweeted: “Just finished an amazing 3 day visit to China. The world has never seen human energy & vigor at such scale. Incredibly impressed with Tesla China team & potential for the future.” The tweet includes a photo with his “team after a profoundly interesting discussion of history, philosophy & luck with Vice President Wang” [Qishan 王岐山] in the Beijing leadership compound at Zhongnanhai.

• Tesla has established a new innovation center in Beijing, according to TechNode, which summarizes an interview with the Beijing News (in Chinese) by Tesla global vice president Ren Yuxiang 任宇翔 about the project.

• A recent charm offensive of Wang Qishan aimed at U.S. corporate executives, including his meeting with Musk, is discussed in this South China Morning Post piece.

China’s strategy

• Rallying allies: China has urged the world’s developing economies to join forces against US tariffs,” reports the South China Morning Post: “Chinese President Xi Jinping will reinforce the message at the BRICS summit in South Africa, one stop on a 10-day overseas trip from July 19 that will include state visits to the United Arab Emirates, Senegal and Rwanda.”

Soy watch

Interesting times to be a commodities trader.

• Chinese buyers are “loading up on Brazilian soybeans, which now sell at a premium of up to $1.50 a bushel as U.S. soybean futures have fallen 17 percent over six weeks to about $8.50, their lowest level in nearly a decade,” says Reuters. Other countries are stepping in to buy: “The price gap has sparked a run on U.S. soybeans by importers from Mexico to Pakistan to Thailand.”

• China will import 2.1 percent less soy in the 2018-2019 season compared with the previous year, according to the U.S. Department of Agriculture, as reported by Bloomberg (porous paywall). The country “could turn to using more of its stockpiles” to make up the shortfall.

ZTE

• “The U.S. Commerce Department has lifted the ban on American firms selling products to China’s ZTE,” reports Bloomberg (porous paywall). The move came “after ZTE paid the final tranche of a $1.4 billion penalty by placing $400 million in escrow at a U.S. bank…in addition to $892 million in penalties the telecommunications-equipment maker has paid to the U.S. government after pleading guilty for violating sanctions.”

• “Removing the ban on ZTE was a key Chinese government demand amid escalating tensions between the world’s two largest economies,” according to the Bloomberg article.

• A bipartisan group of U.S. senators is still pushing for harsher penalties on ZTE — see this report on The Hill from yesterday.

• ZTE’s shares “rallied sharply on Thursday” in expectation of the news, according to Caixin (paywall), but Bloomberg says (porous paywall) that the company “could report a loss of as much as 9 billion yuan ($1.3 billion) for the first half of the year.”

Trade war oddities

• A hotel in Shenzhen “denied a report that it would charge U.S. guests an extra 25 percent amid an escalating trade war between Washington and Beijing,” reports Reuters via the Straits Times.

• “Unlike some rather more obscure entries such as ‘bovine semen’ — which, apart from a modest batch in 2016, the US has not imported from China for the last two decades — antiques and paintings account for hundreds of millions of dollars in imports between the two countries every year,” says the South China Morning Post. But now antiques, paintings, drawings, and pastels are all on the list of Chinese goods targeted by Trump’s tariffs.

—Jeremy Goldkorn

2. Liu Xia watches husband’s memorials from Germany

Today marks one year since the death of Liu Xiaobo 刘晓波. His wife, Liu Xia 刘霞, was recently granted permission to leave China, and has spent the last few days in Berlin.

• Liu Xia was unable to attend her husband’s memorial in Berlin, apparently due to possible ramifications for her brother, Liu Hui, who is still in China. One of her friends stated that “the Chinese government can put him in prison anytime…so she has a lot of consideration about this,” according to the HKFP.

• Hongkongers held a well-attended candlelight vigil in Liu’s memory. Unfortunately, the anniversary was coupled with “vacations” for prominent mainland activists – a euphemism for security agents “taking prominent dissidents away from cities during sensitive events to keep them quiet,” the SCMP reports.

• Hu Jia 胡佳, a dissident forced to remain in the Chengli district in Hebei, was nevertheless determined to commemorate Liu, saying, “I will be at the hotel where I was put, will find an empty chair to put Xiaobo’s photo, and will light a candle and place a flower to quietly remember him,” according to the HKFP.

• Liao Yiwu 廖亦武, a dissident and Berlin-based friend of Liu Xia’s, advocated a tough line for Western leaders looking to dealing with Beijing, stating, “Can you keep a low profile dealing with a tyranny? Westerners do not understand that, but I do, because I came from that place,” according to the SCMP.

• Liu Xia’s exit provides some hope even as China cracks down on other dissidents. “The two-pronged approach of private and public diplomacy paid off in Liu’s case, and may yet yield results for others, however dark the situation looks,” Foreign Policy reports.

• Looking to better understand Liu Xiaobo and his legacy? See also: In memory of Liu Xiaobo, six things you should read, pictures of the Hong Kong vigil, and Silent China & its enemies.

—Lucy Best

3. North Korea stalls with U.S., cements relations with China

Yesterday, Donald Trump posted on Twitter a “very nice note” from Kim Jong-un, dated July 6, and boasted, “great progress being made!” No one else seems to think there has been any progress — see our third story in Monday’s newsletter.

One area in which the Democratic People’s Republic of Korea (DPRK) is making progress, however, is its relations with China.

• China and the DPRK marked the 57th anniversary of the signing of China-DPRK Friendly Cooperation and Mutual Aid Treaty on Wednesday at the Chinese embassy in Pyongyang, state news Xinhua reports.

• “It is the unshakable stand of the Communist Party of China (CPC) and Chinese government to cement bilateral relationship and push the ties for long term and healthy development” is the message conveyed to North Korea at the event by the Chinese embassy charge d’affaires, according to Xinhua.

• China also called “totally baseless” the accusation of Donald Trump, raised indirectly in a tweet last week, that China was behind a perceived harder line from North Korea, Voice of America reports.

North Korea remains under heavy international sanctions for its years of nuclear testing, and there is new information for both parts of that story:

• The sanctions: “China’s imports from North Korea plunged 92.6 percent in June compared with a year earlier,” according to the Chinese customs agency, AP reports. But the U.S. is “calling out China and Russia for [energy] exports Washington alleges have often been in violation of the international body’s sanctions against Pyongyang,” according to the Wall Street Journal (paywall).

• The nukes: The Diplomat has revealed the location (porous paywall) of North Korea’s first, long-suspected covert nuclear enrichment facility, known as Kangson, in a suburb outside Pyongyang. A high-level American government source confirmed the accuracy of the location, which “U.S. intelligence has monitored…for more than a decade.”

• Kangson is one of three uranium-enrichment facilities that are known to be active in North Korea, and the Diplomat writes, “Nothing…would suggest that the centrifuges that Kangson, Yongbyon, or the third, unknown enrichment site have stopped spinning.”

• “With the veil lifted from Kangson, North Korea may be less willing to conceal the site, should negotiations with the United States proceed further,” the Diplomat’s investigation concludes optimistically.

—Lucas Niewenhuis

—–

Our whole team really appreciates your support as Access members. Please chat with us on our Slack channel or contact me anytime at jeremy@thechinaproject.com.

—Jeremy Goldkorn, Editor-in-Chief

Here are the stories that caught our eye this week — other than the trade war and North Korea, of course, covered at the top of this newsletter:

• Liu Xia was released from de-facto house arrest and allowed to travel to Germany after an uncoincidentally timed meeting between Li Keqiang and Angela Merkel in Berlin. One takeaway from her release is that Germany appears to be the only Western power willing to bring up human rights in negotiations with China.

• Merkel’s meeting with Li also produced a $23 billion trade deal involving German industrial giants like BASF, BMW, Volkswagen, Daimler, Siemens, and Bosch, ushering in new levels of Chinese-German cooperation amid trade tensions with the United States.

• Six women have accused Zhang Peng 张鹏, an ecology professor at Sun Yat-sen University (SYSU) in Guangzhou, of sexual assault. In an update from the latest coverage, the NYT reports (paywall) that he has been barred from teaching.

• Beijing introduced a citywide policy requiring anyone who wants to run a “private taxi business” in the capital to be a Beijing resident with a hukou, have a vehicle registered with a Beijing license, and have a taxi driver’s license. The restriction will have adverse effects on migrant workers and ride-hailing apps such as Didi, but likely will bolster the city’s taxi service.

• At least 18 factories in China still use CFC-11, an ozone-killing substance that warms the globe 4,750 times faster than CO2. The substance was banned under the Montreal Protocol, but it retains prominence in China because it is cheap and effective at insulating.

BUSINESS AND TECHNOLOGY:

• Adobe Flash wants your data, and your right to sue
  Adobe Flash Player in China revises user agreement after data collection uproar / Abacus
  “Adobe Flash might be dying in the rest of the world, but in China it’s still making waves — but probably not the way it wants. Chinese media found that a user agreement in the China version of Adobe Flash Player asked for the rights to collect and share user data with third parties. It also requested users to give up the right to sue in the case of data leaks.”

• World Cup and Chinese companies
  France win to prove expensive for Chinese sponsor / AFP via thenews.com.pk
  “A Chinese corporate sponsor of the France football team, who promised its customers a ‘total refund’ of their purchases if Les Blues win the World Cup, has seen its stock dive 50 percent in just one month.”

• Xiaomi and the riches of Lei Jun
  Lei Jun is a billion dollars richer after Xiaomi’s mega IPO / TechNode
  “After a disappointing debut on Monday, Xiaomi’s shares rose above HK$20 for the first time today…. As of this morning, Lei [Jun 雷军 ]’s net worth came to $18 billion, catapulting him to #62 on Forbes’ rich list, local media reports. The number has since jumped to $19.4 billion at the time of publishing.”

• News censorship
  Online press Q Daily cuts down coverage on public affairs to stay alive / The China Project
  The government’s Internet Information Office in Shanghai has ordered Q Daily 好奇心日报, a Shanghai-based online publication, to stop reporting on a range of subjects including politics, economy, and military, foreign policy, and other public affairs.

• Short video censorship  
  Short video app Douyin permanently shuts down 33,000 user accounts / TechNode
  “Popular short-video app Douyin (also known as Tik Tok) created by ByteDance is… permanently blocking 33,146 user accounts during just one month… According to Douyin, the accounts in violation fall under the following 8 categories: publishing and spreading vulgar and pornographic content, use of offensive language and insults, false information and rumors, spam ads, infringing copyright, violation of rules and laws, in violation of the rights of minors, publishing content that causes discomfort.”

• Business as usual: Hacks and office raids
  When Rio Tinto met China’s iron hand / Bloomberg (paywall)
  “Hundreds of millions of tons of iron ore, supplied by Rio and sold by Hu, were forged into steel for cars, bridges, and skyscrapers. Then, in 2009, the relationship soured, and Hu and three of his colleagues were arrested.”

• Luxury tea
  The world’s most expensive tea / FT (paywall)
  “Investors have driven up the price of Da Hong Pao, the rare tea that can only be grown in a few areas of China’s Fujian Province.”

• HNA after Wang Jian’s accidental death ?
  HNA co-founder’s shares to be donated to charity / Caixin (paywall)

• Chinese stock markets and bonds
  China sovereign fund prepares request to invest at home / Bloomberg (paywall)
  “China’s $941 billion sovereign wealth fund wants permission to invest in domestic stocks and bonds for the first time, people with knowledge of the matter said, as it tries to end restrictions on its mandate following government moves to open up financial markets.”

• Chinese smartphone brands
  Top 10 most popular smartphone brands and models in China (Summer 2018) / What’s on Weibo

POLITICS AND CURRENT AFFAIRS:

• Huawei and hacking in Africa
  The African Union headquarters hack and Australia’s 5G network / The Strategist
  Danielle Cave, senior analyst at the Australian Strategic Policy Institute, further analyzes the news from early this year that China apparently hacked the African Union and bugged it for as much as five years, and emphasizes:

“What seems to have been entirely missed in the media coverage at the time was the name of the company that served as the key ICT provider inside the AU’s headquarters.”
“It was Huawei.”
“The AU Commission signed a contract with Huawei on 4 January 2012.”

• New Zealand: Beijing influence debate
  Anne-Marie Brady: University links with China raise questions / NZ Herald

• U.S. military posture
  New Army command aims to help counter China, Russia threats / Washington Post
  “Army leaders say the creation of a new Texas-based Army command focused on the future will help the service adapt to the emerging threats from powers such as China and Russia, after years of counterinsurgency warfare.”

• 19 dead in industrial park explosion
  China industrial park explosion kills 19 / BBC News
  “An explosion at an industrial park in China’s Sichuan Province has left 19 people dead and 12 others injured, according to state news agency Xinhua…. It follows previous high-profile disasters at chemical plants in China.”
  China’s latest chemical explosion has killed 19 — and recalled the Tianjin tragedy / Quartz
  “In August 2015, deadly explosions ripped apart warehouses storing dangerous chemicals in the port city of Tianjin, China, killing over 160 people and forming a crater visible from space…. But a deadly chemical blast last night has again called into question China’s safety standards.”

• Abuse of urban renovation subsidies
  Beijing cracks down on cities abusing slum initiative / Caixin (paywall)
  “China’s housing ministry has threatened to bar local governments from receiving low-cost loans for projects to rebuild run-down neighborhoods if they continue to compensate displaced residents in cash.”

• Malaysian 1MDB corruption fugitive in China?
  Jho Low ‘not in China’ as searches for fugitive prove fruitless after Malaysian tip-offs / SCMP
  “Beijing has investigated multiple recent tip-offs from Malaysia that its fugitive businessman Low Taek Jho was in China, but none turned out to be valid.”

• Air pollution
  Survival of the finest: Miners reboot as smog-hit China seeks high grade ore / Reuters
  “For miners seeking to cater to the changing appetite of China, the world’s biggest iron ore importer, all eyes are on Tangshan, the country’s biggest steel-making city and the drastic measures it’s taking to rein in pollution.”

• Rhino horn smuggling
  Man who illegally brought 6kg of rhino horn and ivory into Hong Kong has jail sentence doubled to 4 months / SCMP
  “Defendant Liu Xin, a Chinese businessman, was originally scheduled to be released on Monday after being sentenced to two months in jail in early June for flying to the city from Johannesburg with 5.9kg of rhino horn and 410 grams of ivory with a value of HK$1.2 million (US$153,800).”

SOCIETY AND CULTURE:

• Victims of an ancient murder
  Could these be the faces of the murdered wife and son of China’s first emperor Qin Shi Huang? / SCMP
  “Chinese researchers have reconstructed the faces of a young man and woman who could be one of the many sons and consorts of Qin Shi Huang, the first emperor of China — and who may also have been victims of one of the most notorious and gruesome purges in Chinese history.”

• Smoking e-cigs is hazardous to your career
  Air China will fire pilots in e-cigarette smoking fiasco that caused plane to drop 25,000 feet in 10 minutes / SMCP
  “A co-pilot of an Air China flight that plummeted 25,000 feet in 10 minutes on Tuesday after leaving Hong Kong was smoking an electronic cigarette and made an error that forced the plane’s emergency descent.”

• Tennis superstars
  Years after retiring, Li Na wields major influence in tennis / NYT (paywall)
  “What has not receded is Li’s power as a symbol of success in China. On the court, two Chinese players inspired by Li, a two-time Grand Slam champion, have reached the semifinals of the girls’ singles competition, and another Chinese player is in the boys’ semifinals. Off-court, Li is still earning $15 million to $20 million annually through endorsement and licensing deals.”

• The police do not like your adventure tourism
  Chinese raft man attempting epic Yangtze voyage is foiled by police / SCMP
  “A 42-year-old man who set out to cross China on the Yangtze River using a small wooden raft has had his journey cut short by worried police officers, according to a local media report. Officers stepped in last week after receiving a call from concerned members of the public.”

• Music
  ‘The Rap of China’ returns after off-beat year / Sixth Tone

• Hong Kong culture
  Why Hong Kong’s milk tea is in a class of its own / Goldthread
  “While milk in tea is nothing new, Hong Kong’s rendition is particularly unique. It’s a mixture of heavily oxidized blended black tea leaves and evaporated milk, at a general ratio of 70 to 30. The tea is boiled and strained through a cloth filter multiple times, a process called ‘pulling.’”

VIDEO OF THE DAY

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What is China watching? Watch our compilation of videos here, or click through to learn about a crazy chili-eating contest, makeup removal videos, and the Miao Dragon Boat Festival.

ON SUPCHINA

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Chinese Corner: Used needles, Leukemia drugs, and dealing with an unexpected sibling

Check out Jiayun Feng’s roundup of Chinese-language writing that’s getting lots of buzz in China each week.  

Film Friday: ‘American Dreams in China’ perfectly captures the Chinese dream

Hong Kong director Peter Ho-Sun Chan’s 2013 drama American Dreams in China (中国合伙人 — literally, “Chinese partners”) begins in the 1980s, during a time when China’s idealistic, dynamic, and spirited college students dreamed of adventure, such as studying in America. The story follows three Chinese students who aspire to not only go to the U.S., but to make it big; it depicts their loves and heartbreaks, and the sacrifices they must make to realize their dreams.

Kuora: Should Silicon Valley embrace China’s ‘996’ work ethic?

Mike Moritz, a venture capitalist and journalist, wrote an editorial in the Financial Times on January 18 titled “Silicon Valley would be wise to follow China’s lead.” How right is he? Here’s Kaiser Kuo’s take on whether Silicon Valley should emulate China’s “996” work ethic — referring to a 9 a.m. to 9 p.m., six-days-a-week schedule — to remain competitive in the tech industry.

Job not open to Beijing natives? Alibaba’s online supermarket apologizes for discrimination

China has a long history of regional discrimination, especially in urban areas like Beijing and Shanghai, where outsiders are often considered lower-class citizens. But Beijingers recently had the tables turned on them when a job seeker accused Hema (盒马鲜生) — an online supermarket subsidiary of the Alibaba Group — of regional discrimination.

TechBuzz China: JD, Google, and the War for the Rest of the World

On June 18, JD.com concluded its annual shopping festival with a transaction volume of around US$24.5 billion. On the same day, the ecommerce platform also announced an investment from Google of $550 million. What does this new alliance mean? Ying-Ying Lu and Rui Ma discuss on the newest TechBuzz China.

• Subscribe to TechBuzz China on Apple Podcasts, Overcast, or Stitcher, or click here for the RSS feed.

Cross-dressing men in downtown Suzhou confronted by police

On July 3, three men dressed in women’s clothes were ordered to leave a shopping area in Suzhou, Jiangsu Province, after being scolded and humiliated by some police officers on public streets. On the Chinese internet, an overwhelming majority of people voiced their support for the crossdressers.

China Unsolved: The Village that Vanished

Humans, cats, dogs, livestock — all disappeared from a Shaanxi village, seemingly overnight. Was it state-sponsored? Or is the story mere myth, as credible as theories of UFOs?

11 sisters help Shanxi man get married. Chinese internet says, ‘Wait, what?’

A 22-year-old man in Shanxi Province recently got married, thanks to tremendous financial help from his 11 older sisters, who rustled up 320,000 yuan ($48,000) to help him buy a house and betrothal gifts. This news has sent the Chinese internet into a frenzy, with many people unsure of how to react, since every bit of the story seems a little off.

Liaoning Province to retirees: Start your own business

China has an aging problem, as it’s rapidly catching up to Japan as the oldest country in the world. What are some possible solutions? The northeastern province of Liaoning wants to encourage its retirees to start private businesses so as to remain in the workforce. Could the idea work?

Sinica Podcast: China’s hydro dam ambitions and their consequences

A source of contention within the environmental and international relations communities, hydropower dams have made a splash in China. Kaiser and Jeremy sit down with Stephanie Jensen-Cormier, China Program Director for the NGO International Rivers, to talk about the benefits and consequences of this energy source.

• Subscribe to the Sinica Podcast via Apple Podcasts, Overcast, or Stitcher, or plug the RSS feed into your favorite podcast app.

The Caixin-Sinica Business Brief, episode 55

This week on the Caixin-Sinica Business Brief: The U.S.-China trade war, Chinese stocks amid the trade tensions, summer blockbuster Dying to Survive, China’s movie receipts in the first half of 2018, Doug Young on the death of Wang Jian 王健, the chairman of HNA (formerly Hainan Airlines), and more.

• Subscribe to the Business Brief on Apple Podcasts, Overcast, or Stitcher.

PHOTO FROM MICHAEL YAMASHITA

A fish farm in Penghu

A fisherman carries his harvested fish in the Penghu archipelago, also known as the Pescadores Islands, off the west coast of Taiwan.

—Jia Guo