What is the trade war endgame?

Jeremy Goldkorn Published July 21, 2018

Announcements for Access members:

Manya Koetse of What’s on Weibo is going to come on our Slack channel next Tuesday, July 24, at 10:30 a.m. EST. Here’s the direct link to the channel — hope you can join us!

—Lucas Niewenhuis (Jeremy will be back on Tuesday)

1. Trump is ‘ready’ to go all-in on trade war. Where will it end?

“I’m ready to go to 500,” President Trump told CNBC this morning, referring to an escalation of tariffs to cover the $505 billion total value of goods that the U.S. imports from China.

This is an escalation from a more incremental approach that Trump announced a month ago, via a rare non-Twitter press release on June 18, which stated that the scope of tariffed goods would expand from $50 billion to $250 billion “if China refuses to change its practices.” The statement went on, “If China increases its tariffs yet again, we will meet that action by pursuing additional tariffs on another $200 billion of goods.”
But China hasn’t announced its official response to the second round of tariffs yet, choosing instead to focus on domestic issues and lobby U.S. firms that do business in China to get the Trump administration to back off.
Xi Jinping and top Party officials are meeting “around the first week of August,” the South China Morning Post reports, with the trade war and China’s policy response likely at the top of the agenda.
“The chances of a longer, wider, more damaging trade war with China are rising,” Axios reports, quoting Trump economic adviser Larry Kudlow, who said that China has “offered the U.S. absolutely…no options regarding the issue of [intellectual property] theft and forced technology transfer.” Again, this issue has become practically synonymous with the Chinese industrial policy, Made in China 2025, that Trump has almost never personally called out but with which his trade advisers are obsessed.
Trump returned to raging against currency manipulation this morning on Twitter, shortly after the CNBC interview, accusing both China and Europe of the practice. Leland Miller, the international CEO of China Beige Book, told Bloomberg that China does not appear to be heavily controlling its currency as it slips past 6.7 yuan to the dollar, but that it could step in if it reaches 6.9 yuan to the dollar, the level it was at during the start of the Trump presidency. He said if the yuan devalues beyond 7 yuan to the dollar, however, it would be a “declaration of currency war.”
For more on China’s currency context at the moment, see the Wall Street Journal (paywall). The Journal also has a piece on why we should expect a financial stimulus from China in response to economic turbulence, though “probably less than before,” when the economy took larger hits in 2009 and 2015.

What is the trade war endgame? CNBC interviewed former Trump chief strategist Steve Bannon (full transcript here), the infamous designer of the big picture of Trump-style economic nationalism — and racial, ethnic, and cultural nationalism, naturally. Bannon claims to continue to “talk to the guys in the White House all the time,” including President Trump, but “through lawyers.”

Bannon sees the trade war as part of a much larger, civilizational clash, similar to the Cold War. He claims the “regime in China is in deep trouble” because of its reliance on Western supply chains — the fact that this reliance is an issue is acknowledged in Beijing, hence the Made in China 2025 initiative — and implies that the U.S. can achieve “victory” by forcing China to “give us full access to their markets.”
Trump knows he needs to “unite the West against the rise of a totalitarian China,” Bannon claimed earlier this week. In the CNBC interview, he adds that there will be a “reorientation of the complete supply chain of Japan, Western Europe and the United States and Southeast Asia” for this reason.
Tariffs and trade restriction are politically popular with Trump’s base, Bannon says, because many Trump voters have firsthand experience with how trade with China “gutted” the manufacturing jobs they once held. In their state of desperation — studies have shown that this economic shift is directly correlated with the opioid crisis — they will support any policy that promises an easy fix to regain those jobs.
“The idea of going back to a world of higher tariff walls is no longer out of the question,” Bloomberg Businessweek writes (paywall), quoting political scientist Joseph Nye, who says “after [Trump’s] European visit and tariff war, we have to consider the hypothesis that his intent is to destroy the institutions of the liberal international order” — including those that support free trade.
An alternative policy to attacking Chinese manufacturing, the New York Times writes (paywall), is for the U.S. to invest more in its own high-tech sectors. But, of course, that wouldn’t suit the “civilizational clash” narrative that Bannon is pushing, and that it increasingly appears Trump is effectively implementing, whether he truly believes in the ideology or not.

2. Xi Jinping state media adoration approaching Mao levels

A chart created by an anonymous Twitter user, who goes by the name Air-Moving Device, draws on headlines in the front page of the Chinese Communist Party’s house paper, the People’s Daily, to show that in the past 180 days, “Xi Jinping” or “General-Secretary Xi” has appeared in at least one headline nearly 100 percent of the time. The last time a Chinese leader was mentioned that consistently was Mao Zedong during the height of the Cultural Revolution.

While domination of the media is only one of several qualities that defines a personality cult, the trajectory is not looking good. What was called by scholars a decades-long project to “de-Maoify” Chinese politics took a huge blow in February, when Xi successfully eliminated term limits on his presidency. And though there has been some odd speculation recently that the few instances of Xi’s name or picture being omitted from the People’s Daily front page means his power is waning, other indications show that the relationship between Xi and the People’s Daily is remarkably close.

3. Belt and Road lending gets recalibrated

The China Development Bank (CDB) and the Export-Import Bank of China (Ex-Im Bank) and their hundreds of billions in overseas loans are central to China’s Belt and Road Initiative. As with many things Belt and Road, their lending has received criticism for its opacity and preferential treatment of Chinese state-owned firms.

That is changing, the Financial Times reports (paywall), because both banks are reportedly starting to work with the European Bank for Reconstruction and Development (EBRD).
“This would be one of the first times that China’s policy banks concede loans for projects without stipulating that Chinese companies should carry out most of the related works,” Rhodium Group’s Agatha Kratz said.
French development agency AFD is also reportedly “preparing to lend together” with the CBD.

Many Belt and Road projects have run into trouble recently, a fact that James Kynge at the Financial Times — whose byline is also on the FT story cited above — wrote about (paywall) on July 9. In addition to specific problems with projects in Malaysia and Colombia, Kynge cites a RWR Advisory Group study that showed 14 percent, or 234 out of 1,674, projects have run into problems, including “public opposition to projects, objections over labor policies, performance delays, [and] concerns over national security.”

China’s Ministry of Foreign Affairs was furious at this Financial Times report. “What you just cited has no truth in it, and China totally disagrees with it,” a foreign ministry spokesperson said on July 16.
But the lending recalibration suggests that China, behind the scenes, understands it needs more transparency and adherence to international standards in its Belt and Road lending, Kynge writes on Twitter.
For more on perceptions of Belt and Road, this interview with influential blogger Michael Anti on Panda Paw Dragon Claw delves into the issue. A central point made: “China has arrived at the gate of being a globalized country. But its media isn’t ready yet,” as the country severely lacks journalists with international experience, who can contextualize different Belt and Road projects in the more than 60 countries where they are proceeding.

—–

Our whole team really appreciates your support as Access members. Please chat with us on our Slack channel or message me at lucas@thechinaproject.com. As a reminder, Jeremy returns from vacation next Tuesday.

—Lucas Niewenhuis

Here are the stories that caught our eye this week:

During the annual European Council-China meeting on Monday, Chinese Premier Li Keqiang vowed to make it easier for foreign firms to conduct business in China, which was seen as an attempt to make the EU an ally in the escalating U.S.-China trade war.
The Hong Kong government seems determined to crush the pro-independence Hong Kong National Party, which was given a 21-day ultimatum “to justify why it should not be banned.”
China is escalating its war on variety shows by taking down a series of programs including the Chinese version of Saturday Night Live (周六夜现场 zhōu liù yè xiànchǎng).
Pinduoduo (拼多多 pīnduōduō; literally, “piece together more and more”), in only three years since its founding, has become the country’s second-most-popular ecommerce company and filed for a $1.63 billion IPO on Nasdaq to reach a value of up to $24 billion. Pandaily calls it China’s “Facebook-Groupon mashup.”
Two weeks into the U.S.-China trade war, neither side seems to have any confidence that the other will negotiate in good faith, leaving no compromise in sight.

BUSINESS AND TECH:

SOE reform
China Telecom, Unicom shuffle execs, fueling merger speculation / Caixin Global (paywall)
“The smaller two of China’s three major wireless carriers have announced a series of top executive moves simultaneously, fueling speculation that Beijing could be contemplating a merger between China Telecom and China Unicom.”
Artificial intelligence
SoftBank Fund is said to seek investment in Chinese AI giant / Bloomberg (paywall)
“SoftBank Vision Fund is seeking to invest almost $1 billion in China’s SenseTime Group Ltd. as it seeks a stake in the world’s most valuable artificial intelligence startup, people familiar with the matter said.”
Provider of voice services becomes China’s latest AI unicorn / Caixin (paywall)
“Unisound, a provider of artificial intelligence-powered voice services, has netted 600 million yuan ($89.3 million) from several state-backed funds, making it China’s newest ‘unicorn’ in the sector, with a valuation of around $1 billion.”
Pinduoduo
Chinese shopping app Pinduoduo sued in U.S. ahead of I.P.O. / NYT (paywall)
“The complaint, filed Thursday in a federal court in New York by a diaper maker called Daddy’s Choice, says that Pinduoduo knowingly allowed the sale of knockoff products bearing the Daddy’s Choice name.”
Huawei
UK criticizes security of Huawei products / BBC News
“A UK government report into Huawei’s broadband and mobile infrastructure equipment has concluded that it has ‘only limited assurance’ that the kit poses no threat to national security.”
5G network
China shakes up telecom leadership ahead of 5G rollout / WSJ (paywall)
“China’s Communist Party is making leadership changes in the top ranks of the state-owned telecommunications giants ahead of the country’s widely anticipated rollout of next-generation wireless networks.”
Chinese internet lenders
Chinese investors reel as internet lenders close / WSJ (paywall)
“Across China, more than 200 internet-based fund managers since late June have either shut down, closed parts of their operations or are reeling from cash crunches, missing executives and other problems.”

POLITICS AND CURRENT AFFAIRS:

Trade war
The latest: Chinese emissary says no easy win in trade war / Washington Post
China Consul General to Los Angeles Zhang Ping said Thursday that advocates of a trade war should “know that a trade war is not something that can easily be won.”
Congress to toughen foreign investment reviews amid trade fight with China / WSJ (paywall)
“Congress is poised to strengthen the procedures for vetting both foreign investments in the U.S. and overseas transactions involving cutting-edge American technology.”
China’s leadership on the global stage
Mr. Xi’s superpower plans / WSJ (paywall)
“As the U.S. retreats, Beijing is talking more boldly about how it wants to change the global order and assert its own values and interests.”
Xi in the Middle East
Dubai’s phones are sucking up to Beijing / Inkstone
“Phones across the United Arab Emirates, a federation of seven emirates including Dubai, are connecting to a network called ‘WelcomePresChina.’”
North Korea sanctions enforcement
U.S. rebuffed at U.N. on North Korea sanctions enforcement / NYT (paywall)
“United Nations diplomats said the Russians and Chinese used their power to delay action on an American complaint to a Security Council sanctions panel that accused the North Koreans of importing up to triple the amount of refined petroleum allowed this year.”
China and South Korea insist they will enforce UN sanctions on North after coal shipments claim / SCMP
“Both Beijing and Seoul insist they will uphold sanctions after UN report highlights coal shipments that arrived in port after ban came into force.”
U.S.-China relations
Revealed: China’s stealth lobbying to undercut a Pentagon bill / Daily Beast
“Hong Lei, the consul general of the Chinese consulate in Chicago, sent a four-page letter dated June 26 to U.S. Rep. Randy Hultgren (R-IL) objecting to nine sections in the House version of the 2019 National Defense Authorization Act (NDAA), including sections relating to missile defense exercises, Arctic policy, Chinese tech giants Huawei and ZTE, Taiwan, Hong Kong, Chinese meddling in democracies, and Beijing-funded Confucius Institutes.”
Chinese neuroscientist cries foul after ‘arrogant’ U.S. embassy refuses him a visa … again / SCMP
“A Chinese neuroscientist who once held U.S. citizenship has accused the U.S. embassy in Beijing of arrogance after he was turned down for a visa — the latest in a series of denials he has experienced from the embassy.”
China-Cambodia relations
China lends Cambodia $351 million for new road / Australian ABC
“China has lent Cambodia $351 million to build a new road in the capital Phnom Penh with Cambodia describing relations between the two countries as being at the ‘best stage’ ever.”
Taiwan
US planning to let Taiwan leader use American airports en route to Paraguay, despite Beijing concerns / SCMP
“Washington plans to allow Taiwan President Tsai Ing-wen to pass through airports in southern US cities when she travels to South America next month for Mario Benitez’s inauguration as president of Paraguay in what would be a show of support for the self-ruled island, sources have said.”
Espionage
Chinese hackers targeted internet-of-things during Trump-Putin Summit / Defense One
Seattle-based cybersecurity company F5 says that cyberattacks in Finland originating in China spiked on July 12, attempting “to gain control of gear that could collect audio or visual intelligence.”

SOCIETY AND CULTURE:

Population competition
China’s smaller cities compete to increase population / FT (paywall)
“China’s second-tier cities have attracted hundreds of thousands of residents this year by awarding permanent residency to graduates in an attempt to push their economies towards higher-end manufacturing and services.”
Electronic records as evidence in court
Guangzhou court to streamline submission of evidence from WeChat, QQ / TechNode
“Nansha District People’s Court in Guangzhou will allow easier acceptance of electronic records from QQ, WeChat, Alipay, and other internet platforms to be used as key evidence in court, local media is reporting (in Chinese). The move makes the Nansha court the first in Guandong Province to permit internet electronic records to be presented in court without notarization.”
Jazz
Book of changes / China Channel
David Moser recalls his 25 years in Chinese jazz. For more from Moser, give a listen to this Sinica Podcast episode!
Advertising
The man behind China’s most irritating ads / Sixth Tone
“China’s brainwashing-style commercials have been slammed as annoying — but the ad man who created them insists that they work.”
SCMP gives same-sex marriage benefits
South China Morning Post employees in same-sex marriages to get equal benefits as heterosexual colleagues / SCMP
“The South China Morning Post has become one of the few Hong Kong companies to offer employees in same-sex marriages equal benefits to their heterosexual colleagues.”
Animal rescue
Macau authorities to care for 600 greyhounds after notorious track closes / Guardian
“Authorities in Macau, the world’s largest gambling hub, will care for more than 600 greyhounds after their owner renounced them ahead of the closure of China’s only dog-racing track on Saturday.”

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Chinese Corner: ‘Brother-assisting demons,’ the rise of moral policing, and dating shows as performance art

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The China Project is proud to present the NüVoices podcast! In this debut episode, hosts Alice Xin Liu and Joanna Chiu interview two Chinese women who work as news assistants for foreign media in China.

TechBuzz China: Xiaomi: Bull or Bear? A Post-IPO Debate

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

China Unsolved: Road to Nowhere

People disappear all the time in China. They change their names and jobs, run away, get vanished by the government — or sometimes fate comes for them in the form of foul play. In 1996, the disappearance of two young men in Urumqi left lots of questions, which remain unanswered — and unanswerable — to this day.

Bringing a dumpling to life: Q&A with Domee Shi, Pixar director of ‘Bao’

Domee Shi is the first female director of a short film by Pixar Animation Studios. Her piece, the recently released Bao, is a whimsical story loosely based on her own life growing up as an only child with Chinese immigrant parents in Canada. She chatted with The China Project about Bao, women in animation, and, of course, her favorite dumplings.

Raheem Sterling ‘vomits bread’ and Ozil ‘bears the wok’: Funny Chinese soccer expressions and World Cup memes

Soccer talk took over the Chinese internet over the course of the 32-day World Cup. Online users exercised their creativity and invented neologisms to describe everything from French “luck” to German scapegoating of Mesut Özil. And to mock England, of course. (Sorry, English fans.)

‘Dying to Survive’ apologizes for ripping off Japanese anime in poster

Dying to Survive 我不是药神 is a legitimate summer box office hit. But its marketers are somewhat ruining its shine. The film issued an apology on Monday for plagiarizing a promotional poster for Japanese anime My Hero Academia. An earlier poster apparently also copied artwork from the Japanese manga series One Piece.

Kuora: On Chinese cheating

Why do many forms of cheating seem to be widely considered a justifiable means to an end in China? It’s all basically a function of scarcity and of the intensity of competition, writes Kaiser Kuo in this week’s Kuora. These, in turn, come down to the fact of China’s enormous population, breakneck development, and brutally pragmatic focus on results. When dishonesty seems to pay so handsomely and honesty seems to lead only to penury, it’s to be expected, regrettably, that many within society will choose dishonesty.

Sinica Podcast: Poisonous pandas: Cigarette smoking in China

This week on the Sinica Podcast, Kaiser and Jeremy chat with Matthew Kohrman, associate professor of anthropology at Stanford University, about his work on China’s tobacco industry — and why China isn’t doing more to curb smoking. His new book on the subject is titled Poisonous Pandas: Chinese Cigarette Manufacturing in Critical Historical Perspectives.

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 56

This week on the Caixin-Sinica Business Brief: New-energy vehicle sales in China, Tesla’s agreements with Shanghai, Sun Yat-sen University suspending a professor accused of sexual assault, Doug Young on Xiaomi’s long-awaited IPO, and more.

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

PHOTO OF THE DAY

World Cup late game in Kunming

This picture was taken during the Sweden-Germany match in the recent World Cup, a game that started at 2 a.m. on June 24 in China. The shop is owned by Mr. Sun 孙先生, who has occupied the same spot on Kunming’s Cailian Road 西山区采莲路 for eight years. Photo by Ivan Montoya.

Jeremy Goldkorn worked in China for 20 years as an editor and entrepreneur. He is editor-in-chief of The China Project, and co-founder of the Sinica Podcast. Read more

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What is the trade war endgame?

1. Trump is ‘ready’ to go all-in on trade war. Where will it end?

2. Xi Jinping state media adoration approaching Mao levels