The 2021 Red Paper

On December 31, 2019, the Wuhan Municipal Health Commission posted a notice (archived post, in Chinese) that marked the first public admission of a problem: An outbreak of an unidentified “viral pneumonia” had occurred in the city, with 27 confirmed cases, seven of them severe. However, the notice implied that there was no reason to worry, since “investigations so far have found no obvious human-to-human transmission and no infections among medical personnel.”

Over the next few days, dozens more were reported to have contracted the new disease and at least half a dozen international airports began to screen passengers arriving from Wuhan for symptoms of pneumonia. On January 9, officials identified the new pneumonia as caused by a coronavirus, the same family of virus that SARS belongs to, but at that point, there were still no confirmed deaths from the new disease. Extremely few people — whether Chinese officials, Chinese medical experts, regular Chinese people, or anyone outside of China — expected that this virus would surpass the 2003 SARS outbreak in scope or severity.

A reassuring official narrative remained in place in the following days, even as the first deaths from the novel coronavirus were reported, and evidence accumulated that the virus was rapidly spreading. As early as January 8, Chinese CDC director Gāo Fú 高福 reportedly acknowledged to his American counterpart that there was a danger of human-to-human transmission, but he did not have authorization to make a public warning.

Meanwhile, the gears of government churned slowly, and bad news was slow to filter up the chain of command: Wuhan government officials were preoccupied with two major political conferences that lasted from January 7 to 17, and many of the top officials in Beijing were focused on sealing a trade deal with the U.S. on January 15. The China Project noted on January 17, “Though the sickness does not appear to be anywhere near as deadly as the SARS epidemic of 2003, it is starting to look like government transparency has not improved.”

It took until January 14, according to the Financial Times, for the country’s top health officials to convene a “confidential meeting in Beijing at which they fretted about a ‘high’ risk of human-to-human transmission.” A public admission that this was true finally came on January 20, and three days later, Wuhan was locked down in quarantine.

But it was too late: The virus had escaped Wuhan, and seeded far beyond not just the city, but the borders of China.

It would still take weeks for medical science to understand that while the new viral disease — declared a public health emergency by the World Health Organization on January 30, and named COVID-19 on February 11 — was not as deadly on a per-case basis as SARS, it is far more difficult to contain, largely because a significant amount of transmission is asymptomatic.

What followed the lockdown in Wuhan was one of the most vulnerable moments in the Chinese government’s recent history, followed by an extraordinary demonstration of its strength. 

As China struggled to cope with the initial wave of COVID-19 cases, a widely accepted narrative emerged that the epidemic was at least worsened, if not tipped out of control, by the government’s restrictions on speech. The February 7 death of Lǐ Wénliàng 李文亮, one of several doctors who were reprimanded for giving an early warning of a new virus, crystallized public resentment about the relationship between censorship and the coronavirus outbreak. 

The New York Times later obtained leaked documents that reveal how worried Chinese officials became during this period, as they issued propaganda directives warning of a potential “butterfly effect” if the “unprecedented challenge” presented by news of Li’s death was not tackled. 

China employed a three-pronged strategy to attempt to reclaim the narrative that the government had failed to respond to the coronavirus outbreak:

• Extraordinarily strict lockdowns, not just in Wuhan but in much of the country, enforced by grassroots-level CCP cadres who tracked and restricted movement. The movement restriction, contact tracing, and mandatory quarantines were harsh measures that proved effective in containing the spread of the virus within China by a month and a half after Wuhan’s lockdown. 

• Censorship of bad news, and punishment of those who were most active in sharing critical views on the government’s response. Individuals targeted include: four citizen journalists, Fāng Bīn 方斌, Chén Qiūshí 陈秋实, Lǐ Zéhuá 李泽华, and Zhāng Zhǎn 张展, who was later sentenced to four years in prison; the Wuhan-based writer Fāng Fāng 方方; and two prominent figures, real estate tycoon Rèn Zhìqiáng 任志强 and Tsinghua University professor Xǔ Zhāngrùn 许章润. 
• Positive propaganda about the government’s response, or in some cases simply distracting chatter spread by legions of internet commenters, to reduce the temperature of public sentiment during the most sensitive periods.

The effectiveness of China’s containment of COVID later in the spring, and continued mass testing, contact tracing, and limited lockdowns in multiple cities throughout the year to keep the virus at bay, restored normal life for the overwhelming majority of Chinese citizens for most of 2020. This is an incredible accomplishment, matched by few other nations in the world, among them Taiwan and New Zealand. 

Of course, China’s success in managing COVID from February onward — and the abject failure of many other countries, particularly the U.S., in dealing with the pandemic — doesn’t absolve Beijing from its initial failures in December and January. A series of media investigations, from outlets including Caixin and the Wall Street Journal, the New York Times, the Financial Times, the Washington Post, the Associated Press, CNN, and others, have documented those mistakes in detail. 

Beijing soon began to seek a solution to that problem, too. Chinese officials worked to paper over the government’s early mistakes, or distract from them, to dilute the narrative of public health response failure both domestically and internationally:

• Mask diplomacy: As COVID-19 became a pandemic, China ramped up its donations of masks, PPE (personal protective equipment), and relevant medical supplies to dozens of countries around the globe. These donations — or in some cases, normal sales — of equipment began in late February, and were reactive to outbreaks around the globe, starting with Japan and South Korea, and later moving toward Italy, France, and then Africa and the Americas. 
• Conspiracy competition: In response to many American politicians promoting a conspiracy theory that COVID-19 originated in a Chinese lab, Foreign Ministry spokesperson Zhào Lìjiān 赵立坚 suggested, “It might be [the] U.S. army who brought the epidemic to Wuhan.” Beijing then backed away from this particular conspiracy, even as U.S. Secretary of State Mike Pompeo would go on to peddle lies for months. 
• Narrative sanitation: In early April, as Wuhan was on the brink of emerging from its long lockdown and China as a whole appeared to have largely contained the spread of COVID-19, Beijing published an official narrative about its response to the virus. That timeline was sanitized, starting later than credible media reports say that signs of trouble emerged in Wuhan, and omitting major missteps between late December and mid-January — but Beijing later doubled down, updating the timeline and insisting its response was entirely timely and transparent.

Relations between the two countries started on a remarkably warm note in January 2020: After a year and a half of spiraling tensions and tariff war, Trump signed a superficial “phase one” trade deal. It focused on encouraging Beijing to make state-directed purchases — exactly the sort of thing that previous American administrations had balked at — without resolving any of the most important economic disputes between the two countries, or even lifting that many tariffs. 

But Trump was happy. The negotiators were exhausted. A “phase two” deal, meant to actually resolve the issues the countries faced, was put on the back burner. Nobody even seemed to mind that Trump’s direct counterpart, Xi Jinping, was not present at the deal signing — Xi sent his trusted economic adviser, Liú Hè 刘鹤, to sign the deal, perhaps to avoid any perceptions that he was soft on the U.S. 

Trump would go on to effusively praise Xi after the deal, even as COVID-19 became a pandemic and the U.S. became its new epicenter. Only after the economic toll of the virus in both China and the U.S. started to become clear did he change his mind about Xi being his best friend. By May, he was fed up, and tweeted, “We just made a great Trade Deal, the ink was barely dry, and the World was hit by the Plague from China. 100 Trade Deals wouldn’t make up the difference.”

While most departments of the Trump administration focused less on China after the trade deal was signed, the U.S. State Department led by Mike Pompeo continued with anti-China moves. On February 18, in a largely symbolic step that department officials said was long in the works and had only coincidental timing with the COVID-19 crisis in China, the U.S. government designated five Chinese state media outlets as “foreign missions,” essentially treating them as extensions of the Chinese government. 

The move sparked a new downward spiral in U.S.-China relations. It came during an extraordinarily sensitive time in Chinese domestic politics, and just two weeks after Beijing had begun raging at the Wall Street Journal for an offensively titled op-ed about COVID-19. Beijing’s backlash on February 19 was entirely predictable: Three WSJ reporters were kicked out of China, the first outright journalist expulsions since 1998. 

Pompeo, however, was undeterred. His team reportedly “proposed the expulsion of some Chinese state media staff members” on February 24, and deputy national security adviser Matt Pottinger on March 2 defended further action against Chinese media as a way to “stand up for the ability of American media outlets to keep reporting the news out of China.” 

The race to the bottom was on. The March 2 action by the State Department was larger scale — effectively kicking out some 60 employees at state-controlled Chinese news organizations — and Beijing, extremely predictably, responded with large-scale journalist expulsions. On March 17, China expelled at least 13 American journalists, including all who worked at the New York Times, the Wall Street Journal, and the Washington Post. Multiple Chinese news assistants at American news outlets in China also had their work permits revoked. 

Pompeo’s State Department didn’t stop there, though, and engaged in blatant racial profiling on May 8 by restricting visas for Chinese journalists at non-American outlets regardless of whether they worked for Chinese state media. Many Chinese journalists in the U.S. spoke of the beacon of American press freedom dimming in their eyes. May 8 also happens to be the day that Chris Buckley, the Australian who served as the New York Times’ star Beijing correspondent, was forced to leave the country. Beijing later threatened further retaliation for the May 8 visa restrictions, but did not take any — perhaps because American news outlets in China had already been thoroughly gutted. 

Conspiracy theories added another dimension to this race to the bottom, with Pompeo and Zhào Lìjiān 赵立坚 both spreading disinformation about the origins of COVID-19, as summarized in the previous section of this Red Paper.

In the summer of 2020, as Trump gave up on protecting the trade deal and increasingly tried to blame China for the economic devastation wrought by the failed U.S. government response to COVID-19, administration officials unleashed a no-holds-barred torrent of Communist condemnation and China confrontation. (The unlikely administration official to make the most effort to stabilize U.S.-China relations during this time was Trade Representative Robert Lighthizer, but he was greatly outnumbered, and overruled by Trump.)

In major speeches over the span of a month, National Security Adviser Robert O’Brien would equate Xi Jinping with Josef Stalin, FBI Director Christopher Wray would label China the “greatest long-term threat” to America’s economic and national security, Attorney General William Barr would claim that China is attempting to “destroy” American institutions, and Secretary of State Mike Pompeo would all but declare a new cold war, stopping just short of calling for regime change in Beijing. The White House would later package these and other tough-on-China speeches into a book, with an introduction by O’Brien that characterized the collection as a 21st-century version of the 1946 “Long Telegram” that laid out the U.S. approach to the Soviet Union during the Cold War.

In July, the Associated Press reported, the “fear that Trump might be a one-term president began to take hold” among Trump administration officials, and many foreign policy moves were made with an intent to “box in Biden” and prevent him from reverting to more traditional stances, including on China. One of the first of these moves was for the U.S. State Department to more explicitly declare China’s claims in the South China Sea to be illegitimate. The short-notice closure of the Chinese consulate in Houston may also have been motivated by a desire to lock in a more confrontational approach to China.

Other anti-China moves in the second half of 2020 may have had a variety of motivations.

• Some moves were in reaction to Beijing’s policies, and had wide bipartisan support in Washington, such as sanctions in response to the imposition of a national security law on Hong Kong or human rights abuses in Xinjiang. The moves by the Trump administration to strengthen ties with Taiwan may also fit into this category.
• Some were obvious political ploys to bend the election narrative away from Trump’s catastrophic negligence on COVID-19 and beef up his “tough on China” credentials in the lead-up to the November election — see the rushed, and failed, executive orders banning TikTok and WeChat.
• Some were more hard-line versions of previous unilateral moves against China, such as the tightened sanctions on Huawei put in place in September. Later sanctions against China’s leading chipmaker, SMIC, were a logical next step to suppress Chinese technology after moves against Huawei.

Background

It is a strange thing to remember now, in the midst of a pandemic. In October 2019, after months of mass anti-government demonstrations by protesters who went to great lengths to shield themselves from tear gas and protect their identities, Hong Kong banned the wearing of face masks. 

The Hong Kong High Court soon ruled that the face covering ban — invoked by Chief Executive Carrie Lam Cheng (林鄭月娥 Lín Zhèng Yuè’é Lam4 Zeng6 Jyut6 Ngo4) using colonial-era legislation that had not been used in more than 50 years — was unconstitutional under the city’s constitution, the Basic Law. The Hong Kong Bar Association agreed. 

But then, Beijing clearly warned Hong Kong: We make the laws. Zāng Tiěwěi 臧铁伟, the spokesperson of the Legislative Affairs Commission of the Standing Committee of the National People’s Congress (NPC), asserted the supremacy of the NPC over the Hong Kong High Court. 

“No other institution has the right to make judgments or decisions” on whether a law is in accordance with the city’s Basic Law, he said. 

At the time, the opinion of the National People’s Congress in Beijing on how to interpret Hong Kong’s Basic Law was largely irrelevant — the face mask ban was rolled back and generally not enforced, though it does technically remain in place for protests.

Today, Beijing’s opinions on what is legal and illegal in Hong Kong are no longer a matter of rhetoric.

In 2020, the P.R.C. government stripped away some of the most important legal separations between Hong Kong and the mainland. Beijing’s key act was to completely bypass the city’s legislature and impose a national security law on June 30. 

The clear intent of the law is to intimidate pro-democracy voices in Hong Kong into silence, and punish those who commit vaguely defined crimes such as expressing “secessionist intent” by saying protest slogans. Those arrested under the law will be tried in mainland courts, which are controlled by the Chinese Communist Party. 

The national security law has fundamentally altered the role and the rule of law in Hong Kong, a fact recognized by countries such as the U.K., Canada, and Australia, which all subsequently suspended their extradition treaties with the territory. The U.S., which did not have a Hong Kong extradition treaty to begin with, took the extreme step of ending all special economic treatment of Hong Kong. The American government then issued multiple rounds of sanctions on officials in Hong Kong and Beijing that it identified as responsible for the erosion of the territory’s autonomy. 

Even before the national security law went into effect, the rule of law was under attack in Hong Kong. As Beijing’s representatives and state media became more aggressive in calling for prosecution of protesters, calling them “terrorists” and “black-clad thugs,” city officials obliged, rounding up pro-democracy leaders in the city. Freedom of the press continued to deteriorate and police accountability worsened. 

But the pace of repression rapidly picked up in the second half of 2020, after the national security law was in place. The law has been used to subjugate two key parts of Hong Kong society:

• The Legislative Council: Within a month of the law taking effect, a dozen pro-democracy candidates were barred from running for office because of their objections to the law. In November, four pro-democracy politicians were disqualified by a legal decision in Beijing, and the remaining 15 in the opposition camp said they would resign in protest, leaving all opposition camp seats empty. 
• Media: Jimmy Lai (黎智英 Lí Zhìyīng, Lai4 Zi3 Jing1), the founder of pro-democracy news outlet Apple Daily and one of Hong Kong’s most vocal critics of Beijing, was arrested in August and his media property was raided. In December, he was charged with “colluding with foreign forces to endanger national security,” a new crime under the law, punishable by life in prison. 

Meanwhile, the prosecution of those who participated in acts of protest or dissent continue. Three prominent young pro-democracy activists were sentenced to jail in December, and mass raids were conducted in early 2021, leading to 53 arrests.

In the middle of 2017, reports began to trickle out from China’s far-western region of Xinjiang indicating a dramatic uptick in policing and propaganda directed at Uyghurs and other ethnic minority Turkic Muslims. Over the next year, this trickle became a flood, and extensive documentation from publicly available government documents, eyewitness testimony, and satellite imagery confirmed a new horror: The Chinese government was engaged in the largest mass internment of an ethnic minority since World War II. 

The gulag that China built has continued to expand, securitize, and evolve in the time since. Already by the end of 2018, it had become well established that about a million people had been detained in extralegal, political reeducation camps in Xinjiang. Over the next year, multiple reports of forced labor in and adjacent to the internment camps, with both Chinese and foreign companies as beneficiaries, raised the stakes of China’s crackdown even higher. Further evidence in 2020 showed continued construction of new camps, and the presence of factories inside at least 135 detention facilities. 

Darren Byler, an anthropologist who studies Uyghur culture and writes the Xinjiang column for The China Project, has described the aim of Beijing’s campaign as “social re-engineering” — to completely reformat the society of Uyghurs and other Muslim ethnic minorities so that they will be politically loyal, secular, and economically productive. 

Cultural genocide is also an accurate term. In September 2020, the New York Times published disturbing photos of mosques in Xinjiang that had been desecrated — turned into bars or shops — and Uyghur shrines that had been demolished. This corroborated satellite image analysis by the Australian Strategic Policy Institute (ASPI) that found the majority of mosques and important Islamic sacred sites in Xinjiang have been damaged or destroyed since 2017. In contrast to a decade ago, the Chinese state now micromanages the most important life-cycle events for Uyghurs: baby namings, circumcisions, funerals, and weddings. 

None of this bothers Xí Jìnpíng 习近平. According to the most detailed public comments he has given so far, the Chinese leader said in late September that the “strategy for governing Xinjiang is completely correct.”

Judging by Xi’s comments, and by an increasingly aggressive campaign to deny atrocities — the Chinese Foreign Ministry ended 2020 by calling reports of human rights abuses the “lie of the century” — China appears set to totally ignore international criticism.

Recent reports from other ethnic minority regions including Tibet — where a mass labor program appears to follow the Xinjiang model — and Inner Mongolia — where officials are diluting Mongolian-language instruction in schools — also confirm that Beijing is not backing down from an assimilationist mindset. A so-called “second-generation ethnic policy” (第二代民族政策 dì èr dài mínzú zhèngcè) concept, which regards China’s constitutional protections for ethnic minorities as a mistaken holdover from the Soviet system, appears to have significant support in Beijing.

But as Beijing pursues the assimilation of Uyghurs and other Turkic Muslims at any cost, international condemnation continues to grow louder and more coordinated, and include more explicit references to genocide. There is a non-zero chance that the U.S. and its allies will choose to boycott the 2022 Beijing Olympics as a result.

Read more on The China Project:

• Chinese authorities continue to crush Uyghurs in Xinjiang despite increasing pushback at home and abroad
  Our more detailed summary of the state of affairs as of January 2020.
• ‘Demographic genocide’ in Xinjiang
• Coerced cotton picking in Xinjiang
• U.S. sanctions the biggest ‘company’ in Xinjiang

In the fast-moving world of Chinese internet companies, most of 2020 moved at a pace even more frenzied than usual. Ecommerce giants, like Alibaba, and financial service providers, like Ant Group, were some of the key beneficiaries of widespread COVID-19 lockdowns early in the year that kept consumers cooped up indoors. When Ant Group filed for a massive IPO in August on both the Hong Kong and Shanghai STAR stock markets, the company revealed that it had raked in more profit in the first half of 2020 ($3.18 billion) than in the entirety of 2019 ($2.63 billion). 

In early November, everything came crashing down for Ant Group, as the Shanghai Stock Exchange made a surprise announcement that it had suspended the IPO. At the time, The China Project suggested four possible motives for the move:

• Retaliation against Ant’s majority controller, Jack Ma (马云 Mǎ Yún), after he criticized China’s state-dominated banking system in a speech on October 24. 
• Worries about overheated investor enthusiasm and risks to the Shanghai STAR market, which had been churning out dozens of successful, albeit much smaller-scale and more manageable IPOs throughout the year.
• The need to have Ant comply with new microlending restrictions 
• Genuine regulator discomfort with Ant’s size and sway over China’s financial system.

Developments in subsequent weeks made clear that the Ant Group IPO suspension was about more than just the punishment of a particularly outspoken private entrepreneur — though according to Wall Street Journal reporting, it was also that. Jack Ma has kept an unusually low profile in recent months, to the point that his whereabouts became a subject of wild speculation around the turn of the new year. 

For China’s entire internet sector, antitrust regulation was quickly rolled out and applied in unprecedented ways in the weeks following the IPO suspension. Alibaba, China Literature (a business spun off from Tencent), and Hive Box, an ecommerce company owned by SF Express, were among the first companies targeted in the new crackdown. 

• Companies with a “variable interest entity” (VIE) legal structure, popular among listed tech companies, could no longer avoid fines under China’s 2008 Anti-Monopoly Law. 
• Beijing’s determination to rein in China’s fastest-growing private enterprises was emphasized in a Politburo meeting on December 11 (English, Chinese), which concluded that China should “reinforce anti-monopoly and prevent capital from expanding in a disorderly fashion” (反垄断和防止资本无序扩张 fǎn lǒngduàn hé fángzhǐ zīběn wúxù kuòzhāng).
• In further bad news for Jack Ma, regulators then opened an antitrust investigation into Alibaba, the company he co-founded. 
• Beijing now “plans to push tech giants including Ant Group, Tencent and JD.com to share consumer loan data to prevent excess borrowing and fraud,” per Reuters. 

The government has popular support for a broad crackdown on Big Tech. After the Ant Group IPO suspension, Chinese social media erupted with scathing criticism of Ma, and many expressed a sentiment that Ant Group — despite filling an important niche by providing microloans to small businesses and individual borrowers — is actually a loan shark in disguise. Many in China are also eager to see the end of monopolistic practices by Alibaba and others, including a tactic known as “pick one of two,” where a large ecommerce platform will strong-arm small businesses into exclusive contracts.

“No matter how many eyes they have, five or ten or whatever, should anyone dare to undermine China’s sovereignty, security, and development interests, they should be careful not to get their eyes poked out.” 

Chinese Foreign Ministry spokesperson, and infamously aggressive “wolf warrior” diplomat, Zhào Lìjiān 赵立坚 made this remark in a press briefing on November 19 (English, Chinese), in response to a joint statement on Hong Kong by the U.S., Australia, Canada, New Zealand, and the U.K. 

Zhao was referring, of course, to the Five Eyes intelligence-sharing partnership between those countries. Each of the five countries has toughened its stance on China in recent years, and all except New Zealand have seen relations with China markedly deteriorate since 2016. For example, two Canadians were detained in China in late 2018 in retaliation for the arrest of Huawei executive Mèng Wǎnzhōu 孟晚舟, and any resolution of the Canadian hostage crisis remains uncertain.  In 2020, however, none saw a downward spiral in China relations as severe as Australia. 

Context: Australia has been on high alert about foreign influence from Beijing since mid-2017, when media investigations revealed avenues of Communist Party influence, often through the United Front Work Department, in both the Labor and Liberal parties. Significant events since then include:

• A Labor Party politician resigned after he was revealed to have parroted the Communist Party line on the South China Sea.
• The Australian Senate passed multiple measures aimed at restricting foreign influence in Australian politics. These resulted in the cancellation of the permanent residency of Huáng Xiàngmò 黄向墨, an influential lobbyist.

Australia also notably became the first country other than the U.S. to ban the Chinese telecom companies Huawei and ZTE from building 5G networks, in August 2018.

A social media controversy soon after the airing of grievances has demonstrated the depth of ill will between the Chinese and Australian governments. At the end of November, Zhao Lijian trolled the Australian government by tweeting a photoshopped image of an Australian soldier holding a knife to an Afghan child’s throat, in response to an official report on Australian military war crimes. Scott Morrison demanded the Chinese government delete the “repugnant” and “falsified image,” making easy work for Chinese propagandists eager to press the narrative that Western governments are more concerned with attacking China than protecting human rights. 

This also relates to one potential motivation for China’s aggressive pressuring of Australia this year: Beijing wants to put wedges between America and its allies, particularly in the Five Eyes, and Chinese leaders may see Australia as the American ally that it can provoke with the least cost. The New York Times described the view of Australian scholar David Brophy this way: “China often condemns Australia for doing America’s bidding, when in fact, Australia is trying desperately to cajole the United States into deeper engagement.” One reason that Australia wants more U.S. engagement is because the Australian economy is deeply dependent on China. In other words, Australia does not have much room to distance itself from the U.S. in response to Chinese criticism and pressure, while Beijing feels free to use Australia as an outlet for nationalistic anger. 

The list of Australia’s 14 sins made clear that Beijing wants to hold Canberra accountable for independent media reporting that it does not like, for the free speech of MPs in the Australian parliament, and for even the indirect suggestion that China may be responsible for cyberattacks, among other offenses. “An old view was that China used econ[omic] coercion when core interests had been crossed. That’s outdated,” commented Rush Doshi, the director of the Brookings China Strategy Initiative. 

But Beijing did not stop there: China has imposed tariffs on Australian wine that will double or triple its price, making the market “unviable” for Australian exporters. Meanwhile, “China is paying through the nose for coal from North America” to “snub Aussie coal.” The massive Chinese tariffs on Australian wine, which practically wipe out a market of $800 million a year, are due to stay in place up until the end of March 2021, and may be extended an additional five months beyond that. Australia has said it will challenge China’s tariffs at the WTO, but the dispute resolution process could take years. 

Canberra and Beijing are not going to make up anytime soon. Australian farmers, miners, and wine producers will be spending a lot of time in 2021 looking for new markets other than China.

Since their establishments in 1949 and 1950, the People’s Republic of China and the Republic of India have never had a mutually agreed-upon border. The disagreement was one of the causes of the Sino-Indian War of 1962, and of many decades of simmering tensions.

Today, a so-called Line of Actual Control (LAC) roughly sketches where one country’s sovereignty begins and another ends, but as a retired Indian ambassador to China told a journalist, “There is no LAC. Period. There is no mutually agreed line. And either side can thus make any claims it wants.”

In 2020, the first open conflict over the LAC occurred since the 1960s. It included the first casualties in over half a century and, separately, the first use of live firearms since 1975.

By some estimates, tens of thousands of Chinese soldiers remain stationed high up in the Himalayas, while Indian troops are “well-entrenched to counter any misadventure” according to India’s Ministry of Defence. The possibility of further violent clashes should not be discounted. 

With China continuing to build a new village “more than a mile inside what Bhutan considers its territory,” the possibility of a multi-front border standoff involving India and China in 2021 is also not unthinkable. 

Pakistan, sometimes called China’s only true ally and beneficiary of Belt and Road largesse, remains China’s “iron brother.” But with Nepal’s China-friendly government starting 2021 in a political crisis, it could be a hot year along and beyond China’s mountainous southern borders.  

India-U.S. relations appear set to continue to strengthen. The border clash has badly damaged India’s hopes to maintain “strategic autonomy” between the U.S. and China. India quickly soured on China after the bloody clash in June — for example, in August, an India Today poll found that 84% of Indians believe Chinese President Xí Jìnpíng 习近平 had “betrayed” their president, Narendra Modi.

India’s participation in the “Quad” (an informal defense alliance including Australia, Japan, and the U.S.) also appears likely to deepen, though it’s not clear that the four nation grouping will be anything more than symbolic.

Developing domestic technology innovation has long been a priority for Beijing, for multiple reasons, including driving economic growth beyond middle-income levels, and warding off the risks of depending on other countries for technology inputs. 

These tasks have only become more urgent in recent years, particularly since 2018, when the Trump administration’s attacks on ZTE — later reversed by President Trump — and then Huawei demonstrated Beijing’s vulnerability to foreign pressure on its tech supply chains. In 2020, the U.S. government significantly tightened its restrictions on suppliers to Huawei, and expanded its tech blacklist to include dozens of other Chinese technology companies, including leading chipmaker SMIC. 

Semiconductors play a central role in any country’s technology ambitions, as the most advanced new products need the most cutting-edge processors. However, the ability to produce the most advanced semiconductors, at the 7-nanometer level and smaller, almost entirely lies with the U.S., Taiwan, South Korea, and several European countries, making China especially vulnerable to supply chain pressure.

Beijing saw major developments in its path toward semiconductor self-sufficiency in 2020, though they were mostly negative. Still, officials are pressing onward, and developing “critical technologies” now occupies a core place in the government’s 14th Five-Year Plan, covering the years 2021–2025. 

The setbacks:

• HSMC (Wuhan Hongxin Semiconductor Manufacturing), one of China’s leading semiconductor developers, abruptly halted construction of a semiconductor plant in Wuhan over a shortage of funds. HSMC had stated that this plant was established in 2017 and had planned to build two production lines, one for 14-nanometer chips and another for highly advanced 7-nanometer chips, which no company in mainland China can currently build. It is now unclear when China may begin to domestically produce 7-nanometer chips.
• Tsinghua Unigroup, another leader in developing Chinese semiconductors, said it would default on $450 million in bonds. 
• Sanctions on SMIC, as mentioned earlier. 

The plans to press on:

• Major tax incentives were announced: Established integrated circuit projects may get up to 10 years of corporate income tax exemption, provided they develop 28-nanometer or more advanced chips. Enterprises that produce chips between 28 nanometers and 65 nanometers would receive a tax exemption for five years, on top of a 50% discount on the corporate rate for the following five years. 
• NICU (Nanjing Integrated Circuit University), China’s first integrated circuit “university,” was established in October. Though it may be better described as a “talent training organization,” it aims to play an important role in addressing China’s talent shortage in its semiconductor industry. 
• An estimated $1.4 trillion is being allocated for the development of critical technologies through 2025, according to a draft of China’s 14th Five-Year Plan. Semiconductors are sure to play a vital role in these efforts. China’s ambitious goal is to produce 70% of its chip needs domestically by 2025; by late 2020, only 16% of the country’s chips came from homegrown companies.

With the new tax incentives, Beijing knows that at least some money will be wasted. A spokesperson for the National Development and Reform Commission admitted that “some ‘three noes’ companies — no experience, no technology, and no talent — have joined the industry,” and vowed to be stricter with choosing semiconductor projects to promote in the future. Yet, nearly inevitably, some more companies will fail in 2021.

Some commentators, such as Dan Wang, technology analyst at Gavekal Dragonomics, have argued that the U.S. government’s rapidly expanding tech blacklists may backfire. For the first time, he wrote in December 2020, it is “not hard to find [technology] executives in Beijing who say they’re eager to buy local,” both because they worry that their companies may end up being blacklisted next, and because many American suppliers can no longer guarantee semiconductors for Chinese companies. In other words, the stepped-up action of the last year of the Trump administration has aligned incentives in the Chinese technology industry to truly cut off dependence on American semiconductors. Other analysts have said that American sanctions will act as only a “modest brake” on China’s technology ambitions.

At this point, it is unclear whether the Biden administration would continue to significantly tighten the screws on technology input supplies to Chinese companies. Whether the U.S. does increase its pressure or not, 2021 is unlikely to be a breakout year for Chinese semiconductor companies, but developments during the year could provide important metrics on China’s progress toward self-sufficiency.