Get ready for collateral damage

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—Jeremy Goldkorn and team

1. They got bupkis — American negotiators fly back to D.C.

Trump’s trade negotiators are on the way back from Beijing after two days of talks with their Chinese counterparts, and they got bupkis. The New York Times reports:

Senior Chinese and American officials concluded two days of negotiations late Friday afternoon with no deal and no date set for further talks, as the United States stepped up its demands for Chinese concessions to avert a potential trade war.

The American negotiators’ “stepped up” demands — in the form of a letter they sent to Beijing in advance of their arrival — were leaked and circulated on the Chinese internet, as reproduced on Twitter by Economist correspondent Simon Rabinovitch. The letter demands that China:

• Cut its trade surplus with the U.S. by $100 billion in the 12 months starting June 1, 2018, and by another $100 billion in the 12 months starting June 1, 2019.

• Stop the Made In China 2025 subsidy program to high-tech industries, including aviation, electric cars, robotics, computer chips, and artificial intelligence.

• Accept U.S. restrictions on Chinese investments in sensitive technologies without retaliating.

• Reduce import tariffs on American goods and fully open up services and agriculture to American participation.

China’s official response has been cordial. Xinhua News Agency said (in Chinese) the talks were “frank, efficient, and constructive,” and that while “there are still big differences on some issues,” the two sides “reached consensus in some areas.”

Unofficially, Beijing’s gremlins are at work, imposing “non-tariff” barriers to American goods. Yesterday, Reuters reported that “China’s major ports of entry have ramped up checks on fresh fruit imports from the United States, five Chinese industry sources said, which could delay shipments from U.S. growers already dealing with higher tariffs as Sino-U.S. trade ties worsen.”

This is a common tactic with food imports. As one of our readers recently pointed out, “China had already disrupted U.S. sorghum imports last year by erecting a number of fictitious phytosanitary barriers, as they are wont to do, to help incentivize local feed producers to switch to more expensive locally grown Chinese corn.” This tactic is not just used to encourage local producers — the Chinese government also uses informal disruption of imports and investment, and the tacit encouragement of consumer boycotts as political weapons. In recent years, countries that have felt a commercial squeeze from Beijing in retaliation for a decision or a perceived slight include:

• South Korea 2017 — canceled theme park projects and vandalized supermarkets.

• The Philippines 2012 — “heaps of rotting bananas” intended for China.

• Japan 2012 — street protests and boycotts of Japanese goods.

• Norway 2011 — rotting salmon “as China takes revenge for dissident’s Nobel Prize.”

Get ready for collateral damage

A lot of American businesspeople are cheering on the Trump team’s hardline demands. But with both sides apparently unwilling to budge on fundamentals, there is sure to be collateral damage to American companies.

Chinese firms will suffer, too. Caixin, the respected business news firm (and our partner on the Caixin-Sinica Business Brief podcast), emailed a note out this morning (apparently not reproduced online):

The latest economic data points from China show that trade tensions are dragging on manufacturing activity, and industrial profit growth is slowing sharply… The trade row between the U.S. and China has yet to lead to the imposition of tariffs by either side, but tensions show little sign of easing and are starting to impact business sentiment and orders.  

2. Missiles have nothing to do with militarization!

After CNBC reported earlier this week that American intelligence officials had seen the “deployment of anti-ship cruise missiles and surface-to-air missiles on Fiery Cross Reef, Subi Reef and Mischief Reef in the Spratly Islands,” one American analyst said, “China is now unambiguously militarizing the Spratlys.”

• Chinese Foreign Ministry spokesperson Hua Chunying 华春莹 today said, “It has nothing to do with militarization,” and that the deployment of “necessary national defense facilities” was within China’s rights, according to CNN.

• A spokesperson of Philippines President Rodrigo Duterte seems to be comforted. Al Jazeera reports that Harry Roque today said, “With our recently developed close relationship and friendship with China, we are confident that those missiles are not directed at us,” although he did add that the Philippines remains “concerned” about the missile deployments.

3. A brief history of the Uyghurs

With all the (bad) news coming out of Xinjiang, you might be interested in a primer on the Uyghurs, the Turkic-speaking Muslim ethnic group, who are usually on the receiving end of the bad news. Scholar Rian Thum has published — for free — a brief history of the Uyghur people. It’s very accessible and highly informative; it also includes a great further reading list. You can get a PDF of the paper here.

4. Marx and May 4

Today is the 99th anniversary of the May Fourth Movement (五四运动 wǔsì yùndòng), epitomized by the student protest in Beijing on May 4, 1919, against the Chinese government’s weak response to the Treaty of Versailles. To mark the occasion, China Heritage has reprinted a translation of an essay written in 1989 by the recently deceased Taiwanese cultural and political critic Li Ao 李敖. Excerpt:

Unfortunately, after the May Fourth Movement, as both the Nationalists and the Communists adopted Soviet-style organizational methods and party discipline under the tutelage of the Soviet Union, the goal of ‘healthy individualism’ was abandoned for that of collectivism.

You won’t be reading a reprint of Li Ao’s essay in the People Daily today, but you can read all about the 200th anniversary of the birth of Karl Marx. Xi Jinping’s “important speech” today (in Chinese) and all the top stories in central state media are all about the German Jew born on May 5, 1818 in the city of Trier.

“Marx was right!” (马克思是对的 mǎkèsī shì duì de) is the catchphrase of the Party’s propaganda campaign around the 200th anniversary. Reuters has a good piece on it: Back to the future: Rejuvenating China pushes Marxism as ‘true path’.

—–

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

• Smiling at Japan
  China’s President Xi may visit Japan in June 2019, diplomatic sources say / Japan Times
  The same sources say that Tokyo “is hoping Prime Minister Shinzo Abe can visit China as early as this fall, as this year marks the 40th anniversary of the signing of a friendship treaty between the two countries.” Also today, Abe and Xi spoke by telephone and agreed “to closely cooperate in resolving the North Korean nuclear and missile issues, while confirming the importance of UN sanctions against the North to achieve that goal.”

• The academic establishment
  Peking University (PKU) celebrates 120th anniversary after a season of scandals / The China Project
  In celebration of its 120th anniversary, China’s “Harvard” held a ceremony attended by Thailand’s crown princess, Maha Chakri Sirindhorn, and Baidu’s CEO, Li Yanhong 李彦宏. No mention was made of the spate of scandals that have engulfed PKU over the last few months.

• Setting standards for 5G mobile networks
  China Mobile says 5G networks do not require new SIM cards, increased data usage / TechNode
  “Regulators are expected to begin issuing 5G licenses to mobile operators in the second half of 2019.”

• Dodgy mercenaries
  Behind Erik Prince’s China venture / Washington Post
  “The Blackwater founder has cut a lucrative security-training deal with Chinese insiders. But is it against U.S. interests?”

• Alibaba, the everything company
  Alibaba’s profit slips as it spends to expand its empire / NYT (paywall)
  The Hangzhou ecommerce giant “is making some investors nervous” by “heavy spending on Alibaba’s businesses outside of e-commerce, including cloud computing and brick-and-mortar retail.” Some people used to have the same worry about Amazon…

• Private companies and moral hazard
  Stop the bleeding: Private firm sends SOS over China’s debt-cut efforts / SCMP
  “Zhejiang-based DunAn Group is appealing to its home province for a bailout as the central government tightens its grip on financial risks.”

• Investors cooling on tech?
  Ping An Good Doctor fails to take off in Hong Kong debut / FT (paywall)
  “Shares in Ping An Healthcare and Technology, a spin-off of Chinese insurance firm Ping An, rose as much as 7.1 percent on their debut day, a far cry from the dramatic first-day surges that have accompanied other China-focused tech stocks in Hong Kong.”
  Perhaps Xiaomi’s upcoming IPO will excite the bulls again?

• India
  Opinion: Modi signals weakness by making nice with China’s Xi / WSJ (paywall)
  “The leaders’ photo-op was almost enough to make you forget about last year’s Himalaya confrontation,” writes WSJ columnist Sadanand Dhume. See the The China Project summary of the Xi-Modi meetings.

• Chinese in Africa
  Romance without borders / Sixth Tone
  “As China grows its influence in Uganda, one cross-cultural couple raises a family.”

• Grim news from the widow of a dissident
  Liu Xia, in call from China, tells of the agony of endless captivity / NYT (paywall)

Here are the stories that caught our eye this week (other than U.S.-China trade talks and waves in the South China Sea, mentioned above):

• Upstart smartphone maker Xiaomi filed for a massive IPO in Hong Kong — at least $10 billion is expected to be raised, pushing the company’s value as high as $100 billion. The IPO is significant both as tech news and as financial news: Hong Kong recently changed its rules for public companies to allow dual-class shares, and Xiaomi will likely be the first of many large Chinese tech companies to plan IPOs in Hong Kong, rather than in just New York.

• Many cancer treatments got cheaper this week, as China exempted that slice of the medical sector from import tariffs, reducing costs by around 20 percent.

• The animated character Peppa Pig got banned from streaming site Douyin, apparently as her image went viral and became a symbol of gangster or slacker culture in a way that upset censors. Later, some reported that they could view Peppa videos again, so the ban may have been temporary.

• Foreign Minister Wang Yi visited North Korea on a mission to maintain Beijing’s influence in ongoing nuclear negotiations between the DPRK, its neighbors, and the U.S.

VIDEO OF THE DAY

A loyal dog becomes an internet sensation in China

This 15-year-old dog, Xiongxiong, has become an internet sensation in Chongqing, China. Every day, he waits near a train station for his master to come home from work. It was adopted about eight years ago.

ON SUPCHINA

Snooker star Ding Junhui ousted once again on sport’s biggest stage

Golden boy Ding Junhui 丁俊晖, seeking his first World Snooker Championship title, got crushed 13-5 by Barry Hawkins in the quarterfinals this week. It was a startling defeat for China’s snooker star, who was the tournament favorite after the early ouster of his two main rivals. Meanwhile, women’s hockey coaching legend Digit Murphy is out as China’s national team coach.

Mingbai: China’s famous foreigners

Today, Mingbai zooms in on two Americans and a Canadian — who are known to almost everyone in China, but to surprisingly few outside.

An amazing hand-drawn map of Beijing

Fuller — the pen name of Gareth Wood — unveiled a 120- by 150-centimeter hand-drawn map of Beijing on Thursday at the Rosewood Hotel. The artwork was meticulously drawn with black pigment ink on a cotton museum board over the course of 1,000-plus hours. The original can be seen at the National Agricultural Exhibition Center as part of Art Beijing, while prints will remain up at the Rosewood until the end of October.

Kuora: Commemorating May Fourth, that most underrated of Chinese movements

The May Fourth Movement was inarguably an important, epochal period that shaped modern China’s intellectual, social, and political history. It brought a generation of young intellectuals onto the political stage, and created an archetype for student/youth intellectual and political participation that would echo on for generations.

Unprecedented number of ticket refunds taints box office record of romance ‘Us and Them’

Chinese romantic comedy Us and Them (后来的我们), a movie about the ups and downs of a couple who met by chance on a train, raked in a handsome $44 million for its debut. But the illustrious box office sales have been called into question — and box office fraud suspected — after reports of massive ticket refunds.

Q&A with Debra Lodge, a major force behind RMB internationalization

China has been pushing the internationalization of its currency for years. Debra Lodge, managing director for HSBC Global Markets, explained to The China Project how the country’s gradual reform in financial sectors can benefit foreign enterprises and why the yuan business in the U.S. has been growing exponentially.

Sinica Podcast: Introducing TechBuzz China, plus Joanna Chiu on Hong Kong’s illicit wildlife trade

The first part of this week’s Sinica is a preview of TechBuzz China by Pandaily, a new weekly podcast about technology, innovation, and startups in China. Right after the preview, AFP reporter Joanna Chiu discusses her recent investigations into the illicit trade of pangolins and totoaba in Hong Kong and Guangzhou.

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

• 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 46

This week on the Business Brief: the collapse of a North Korean nuclear test site, Ctrip’s investment in Boom Technology, new data about China’s smartphone market, Doug Young on sexism in China’s high-tech world, and more.

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

Video:

• Incredible stunts at the Zhengzhou Air Show in Henan Province from April 27 to May 1.

• 1,374 unmanned drones performed in Xi’an, Shaanxi Province, on May 1, breaking the Guinness World Record for “Most Unmanned Aerial Vehicles (UAVs) airborne simultaneously,” but not everything went as planned.

• This truck is definitely not behaving like a truck, which is to say, transporting materials in its cargo bed from one point to another at an optimal, vehicular speed.

• Chinese Foreign Minister Wang Yi met with North Korean leader Kim Jong-un in Pyongyang on Thursday. It was the first time since 2007 that a Chinese foreign minister has visited Pyongyang.

PHOTO FROM MICHAEL YAMASHITA

Spring lake

Spring arrives at Arrow Bamboo Lake in Jiuzhaigou, a nature reserve and national park in Sichuan Province. The 19-foot-deep lake is featured in the 2002 Chinese film Hero.

—Jia Guo

Photo by @yamashitaphoto. See more of his work at supchina.com/photos. #china #chinanews