China says CIA spy uncovered after recruitment by US in Italy; US investors flag retaliation risks after Biden's China tech curbs
Taiwan steeling itself for Chinese drills over VP's US visit; Why AI is the next front in the West’s Cold War against China; China drugmakers axe IPO plans as they face scrutiny in anti-graft drive
Welcome to this issue of The China Brief. Today is August 11, 2023. Here at The China Brief, we bring you the latest news on China's politics, economy, and society from global media sources, along with exclusive expert analysis. If you find our content helpful, please subscribe to our newsletter.
China says CIA spy uncovered after recruitment by US in Italy
Al Jazeera
China has announced that it has uncovered an alleged spy for the US Central Intelligence Agency (CIA). According to China's Ministry of State Security, a 52-year-old Chinese national named Zeng was sent to Italy for studies, where he became friends with a CIA agent stationed at the US embassy in Rome. The embassy official convinced Zeng to provide sensitive military information in exchange for a large sum of money and assistance in immigrating to the United States. Zeng was found to have signed an espionage agreement with the US and received training before returning to China to carry out espionage activities. The Chinese state security authority has taken "compulsory measures" against Zeng, but further details were not provided.
China's state-run Global Times media outlet reported that the alleged US embassy employee's name was "Seth" and that he had cultivated a relationship with Zeng through social activities. Seth took advantage of their relationship to instill Western values into Zeng, and eventually revealed that he was a member of the CIA's Rome station. Zeng's case has been sent to China's state prosecutors.
The US embassy in Beijing did not immediately respond to requests for comment. US-Sino relations have soured in recent years over various issues, including national security. The US has accused China of espionage and cyberattacks, charges that China has rejected. China has also declared that it is under threat from spies and has increased its oversight of what it deems espionage activities. Earlier this month, China's state security ministry announced that it is encouraging citizens to join counter-espionage work and has established a system for individuals to report suspicious activity.
Last month, China introduced an anti-espionage law that bans the transfer of any information related to national security and interests without defining those terms. The law has raised concerns in the US and the European Union, with the EU ambassador to China questioning whether the opening up of the Chinese economy is compatible with the counter-espionage law.
Taiwan steeling itself for Chinese drills over VP's US visit
Reuters
China is expected to launch military drills near Taiwan next week as a means of intimidating voters ahead of next year's election, according to Taiwanese officials. Vice President William Lai's stopovers in the US have already angered Beijing. The US has called the stopovers routine and said they should not provoke China. The Chinese drills could resemble those held in April, when Taiwan President Tsai Ing-wen met US House of Representatives Speaker Kevin McCarthy.
Why AI is the next front in the West’s Cold War against China
Telegraph
US President Joe Biden has signed an executive order blocking US financial backing for advanced computer chips, quantum computing and artificial intelligence (AI) in China. Biden is concerned that US investment could fund technology used to counter US and allied capabilities. The ban reflects how cutting-edge technologies, particularly AI, have become the new frontline in the West’s Cold War against China. The ban is designed to prevent venture capitalists and private equity firms funding Chinese weaponry. AI systems could be used to find vulnerabilities in computer software or to spread disinformation. Western governments have put guardrails in place to prevent the technology being used for these purposes without permission and oversight, but China has no such restrictions. The US ban is expected to prompt other countries, including the UK, to enact similar measures. The US has already successfully pressured allies including Britain to expel Huawei from sensitive communication infrastructure.
US investors flag retaliation risks after Biden's China tech curbs
Reuters
Investors in the US are concerned that China may retaliate or reduce its purchases of American technology as a result of President Joe Biden's executive order restricting some US investments in China. The order aims to protect national security and prevent US capital and expertise from aiding China's military modernization. While the initial restrictions were seen as limited and unlikely to extend to passive investments in public Chinese stocks, investors are worried about China's potential response. China's commerce ministry has expressed grave concern and reserved the right to take countermeasures. Some analysts believe China's options for retaliation are limited and that the matter is unlikely to escalate, but others believe retaliation is inevitable. China could restrict exports of rare earths or target other US technology companies. The tensions between the US and China could also lead to a reduction in capital flow into US companies and markets as China seeks self-sufficiency in technology. US private equity and venture capital investors have already pulled back from China and are likely to continue to do so until there is more clarity on how the rules will be implemented. Some portfolio investors are also reducing their exposure to China. However, there are concerns that investors are missing out on the growth opportunities in China due to the tensions.
Flash flood in China kills five villagers who were herding sheep
Reuters
Flash floods in northwest China have killed five villagers who were rounding up their sheep in the hills, according to local media reports. The villagers had taken shelter in their cars by a river during a sudden storm when one of the cars was swept away in the flood. The second car managed to drive up onto a mud flat, and its two passengers were eventually rescued. The province has implemented emergency measures in anticipation of more heavy rain and flooding. China has experienced extreme weather and flooding this summer, with record-breaking rain and Typhoon Doksuri causing widespread damage and loss of life.
China's Hebei province plans for two years for post-flood reconstruction
Reuters
Hebei province in northern China is preparing to carry out two years of post-flood reconstruction, according to state media reports. The province will prioritize ensuring that affected residents can either return to their homes or have new homes before the approaching winter season. The announcement comes after heavy rainfall caused severe flooding in Hebei, resulting in significant damage to infrastructure and displacement of residents.
The floods in Hebei have been described as the worst in decades, with the province experiencing the highest levels of rainfall in recorded history. The heavy downpours have led to the overflowing of rivers and reservoirs, causing widespread flooding in many areas. The floods have affected millions of people and caused substantial damage to homes, roads, and other infrastructure.
The provincial government has been working to address the immediate needs of those affected by the floods, including providing emergency relief and assistance. However, the scale of the damage and the number of people affected require a long-term plan for reconstruction and recovery.
The two-year reconstruction plan aims to ensure that affected residents are able to return to their homes or have new homes before the onset of winter. This is a crucial step in the recovery process, as winter in Hebei can be harsh, with low temperatures and heavy snowfall. It is essential that residents have a safe and secure place to live during this period.
China coast guard says held maritime enforcement drills with Russia, South Korea
Reuters
The joint drills between China, Russia, and South Korea aimed to target drug trafficking at sea. The drills were part of the annual North Pacific coast guard drills and took place in the eastern Chinese city of Ningbo from August 7 to 10. Maritime law enforcement officials from the three countries participated in the drills.
China's coast guard released an official statement announcing the drills. The statement did not provide many details about the specific activities that took place during the drills. However, it mentioned that the drills focused on combating drug trafficking in the North Pacific region.
China tutoring firm settles US agency’s first bias lawsuit involving AI software
South China Morning Post
China-based tutoring company iTutorGroup has agreed to settle a lawsuit brought against it by the US Equal Employment Opportunity Commission (EEOC) over its use of artificial intelligence (AI) in hiring decisions. The EEOC alleged that iTutorGroup used AI-powered software to discriminate against older job applicants. Under the settlement, iTutorGroup will pay $365,000 to over 200 job applicants who were allegedly passed over due to their age. The settlement still needs to be approved by a federal judge. The EEOC has warned that it will focus on enforcing anti-discrimination laws against companies that misuse AI.
China drugmakers axe IPO plans as they face scrutiny in anti-graft drive
Reuters
Healthcare companies in China are cancelling their initial public offering (IPO) plans due to increased scrutiny from stock exchanges. The exchanges are trying to stop the pharmaceutical industry from bribing doctors in order to sell their drugs and medical equipment. Vaccine maker Shanghai Rongsheng Biotech has already had to terminate its IPO after the company's sales expenses received attention from regulators. Rongsheng and Fujian Mindong Rejuenation Pharmaceutical have said that their sales activities are reasonable and that they do not have any cases of transfer of interests.
Outrage Online as Chinese Property Giant Wobbles and Stock Dives
NY Times
Shares in Country Garden, China’s last major real estate giant to avoid default, plummeted on Friday after the company warned it expected a loss of up to $7.6bn in H1 2022. Chinese investors have expressed their anger at the housing market, drawing comparisons with China Evergrande, which defaulted in 2020 and marked the start of a wave of similar flameouts. Country Garden’s collapse has alarmed economists and market watchers, who fear China’s policymakers have lost control over the housing market.
China’s Military, ‘Chasing the Dream,’ Probes Taiwan’s Defenses
NY Times
China has been increasing military pressure on Taiwan over the past year by sending jets, drones, bombers, and other planes closer to the island. Chinese naval ships and air force planes have been edging closer to Taiwan's territorial seas and skies, probing the island's vigilance and wearing down its military planes and ships. China's increasing presence in the area signals its intent to dominate the West Pacific, which is vital for Taiwan's defenses and potential aid from the United States. China claims Taiwan as its lost territory and seeks unification, even by force if necessary. China has been increasing its military activities around Taiwan during times of high tension, and it may put on another show of force when Taiwan's vice president, Lai Ching-te, passes through the United States. China has been deploying increasingly diverse and sophisticated arrays of planes near Taiwan, erasing the informal boundary that used to exist between the two sides. Taiwan has detected an uptick in Chinese military aircraft near the island, including across the median line in the Taiwan Strait. While war is not imminent, China's activities are part of a long-term effort to corrode Taiwan's security and alertness. Taiwan has no easy way of pushing back against China's aerial encroachment due to its smaller military, but the United States has sold more advanced fighter jets and other military hardware to Taiwan to help it deter China. However, China has a significant numerical lead in combat-ready fighter jets compared to Taiwan. Taiwan has "fairly robust" ground-based defense systems that could counter Chinese air intrusions and ballistic missiles, but large-scale missile attacks could overwhelm Taiwan's air defense systems.
China floods hit rice, corn crops; trigger food inflation worries
Reuters
Floods in China have damaged corn and rice crops in the country's key northern grain-producing belt. The extent of the damage is not yet clear, however initial estimates suggest that around 2% of corn output has been affected. Rice output is also expected to be reduced. These crop losses add to the tightening global food supplies, with India's recent ban on rice exports and disruptions in Black Sea grain shipments. This could put further upward pressure on global rice prices, which have already increased by over 20% since India's ban.
China's Huawei reports small revenue bump on back of core businesses
Reuters
Chinese technology giant Huawei has reported modest revenue growth in the first half of 2022, with its ICT infrastructure and consumer businesses contributing the majority of revenues. Revenues rose to CNY310.9bn ($43.01bn), a 3.1% increase from the same period the previous year. The company's profit margin rose to 15%, with a net profit of CNY46.6bn, roughly three times higher than the previous year. Huawei's ICT infrastructure business contributed CNY167.2bn to revenues, while its consumer business added CNY103.5bn. The company's consumer business saw growth, with its domestic mobile market share increasing 76.1% in Q2.
Chinese banks balk at rate cuts for existing home mortgages
Nikkei Asia
Chinese banks are reportedly dragging their feet in response to the central bank's call for them to reduce rates on existing residential mortgages. The People's Bank of China (PBOC) has encouraged commercial lenders to renegotiate or replace existing mortgages with lower rates in order to help stimulate the country's faltering economic recovery. However, as of July 21, several major lenders, including China Construction Bank, Industrial and Commercial Bank of China (ICBC), and China Merchants Bank, had all denied cutting rates on existing mortgages. Banks are concerned about the impact of rate cuts on their profits, as they would have to forgo interest payments that they would have earned if borrowers had kept making payments over the life of the loan. The proposed rate cuts could benefit both homeowners and banks, as they would reduce mortgage payments for homeowners and give banks less of an incentive to pay off their loans early. However, banks are still awaiting formal guidance from regulators on changing existing mortgage rates. The PBOC's recent statements are seen by some analysts as more about addressing public concerns than a call for mandatory rate reductions across all outstanding mortgages. It is likely that localized rate cuts will be implemented in regions where home prices have fallen or where stalled residential housing projects need to be restarted. First-tier cities like Beijing and Shanghai are expected to be the last to implement rate cuts, if they do so at all.
Philippines to send more supplies, ships to reef as China tensions rise
South China Morning Post
The Philippines will send more supplies to a remote outpost on a reef in the disputed South China Sea as early as next week, a military commander said on Thursday, days after Chinese boats disrupted a delivery.
Philippines says refurbishing grounded ship an option to strengthen hold on disputed shoal
Reuters
The Philippines is considering refurbishing a grounded warship in order to strengthen its hold on the disputed Second Thomas Shoal in the South China Sea. The warship, Sierra Madre, was intentionally grounded in 1999 as part of the Philippines’ sovereignty claim to the shoal. The country currently rotates a small number of troops through the ship. China has urged the Philippines to remove the grounded vessel, but Manila denies having made any agreement to abandon the shoal. The Philippines’ priority at present is to resume rotation and resupply missions for its troops on the atoll. These may recommence in two weeks’ time. Japan, France, South Korea and the US have expressed concern over recent actions by Chinese coastguard vessels, which have used water cannons to target Philippine resupply boats. One boat was forced to turn back as a result of the Chinese action. The Philippines won an international arbitration award against China’s South China Sea sovereignty claim in 2016. The ruling stated that Beijing’s claim had no legal basis, including at the Second Thomas Shoal. China has built militarised, man-made islands in the South China Sea, and its claim of historic sovereignty overlaps with the exclusive economic zones of the Philippines, Vietnam, Malaysia, Brunei and Indonesia.
China property giant warns of up to $7.6bn loss
BBC
Country Garden, one of China's largest property developers, has announced that it could face a loss of up to $7.6 billion in the first half of this year. This comes as China grapples with a number of economic challenges, including deflation, falling exports, and record high youth unemployment. The company has set up a special task force to find ways to turn the business around, and rating agency Moody's has downgraded its rating due to heightened liquidity and refinancing risks. The economic issues facing China have raised questions about the pace of its post-pandemic recovery, and US President Joe Biden has described China's economic problems as a "ticking time bomb." The country is also dealing with ballooning local government debt and challenges in the housing market. Last month, Evergrande, once China's biggest real estate firm, reported combined losses of $81.1 billion for 2021 and 2022, highlighting the impact of the property market crisis in China.
Stay informed about the latest news, analysis, and policy briefs from across the globe related to China with the China brief. Our team aggregates, synthesizes, and summarizes the most important information from various sources, including media outlets, think tanks, government agencies, and industry experts.
Our mission is to provide you with easily accessible and critically valuable information tailored to your specific field of interest. We understand the significance of staying up-to-date on developments related to China and aim to make this information comprehensible for our readers.
Join the conversation and stay informed about the latest news and developments related to China by visiting our website at www.6dobrief.com