Loophole Allows U.S. Tech Exports to Banned Chinese Firms; Exclusive Insight: China’s Two Sessions" and Expected Policy Changes
Biden says no sign yet of China sending Russia weapons
Welcome to this issue of The China Brief. Today is March 25, 2023. Here at The China Brief, We bring you the latest news on China's politics, economy, and society from global media sources and exclusive expert analysis. If you find our content helpful, please subscribe to our newsletter.
And here’s today’s exclusive insight, provided by Coco Huang, a student at Brown University.
Exclusive Insight: China’s Two Sessions" and Expected Policy Changes
Despite lifting COVID-19 restrictions, China's economy still faces challenges such as sluggish domestic demand and problems in the housing market. To manage risks and strengthen supervision, China is creating the National Financial Regulation Administration to oversee all financial sectors except for securities. This move will help enhance regulation in the complex and interlinked banking and financing industries. The Chinese government has announced a reduced economic growth target of around 5% this year, and the political appointments for the rest of the Politburo Standing Committee will be announced with loyalty to Xi and the party being a significant factor.
Structural changes to the Chinese government following the Two Sessions may impact how policy is formulated and implemented, potentially affecting businesses' operations and strategies. The government is promoting foreign investment and trade to stimulate growth and improve the business environment to attract foreign investors. Support for the technology sector is increasing, with proposals to enhance China's technology and innovation capabilities, restructuring the Ministry of Science and Technology, and establishing a new National Data Bureau department for data regulation and coordination. These efforts aim to counter growing US restrictions on exporting advanced technology to China.
Loophole Allows U.S. Tech Exports to Banned Chinese Firms
Wall Street Journal
The US has a loophole in its export-control regime that allows companies to sell high-tech goods to Chinese companies via subsidiaries that are not on the Commerce Department's Entity List, which undermines the policy's purpose. While some US companies plan to continue selling to subsidiaries of the Chinese holding company, Inspur Group Co., the Commerce Department's Bureau of Industry and Security is considering adding some of Inspur's units to the Entity List. However, the gap between the different export-control and sanctions regimes must be closed more broadly, according to lawmakers. The US must protect advanced technology while ensuring American companies don't lose global market share and revenue critical to funding the R&D of new technologies.
Joe Biden says no sign yet of China sending Russia weapons
Aljazeera
China has not yet provided weapons to Russia to replenish stocks that have been depleted during Moscow's war in Ukraine, US President Joe Biden has said, adding that reports of rapprochement between Russia and China may have been exaggerated. Although the two countries' leaders described their relationship as special during a recent visit by Chinese President Xi Jinping to Moscow, China did not commit to supporting Russia's depleted forces in Ukraine. On Thursday, former Russian President Dmitry Medvedev read aloud a telegram from Soviet dictator Josef Stalin during a meeting with Russia’s arms manufacturing leaders. Medvedev, now the deputy head of Russia’s Security Council, then turned to the armaments industry leaders and said: “Colleagues, I want you to listen to me and remember the words of the generalissimo.” He is a particularly fervent and enthusiastic supporter of Moscow’s brutal invasion of Ukraine.
US Secretary of State Antony Blinken has dismissed deepening ties between China and Russia as a “marriage of convenience.” He noted that Russia was "very much the junior partner" in the relationship, and China had not yet given weapons to Moscow for use in Ukraine. Russian arms manufacturing took center stage during Medvedev's meeting, as he read a telegram from Stalin in 1941, during World War II, to a factory demanding quicker production of tank components. Medvedev invoked Stalin's message to boost Russian domestic arms production.
France bans ‘recreational’ use of TikTok, Twitter, Instagram
Aljazeera
The French government has banned civil servants from downloading and using TikTok and other such apps on professional phones over concerns that they lack sufficient cybersecurity and data protection measures. Concerns over TikTok's alleged security risks were first raised by the US while national security officials said that if accessed, information gathered by the app could be used by the Chinese government.
The announcement follows the European Union’s two most significant policy-making organizations, the Commission and the Council, which banned TikTok from staff usage in the last few weeks for cybersecurity reasons. In recent weeks, both the White House and the UK parliament have prohibited using TikTok on government devices. There are global concerns that the Chinese government could access users' data through ByteDance, the parent company of TikTok.
China's Africa Belt and Road investment drops as West spends more
Nikkei Asia
China's investment in sub-Saharan Africa's Belt and Road projects fell by 55% to $7.5bn last year, in contrast to increased US and European spending, raising questions over the impact on the region's dependence on China for funding. A report from the Shanghai Green Finance and Development Center showed that Chinese investment related to Beijing's global infrastructure development strategy fell to a new low in 2021. The Belt and Road (BRI) initiative has been marred by issues such as debt default, corruption, and environmental pollution, which has prompted some African officials to seek alternative funding sources, including the US' Build Back Better World (B3W) strategy.
Historically under-developed regions across sub-Saharan Africa have been seeking increased investments in infrastructure. However, US and European investment is expected to pose new competition for China; the B3W program was launched in June 2021, alongside promises of $40bn in funding from Canada, Japan, and Italy for buildings, roads, and digital infrastructure. While Beijing is still a major regional investor, some analysts believe that shifting priorities, notably the desire to strengthen diplomatic ties, will limit the BRI’s existing ambitions for Africa.
Ancestral trip or political ploy? Ma Ying-jeou to visit mainland China
South China Morning Post
Former Taiwanese president, Ma Ying-jeou, has planned a trip to mainland China in what some worry will make him a political tool for Beijing as it deploys a “united front” tactic against Taiwan. However, some other analysts welcome the move as necessary for alleviating the cross-strait stalemate since the incumbent president Tsai Ing-wen was elected president in 2016 and refused to accept the 'One China' principle. Beijing, which considers Taiwan its territory, has also recently stepped up efforts to isolate the region.
Russia seeks 400,000 more reservists to blunt Ukraine’s fresh offensive
South China Morning Post
Russia is planning to recruit up to 400,000 contract soldiers in its bid to avoid another forced mobilization of reservists in its Ukrainian campaign. In response, Ukraine is planning to launch a major counteroffensive at a time when nearly all of the 300,000 troops mobilized last year are on the battlefield, according to Ukrainian and Western officials.
World must take ‘give and take’ approach to accept China’s rise: Singapore PM
South China Morning Post
Singapore's Prime Minister Lee Hsien Loong has said in an interview for state broadcaster China Central Television that the world needs to accept that China plays a bigger role on the global stage, describing the country as "much more prosperous, with a greater contribution to the world economy and a larger voice in international affairs". He added that both the US and China need to cooperate and not generate tensions between each other while accepting that China has transformed significantly from what it was before.
Lee also spoke about the success of Chinese investment projects in Singapore, such as the Suzhou Industrial Park, and Singapore's role in arbitration and mediation between China and the Association of Southeast Asian Nations.
Both countries recently agreed to review their free trade agreement, which has been ongoing. China now accounts for between 15% and 20% of global trade, up from just 2% to 3% in the past.
China’s primary and kindergarten enrolments tumble as births hit record low
South China Morning Post
Enrollment numbers for primary and kindergarten pupils in China dropped significantly in 2022 due to falling birth rates. The number of preschool students decreased from 48 million in 2021 to 46.3 million in 2022, while primary school enrollment fell to 107 million. The data has raised concerns about job losses for teachers, although some have suggested that the shortage of places in affordable public kindergartens might be a contributing factor. Chinese mothers gave birth to 9.56 million babies in 2022 – the lowest figure on record – while China’s birth rate fell to 6.77 per 1,000 people, also a record low.
As China’s population drop continues, local governments feel the impact, with 13 provinces and municipalities reporting more deaths than births in 2022. The decline poses significant demographic challenges for China, especially as the trend continues because of a lack of affordable childcare and elderly care services. The country is responding by expanding resources in the sectors and setting up programs to train more teachers and encourage graduates to work in rural areas. While early education enrollment is dropping, enrolments for middle and high schools have increased, adding to the pressure on resources and qualified teachers.
Financial Times
Switzerland is in the midst of serious crises; its national identity, its doctrine of neutrality and its banking sector are all being questioned. Last weekend, Credit Suisse was folded into UBS in a government-backed rescue deal after suffering a run of problems that critics allege have arisen due to the bank becoming less “Swiss” by pursuing higher risks and higher returns. Credit Suisse is a part of Switzerland’s modern national identity story. Still, it has become a political concern, too, with the country's banking industry under tighter regulation set to become a significant focus of the upcoming general election in October. While banking has long been a major benefit to Switzerland, the collapse of Credit Suisse could mean it becomes a huge liability at a very fundamental level. The situation has also raised questions about Switzerland’s stability and whether it can continue to claim to be the world’s banker while abiding by its doctrine of neutrality. Moscow’s brutal invasion of Ukraine has challenged Swiss neutrality, with Switzerland now being surrounded by friends and deeply enmeshed with them economically. The government's refusal to be a part of any military help for Kyiv has resulted in increased pressure from Switzerland’s neighbors to reconsider its position.
In addition, banking regulators are becoming increasingly concerned that clients from certain countries, principally China, are becoming nervous about leaving their assets in Switzerland. Demonstrating this nervousness, currency traders this week ditched the franc at the fastest pace in two years as gold and the Japanese yen rose against other assets. Finally, critics feel that the liberal mainstream thesis of rational financial markets has been disproved and that the collapse of Credit Suisse, far from being the result of inadequate regulation and greed or subservience to foreign interests, has arisen due to their becoming less “Swiss” by emulating rivals on Wall Street in their pursuit of higher risks and higher returns.
Stolen Valor: The U.S. Volunteers in Ukraine Who Lie, Waste and Bicker
NY Times
Foreign volunteers fighting on the Ukrainian front have been drawn to the country from across the world, bringing combat experience and financial support. In some cases, they actively support the military effort, while in some cases, they have caused problems, even undermining the war effort. The lack of oversight by professional troops has led to unchecked access to munitions and equipment and a host of volunteers lacking skilled training, discipline, or fitness. The Ukraine military had called out for volunteers following an initial full-scale invasion from Russia in 2022, prompting thousands of people with varying degrees of experience and ability to rush to the country, many of them from the US.
One volunteer, James Vasquez, a Connecticut home improvement contractor, left days after the invasion, boasting about his heroic background as an ex-soldier with army service in Iraq and Kuwait. Since then, he posted battlefield videos online, including one that gave away his exact location to everyone, including his country’s enemies. He had easy access to weapons, including American rifles. Vasquez fought alongside the Ukrainian far-right battalion Da Vinci’s Wolves. However, he deactivated his Twitter account this week when pressed about his false military service claims. He said he might leave Ukraine as he is fighting without a required military contract. When it was uncovered that he had misrepresented his military record, he admitted that he had been telling lies about his military history for decades: “I had to tell a million lies to get ahead.”
The New York Times article reveals various similar cases, such as a Polish fugitive who had been jailed in Ukraine for weapon violations, and serving as a military leader in the International Legion, a hastily formed volunteer group created by the Ukrainian government. Another case involved Malcolm Nance, a former Navy cryptologist and MSNBC commentator, who arrived in Ukraine last year to bring discipline to the Legion and became involved in a messy power struggle.
South Korean chip giants dodge ‘worst-case scenario’ in new US proposal
South China Morning Post
According to reports, South Korean analysts believe the United States' proposed changes to the Chips and Science Act may offer some respite to the country's semiconductor chip makers. The changes are intended to limit investment in China, but have been drawn up to allow south Korean firms to increase production capabilities. The country's manufacturing industry appears to have been saved from potentially catastrophic scenarios that would have halted innovation and expansion. Senior figures from South Korea's trade ministry stated the expansion of technology-driven production would be allowed in China, while major manufacturers Samsung Electronics and SK Hynix are presently reviewing the details of the proposed new rules.
Taiwan president reviews troops ahead of sensitive U.S. visit
Reuters
Taiwanese President Tsai Ing-wen has described the country's armed forces as having a "great" mission to defend democracy. Tsai, who is viewed by China as a separatist, is shortly to travel to the US and Central America, a journey that China has criticized. She is expected to meet US House Speaker Kevin McCarthy at the end of the trip. On Saturday, she visited Taiwanese army engineers to witness their training in Chiayi in southern Taiwan, watching them construct anti-tank emplacements and practice martial arts. Tsai has offered to talk to China but has warned that if Taiwan is attacked, it will defend itself.
U.S. warns China's promises often empty as Honduras wavers on Taiwan
Reuters
The de facto US embassy in Taiwan has said that China often fails to keep its promises when dealing with other countries about diplomatic recognition. Honduras is moving to sever ties with Taiwan to favor China. Honduras' foreign minister traveled to China this week to establish relations while President Xiomara Castro declared her government would build ties with Beijing. The US is now worried about China's growing influence in the Central American region, which was previously a steadfast base for Taiwan.
At present, there are only 14 countries that officially recognize Taiwan as a state, while China is actively campaigning to lower this number. Despite Honduras' decision, the US has said it will continue to deepen engagement with Taiwan in line with its one-China policy. The country is critical in the US's relationship with the region and is its most important international backer and arms supplier.
Taiwan has also been called a "reliable, like-minded, and democratic" partner that provides significant benefits to countries on a global level. Meanwhile, China views Taiwan as one of its provinces and has no interest in establishing direct diplomatic relationships with them.
Canada PM’s children ‘no longer use’ TikTok after app ban on official devices
South China Morning Post
Canadian Prime Minister Justin Trudeau has said he is pleased with his recent ban on the use of Chinese-owned social media app TikTok from government-issued devices, which means his children can no longer access the platform due to concerns about security and access to information that the Chinese government could have to government phones. Trudeau announced the ban last month, stating that the platform had an “unacceptable” risk to privacy and security. His concerns echo those of several countries in North America, Europe, and Asia-Pacific that have banned the popular video-sharing app due to cybersecurity concerns. Some countries have prohibited TikTok altogether.
TikTok has long maintained that it does not share data with the Chinese government and is independent of its management. The company is also undertaking a project to store US user data in the US, which it claims will put it out of China’s reach. TikTok disputes the accusation that it collects more user data than other social media companies. However, the firm admitted in November that some of its employees in China could access European user data. In December, it acknowledged that employees had used the data to spy on journalists. Beijing has denied asking companies to hand over data gathered overseas.
The news comes as US President Joe Biden signed an executive order on Wednesday requiring national-security officials to assess the risks posed by software connected to foreign adversaries such as China and Russia that will now be used in government computer systems. The order formalises a process overseen by the National Institute of Standards and Technology that will vet the security of software vendors that work with US federal agencies.
Apple CEO praises China's innovation, long history of cooperation on Beijing visit
Reuters
Apple CEO Tim Cook has praised China for its rapid innovation and long ties with the US technology company during public comments in Beijing. Cook's visit comes amid tensions between the US and China, and as Apple has sought to reduce its supply chain reliance on the country in favor of emergent centers like India. According to photos shared on Chinese social media, Cook visited an Apple Store in the city on Friday. During his speech, he also discussed the need for young people to learn programming and critical thinking skills.
Japan PM refused China envoy farewell meeting amid Diaoyus tensions
South China Morning Post
Japanese Prime Minister Fumio Kishida rejected a request from outgoing Chinese ambassador Kong Xuanyou to bid farewell before his return to China in February. The snub broke with recent precedent, with several of his predecessors meeting Japanese PMs before departing. Relations between China and Japan have been strained by China’s entry into waters known as the Senkakus (Diaoyu) Islands and previous incidents involving suspected Chinese spy balloons.
China’s top memory chip maker YMTC sees improved global market demand in 2023
South China Morning Post
Chinese semiconductor company Yangtze Memory Technologies Company (YMTC), added to the US entity list in December 2020, said that global demand for its NAND flash memory products is improving this year. Cheng Weihua, YMTC's chief operating officer, said the balance of supply and demand in the global NAND flash market would be reached in H2 primarily due to orders from smartphones, servers, and personal computer makers. Cheng added that despite the US trade sanctions, YMTC would continue to innovate and push for global coordination, business diversification, and local talent development. YMTC specializes in NAND flash. This non-volatile storage technology retains data even without power, making it useful for consumer electronics devices, including smartphones and laptops.
Before receiving a CNY49bn ($7.2bn) capital injection from state-backed investors (which doubled YMTC's registered capital to approximately CNY105bn), the company had to reduce up to 70% of its orders from Naura Technology Group, a Chinese maker of tools for wafer fabs. US trade sanctions have technically hit YMTC, but the company remains upbeat about its business outlook due to widespread global demand for NAND flash.
China’s fallen property tycoons race against time to fix US$232 billion debt
South China Morning Post
China’s struggling property tycoons have less than a week to work out their debt problems or risk losing Beijing’s support following China Evergrande's announcement it will reorganize more than $19bn of offshore debt. Other distressed companies will need to do the same to avoid liquidation and the little recovery of just 2-9% for every $1 owed. Hedge funds will likely agree to restructure since the quicker the defaults are solved, the faster they can access supportive policies onshore. Sales of China's property developers surged 15% to CNY461.6bn in February, compared to a year earlier, and home prices rose 0.3% in February, the first increase since September 2021.
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