Work of A Single Expert: Inside China's Balloon Program
Star Banker’s Disappearance Unnerves China’s Business Elite; Biden says he'll speak with China's Xi on balloon incident; Pentagon’s top China official visits Taiwan; Why China Didn’t Invent ChatGPT
Welcome to the latest edition of The China Brief, where we bring you the latest news and insights on China's political and economic landscape. In this issue, we cover a range of topics from China's ballooning program and its fusion of civilian and military pursuits to the disappearance of a star banker and the US-China diplomatic relations. We also explore how China's innovation environment is being questioned amid concerns over censorship, geopolitical tensions, and government control of the private sector. Join us as we delve into these stories and their potential implications for China and the world.
WSJ: China’s Balloon Program Combines Commercial and Military Capabilities
While the US military recently shot down a Chinese balloon off the South Carolina coast and has accused Chinese surveillance balloons of flying over sensitive sites, China has denied that the incident was related to its spy program. The US Commerce Department has also blacklisted six Chinese companies for their links to the program, including those with connections to Beijing academic Wu Zhe, who has taught at Beihang University and has founded several private companies to develop balloons and military-grade equipment. Wu's work on balloons is said to blur the lines between civilian research, profit-oriented businesses, and Beijing's military objectives. The Chinese government has emphasized the fusion of civilian and military endeavors in recent years, breaking down barriers between private businesses and the military's needs, and incentivizing more-nimble companies to align themselves with political priorities. The US alleges that China's use of private enterprises for military activity makes it more difficult to enforce sanctions and export controls aimed at the Chinese state, adding that it can be challenging to know whether Beijing holds sway over a company, even when it is privately held. Despite the US's concern about the civilian-military fusion in China, the overlap between military and industrial pursuits is prevalent globally, including in the US, where commercial weapon-systems makers supply the Pentagon.
Who is Wu Zhe?
Wu Zhe is a 66-year old Beijing academic who has held a senior role at an aeronautical institute, founded several private companies to develop balloons and military-grade apparatuses, and is listed as an inventor on a range of patents for balloon-related technologies, including some with dual civilian and military applications. At least four of the six Chinese companies blacklisted by the US Commerce Department on February 10, 2022 trace management or financial ties to Wu, according to publicly available business records. Wu is a former member of a science-and-technology committee for the General Armaments Department of the People's Liberation Army. The fusion of civilian and military endeavors is a characteristic of China's great-power competition with the US.
Bloomberg: Star Banker’s Disappearance Unnerves China’s Business Elite
Bao Fan, the chairman of China Renaissance Holdings, a leading tech-focused investment bank, has disappeared, according to a statement by his firm, which said it had lost contact with him. Reports suggest he is assisting a government investigation. Bao, who has advised tech giants including Alibaba and Tencent, founded the bank in 2005 and made a name for himself by brokering tough mergers that led to the formation of Didi and Meituan. His firm has helped with 574 private placements for companies, raising a total of $41bn for the companies before listing five years ago. In a memo to its staff, China Renaissance's executive committee urged its employees to stick together and not to believe or spread rumors. Bao's disappearance has raised fears that the Chinese government's crackdown on the private sector may have taken another turn. President Xi launched a broad anti-corruption probe in late 2021 targeting the nation’s $60tn financial sector, which has brought down dozens of officials, including bankers from brokerages Everbright Securities and Guotai Junan Securities.
Nikkei: Biden says he'll speak with China's Xi on balloon incident
US President Joe Biden said he plans to speak with Chinese President Xi Jinping about a downed Chinese spy balloon that transited the US. Biden said the US was not looking for a new cold war and that the US was continuing to engage diplomatically with China on the issue. After the speech, Biden said the last thing that Xi wants is to fundamentally rip the relationship with the US and with him. China says the 60-meter balloon was for monitoring weather conditions, but the US says it was a surveillance balloon with a massive undercarriage containing electronics. The US intelligence community is still trying to learn more about three unidentified objects, one that was shot down over Alaska, one over Canada, and a third that plunged into Lake Huron. The administration said they were downed because they posed a threat to civil aviation. The intelligence community believes the objects were most likely balloons tied to private companies, recreation, or research institutions. China put Lockheed Martin Corp. and a unit of Raytheon Technologies Corp. on an "unreliable entities list" over arms sales to Taiwan, banning them from imports and exports related to China in its latest sanctions against US companies.
WSJ: Trump-Era Officials Were Aware of Suspected Balloons in U.S. Airspace
During the Trump administration, a small group of intelligence officials at the Pentagon monitored several mysterious objects in US airspace, now suspected to be balloons, but these incidents were not reported to the White House as it was unclear what they were, according to former US officials. Intelligence analysts reached an assessment in the summer of 2020 that the objects were related to Chinese surveillance, but this was not shared more broadly at the time. Recent concerns about China’s balloons became public after a Chinese high-altitude balloon was spotted over American airspace and shot down by the US military on 4 February.
FT: Pentagon’s top China official visits Taiwan
Michael Chase, the Pentagon’s top China official, has visited Taiwan amid worsening relations between the US and China over the shooting down of a suspected Chinese spy balloon. The visit marks the first time a senior US defence official has visited the island since 2019. US-China relations have deteriorated after the Chinese military flew a large balloon over North America that was shot down by an F-22 off the coast of South Carolina. China maintains that the balloon was a civilian craft conducting meteorological research, while the US insists that it was being used for surveillance.
FT: Balloons, aliens, Chinese espionage: US struggles to explain aerial encounters
In recent days, the US military has been forced to defend and explain the events that have led to the shooting down of unidentified aerial objects over North America. The first incident involved a 200ft-tall Chinese spy balloon that had been flown over North America for eight days. The subsequent three events occurred over the past weekend and were located in Alaska, Canada’s Yukon and Michigan’s Lake Huron. National Security Council spokesperson John Kirby and Norad head General Glen VanHerck sought to explain the events, with Kirby dismissing the idea of aliens, and VanHerck stating he had “not ruled anything out” in determining the nature and origin of the objects. However, officials have been unable to provide clear details about the objects, with the high altitude, size and speed of the flying objects making identification difficult. Kirby suggested that the three recent objects were likely “being moved by the prevailing winds” and had no propulsion capabilities or ability to manoeuvre.
While the incident involving the Chinese spy balloon has received the most attention, the US military has been faced with questions about the apparent rise in such occurrences, with four objects shot down in just nine days, compared to no “kinetic” action in the previous 65 years. Norad has recently enhanced its radar capabilities and improved its early warning and surveillance systems, though the objects in question have posed a particular challenge, especially balloons that do not have a high radar cross-section. The White House is also being questioned about the sudden increase in objects, with analysts warning that the incidents should serve as a “wake-up call” as they expose the country’s inattention to potential threats in “near space”, roughly the area between 12 and 60 miles above sea level, where China is said to have been increasing its activity.
NYT: Why China Didn’t Invent ChatGPT
China's tech entrepreneurs are questioning the country's innovation environment amid concerns that censorship, geopolitical tensions and the government's growing control of the private sector have stifled growth and tech innovation, according to the New York Times. Once a wild, wild East for tech entrepreneurship and innovation, the country is now a very different place as the government takes minority stakes and board seats in big tech companies, giving it effective control. Chinese tech leaders have also been laser-focused on making money and reluctant to spend on research projects that weren't likely to yield revenue in the short term. While Chinese tech companies are increasingly being guided by the government on how to invest money, which technology gets funding and the research projects that conform with the country's goal of becoming self-reliant in tech, the government's censorship protocols and growing control of the private sector have dampened China's capacity for innovation. OpenAI's development of experimental chatbot, ChatGPT, with the help of Microsoft’s money highlights the growing artificial intelligence gap between China and the US. The balance of power was tilting in China’s direction a few years ago because of abundant data, skilled scientists and supportive policies; today, the US leads the world in total private investment in artificial intelligence and in the number of newly funded AI companies.