America’s Belt and Road?

The US may be stepping up its game to counter China’s multi-trillion-dollar development strategy known as the Debt Trap Diplomacy–… sorry, the Belt and Road Initiative:

The US is preparing to create an agency that can invest up to $60bn in the developing world in an effort to counter what some in Washington describe as China’s use of debt to wage “economic warfare”.

In what observers say is the biggest shake-up of US commercial lending to developing countries in 50 years, the Overseas Private Investment Corporation will be folded into the new agency and allowed to invest in equity. At present Opic can invest only in debt, putting it at a disadvantage to European development finance institutions (DFIs).

Ray Washburne, president and chief executive of Opic, told the FT that China – by using what he called “loan-to-own programmes” – was “creating countries that have the shackles of debt around them”. That amounted to “economic warfare”, he said.

By more than doubling Opic’s lending ceiling to $60bn and allowing it to invest in equity, he said, it would be put on “an equal footing with other DFIs”.

According to the report, OPIC well be folded into the new agency, called the International Development Finance Corporation, and “The arrangement has been sold to the president.”

Of course, the US has other ways of creating potholes in China’s Belt and Road… This could get very interesting indeed. On a quasi-related note, China is ramping up its PR campaign in the US, according to Bloomberg reporter Jennifer Jacobs:

China Daily advertising supplement

Text of the full thread:

CHINA sends a message to Trump and Ambassador Branstad by taking over 4 pages of Des Moines Register. Advertising supplement has “news” on:

—China buying soybeans from South America due to “trade row”

—Xi Jinping’s “fun days in Iowa”

—“Beijing can set an example for the world.”

The advertisement, labeled as paid for by the “China Daily, and official publication of the People’s Republic of China” is like a 4-page tweet from the Chinese government. It calls the trade war with Trump the “fruit of a president’s folly.”

In 15 years of covering Iowa news, I cannot recall the Chinese making a play like this. Certainly unprecedented for China to take out a four-page advertisement in the DMR. [Emphasis added]

China uses this advertising format regularly—“news” inserts have appeared in Nepal, Australia, U.S., etc. per @kashishds, @lillebuen, @DavidMDrucker and others. Beijing seems to be talking straight to Trump with this Iowa ad on “China-U.S. economic interdependence.”

Newspaper advertorials are a relatively clunky way of getting the message out, and unlike, say, troll armies on social media, they aren’t plausibly deniable. Nevertheless, as much as Americans (and others) may roll their eyes at such obvious and heavy-handed PR efforts, the cumulative impact of China’s vigorous overseas messaging is likely to be non-zero.

Google fails to not be evil

Google devil

“Google” by William Blake

Now we know why Google has scrubbed almost all mention of “Don’t be evil” from its code of conduct:

Google bosses have forced employees to delete a confidential memo circulating inside the company that revealed explosive details about a plan to launch a censored search engine in China, The Intercept has learned.

The memo, authored by a Google engineer who was asked to work on the project, disclosed that the search system, codenamed Dragonfly, would require users to log in to perform searches, track their location — and share the resulting history with a Chinese partner who would have “unilateral access” to the data. […]

The memo identifies at least 215 employees who appear to have been tasked with working full-time on Dragonfly, a number it says is “larger than many Google projects.” It says that source code associated with the project dates back to May 2017, and “many infrastructure parts predate” that. Moreover, screenshots of the app “show a project in a pretty advanced state,” the memo declares.

Most of the details about the project “have been secret from the start,” the memo says, adding that “after the existence of Dragonfly leaked, engineers working on the project were also quick to hide all of their code.”

It’s pretty simple, if you want to operate in China you have to play by the CPC’s rules. There is no way for Google to do that while successfully upholding the values it pretends to care about. Hence the secrecy.

Chinasplaining

Confucius Institute logo

From a 2017 article on the increasingly sophisticated global PR efforts of certain authoritarian states:

Consider this: As part of its “Great Leap Outward” in recent years, China has quietly built up a multibillion dollar international media empire transmitting content in a multitude of languages that is making inroads in dozens of countries around the globe. As an indication of its growing sophistication, Xinhua, the state news agency, and CGTN, the Chinese state television global network (until 2016 known as CCTV), cultivate content-sharing agreements in a growing number of countries, especially in young democracies. In countries such as Argentina, Kenya and Peru, the Chinese authorities embed their own entertainment, documentary and news programming into domestic media platforms, enabling CCP-friendly soft propaganda to reach audiences in these settings. […]

The Chinese government has placed enormous resources into relationship and network building, undertaking extensive people-to-people programs in Latin America, sub-Saharan Africa and Central and Eastern Europe. Through such efforts, many hundreds of students, media professionals and policymakers each year are brought to China, often full-freight paid by the Chinese hosts. Emblematic of these wide-ranging efforts are initiatives such as the June 2016 “Forum on China-Africa Media Cooperation” and the December 2013 “High-Level Symposium of Think Tanks of China and Central and Eastern European Countries,” which convened hundreds of media and think tank professionals in China. Chinese state-backed Confucius Institutes operate a vast network of cultural influence embedded in universities and schools—more than 1,000 institutes and classrooms operating worldwide.

Further reading here. Also see my comment yesterday on how the US should deal with foreign state-funded media.

An effective response by the US would include (but not be limited to) banning Confucius Institutes on American soil and restricting Chinese investment in the entertainment and media industries, exactly as China restricts foreign investment in those sectors.

China’s jurisidiction now reaches into Hong Kong

Hong Kong West Kowloon terminus

New high-speed rail terminus in West Kowloon

Hong Kong’s absorption into the Motherland continues apace with the furtive launch of a “co-location” agreement inside a new high-speed rail station in West Kowloon, under which mainland China extends its jurisdiction to a one million square foot patch in the heart of the city:

Hong Kong and mainland Chinese officials shook hands inside the new station in West Kowloon district on Monday night to mark the new arrangement, which will mean that anyone who commits a crime in the “mainland port area” or onboard trains will be subject to mainland laws, that could include the death penalty for serious crimes.

Big Lychee comments:

It’s not every day you get what might be called a ‘private government ceremony’, but that’s what happened at the One Country Two Systems Sacrificial Midnight Mass deep in the bowels of the West Kowloon Express Rail Station. It was essentially a handover of territory from Hong Kong to the Mainland – an arrangement that would be unconstitutional if the documents that outline the constitution meant anything, but they don’t so there’s no point in worrying about it, and obviously the press aren’t going to be invited. […]

Many Hongkongers look at the high-speed rail link and see little use for it other than a possible one-off jaunt to Wuhan out of curiosity. Its main mission is simply to prove physically that Hong Kong is a part of China, and its secondary purpose is to divert your tax dollars into the construction industry’s pockets. But to the extent it will serve as a transport system, it will be an efficient funnel through which Mainland tourists can be vacuumed up and disgorged into Tsimshatsui and the West Kowloon Culture Hub Zone Project. (Or not efficient, from a baggage point of view.)

CIA debacle in China

From Foreign Policy, we learn how China managed to roll up the CIA’s entire network of informants across the country in 2010-12, executing about 30 people in total:

It was considered one of the CIA’s worst failures in decades: Over a two-year period starting in late 2010, Chinese authorities systematically dismantled the agency’s network of agents across the country, executing dozens of suspected U.S. spies. But since then, a question has loomed over the entire debacle.

Now, nearly eight years later, it appears that the agency botched the communication system it used to interact with its sources, according to five current and former intelligence officials. The CIA had imported the system from its Middle East operations, where the online environment was considerably less hazardous, and apparently underestimated China’s ability to penetrate it. […]

The former officials also said the real number of CIA assets and those in their orbit executed by China during the two-year period was around 30, though some sources spoke of higher figures. The New York Times, which first reported the story last year, put the number at “more than a dozen.” All the CIA assets detained by Chinese intelligence around this time were eventually killed, the former officials said. […]

Some staggering technical incompetence on the part of the CIA appears to have been involved:

Although they used some of the same coding, the interim system and the main covert communication platform used in China at this time were supposed to be clearly separated. In theory, if the interim system were discovered or turned over to Chinese intelligence, people using the main system would still be protected—and there would be no way to trace the communication back to the CIA. But the CIA’s interim system contained a technical error: It connected back architecturally to the CIA’s main covert communications platform. When the compromise was suspected, the FBI and NSA both ran “penetration tests” to determine the security of the interim system. They found that cyber experts with access to the interim system could also access the broader covert communications system the agency was using to interact with its vetted sources, according to the former officials.

In the words of one of the former officials, the CIA had “fucked up the firewall” between the two systems.

And a tweet from the author, Zach Dorfman:

This didn’t make it into the piece, but here’s how the Chinese treated people working with the CIA: According to one source, one asset working at a state tech institutes, and his pregnant wife, were executed live on closed circuit TV in front of the staff.

What a disaster. HUMINT is a dangerous game, even more so when sloppy tradecraft is being used. Also, I question the value of this type of high-risk skullduggery. Chinese intentions with regard to the US are not hard to discern, and access to all the secrets in the world is useless if a country is not willing to defend its national interests.

Guangzhou photos

In early 2013, I spent several days ambling around Guangzhou with my Nikon D5100. One of the best, but most underappreciated, ways to experience a city is by walking across it, so that’s exactly what I did (it took more than one session). The southern Chinese megacity formerly known as Canton has well over 80,000 restaurants and the whole place revolves around food. You may get a sense of that from some of the pictures below.

 

Trade war drives CPC rifts

Reports are surfacing that the escalating trade conflict with the US is driving a wedge between elements of the Chinese leadership:

BEIJING (Reuters) – A growing trade war with the United States is causing rifts within China’s Communist Party, with some critics saying that an overly nationalistic Chinese stance may have hardened the U.S. position, according to four sources close to the government.

President Xi Jinping still has a firm grip on power, but an unusual surge of criticism about economic policy and how the government has handled the trade war has revealed rare cracks in the ruling Communist Party.

A backlash is being felt at the highest levels of the government, possibly hitting a close aide to Xi, his ideology chief and strategist Wang Huning, according to two sources familiar with discussions in leadership circles.

A prominent and influential academic whose views have found favor in some party quarters has also come under attack for his strident views on Chinese power.

There are hints — which, given the totally opaque nature of elite Chinese politics, we should take with a dollop of salt — that the factional tensions could even be weakening the “core leader’s” grip on power:

China, for all its problems, seems set on an inexorable rise to superpower status to rival the US. On multiple benchmarks – economic, technological, military and diplomatic – Beijing is making rapid advances.

We are a long way, in other words, from peak China. But that begs another question which has been sweeping Beijing over the northern summer – whether we are now witnessing peak Xi Jinping.

In recent weeks, the signs of a nascent pushback against Xi’s absolute power have started to emerge. Some are cryptic, given the nature of Chinese politics, contained in coyly worded postings on social media. Some are the stuff of rumour, or back alley news, as the Chinese call such information, which flourishes in the absence of a free press.

More background on CPC factional disputes.

Vice magazine and Naomi Wu

Capitalist Roader Balding is not happy with Vice magazine, which is alleged to have endangered Chinese DIY enthusiast and YouTube personality Naomi Wu by circulating rumors about her personal life, in clear breach of its earlier promises to Wu:

Full thread:

This is an important post and something I fully identify with and was way out of bounds by @VICE and @sarahjeong. As @RealSexyCyborg notes, any China based journalist gets the very real potential danger anyone in China faces speaking on anything publicly. Couple of notes 1/n

1. Journalist/investors/think tankers who say I spent a long weekend in Beijing/Hong Kong/Singapore/Seoul a few years ago so I understand China, let me explain it gently: you don’t know jack. The sooner you understand that, the better we all will be 2/n

2. As outsiders you do not understand the very real danger you put people in by disclosing information that people in China do not want disclosed. Does not matter how trivial does not matter how seemingly irrelevant and non-political, your idiocy puts people in danger 3/n

3. Speaking from experience, I was told in November 2017 PKU was letting me go. I told almost no one because of the very real concern someone either trying to get a scoop or by accident would publicize this information. At that point, I’m in very real danger as a story 4/n

4. It doesn’t matter whether you deem the subjects fears rational or irrational. They know the situation better than you. People in China get disappeared for nothing. You put people in danger by disclosing information even if you think it is irrelevant 5/n

5. China based journalists and those with any experience in China are very understanding and cautious with information. They experience the same problems and would never knowingly put a China source in danger. I’ve never dealt with China based journo who wasn’t excellent here 6/n

6. Personally, if I ever found out a journalist did not treat my name and safety with care, I would never answer their phone call again, maybe from their entire organization, and would complain loudly depending on the safety/info breach.

7. Even though I believe race and gender issues are overused as fall back reasons, I cannot help but think if something similar happened to me with a media organizations, the reaction would have been very different as a white American male.

8. In short, I fully sympathize with @RealSexyCyborg and find @VICE and @sarahjeong’s handling of everything repugnant. Done.

Balding is responding to this article by Wu. Here is the Vice piece in question. Here is Vice’s response to the allegations by Wu.

It certainly appears that Vice broke its promises and betrayed Wu, in a totally unethical act of journalistic malpractice. Given what Wu describes as her vulnerable situation in China, this is a disgrace. Vice’s response piece is dishonest as well, claiming that “We did not make an agreement to avoid asking specific questions.” Judging by the messages reproduced by Wu, this is the exact opposite of the truth. Also, Vice’s statement that “Our interests in this case are reporting accurately and protecting the safety of our employees” is notable for omitting any mention of Wu’s safety, which Vice effusively promised to protect at the outset of the process.

This is very shady behavior by Vice and should be strongly condemned.

Having said all that, as a person who has lived in China and professionally edited English documents by native Chinese speakers, I was struck by one curious aspect of this story. The internet commentary that appears under Wu’s name is written in perfect, idiomatic, American-style English. At first glance, this is easily explained by Wu’s own acknowledgement of a helping hand behind at least some of her writing. There is certainly nothing wrong with that. After all, Wu is by her own account a 24-year-old woman from Shenzhen who has never even visited the West. It’s only natural that someone like Wu would seek and receive help in communicating with her global fan base.

If you check out her Twitter account though, it’s very obvious that all of Wu’s tweets are being written by one or more native English speakers. (I base this on a random sample of Wu’s recent tweets; there are some 15,000 tweets under her name.) And again, there’s absolutely nothing wrong with a young internet star in mainland China communicating in the voice of an educated, urbane, and somewhat snarky American, except for the mild cognitive dissonance it induces, like when watching a skillful ventriloquist act.

If I were reporting on this story, I might like to know more about the nature and extent of the help that Wu receives in crafting her online persona. But this is all speculation, and I would never betray or lie to an interview subject or sacrifice her safety for the sake of telling a story.

Starbucks finally meets its match in China

Its name is Luckin Coffee, it has opened about 500 outlets since its launch earlier this year, and it is reported to be worth over $1 billion, making it China’s first coffee unicorn.

Jeffrey Towson of Peking University has been asking for years why Starbucks doesn’t have a serious competitor in China. Well, now it does.

Naturally, Luckin doesn’t have cash registers and you have to order through their app and pay through China’s mobile panopticon of WeChat/Alipay or the company’s own payment function.

“My take is their big weapon is digital + lower prices + tons of locations,” according to Towson. Is this the Starbucks killer?

Luckin Coffee has the stated goal of beating Starbucks, but even without doing that, they can potentially build a profitable business by getting more Chinese to drink coffee. The current per capita average is four to five cups per year.

 

Daily links: Fentanyl and state failure

China is the main source of the insanely potent synthetic opioid fentanyl in the US, which killed more than 27,000 people in the 12 months through November 2017. “The biggest difficulty China faces in opioid control is that such drugs are in enormous demand in the US,” an official of China’s equivalent of the DEA is quoted as saying. The Opium Wars in reverse?

The trade deficit has sliced $457.2 billion off the US economy’s cumulative inflation-adjusted growth, or 14.33%, from the start of the recovery in mid-2009 through the first quarter of 2018, according to last week’s revised GDP figures. But we are told that trade deficits don’t matter.

Britain is probably not going to run out of food in the event of a “no deal” Brexit. Nevertheless, it’s interesting to note that the British government cannot guarantee food security for its people, and seemingly expects the food industry to take all the responsibility for stockpiling goods. Meanwhile, the food industry has absolutely no plans to do this.

A simulation models the release and spread of a moderately lethal and moderately contagious virus. It kills off 150 million people over the course of 20 months, including 15 to 20 million people in the US.

Over 100,000 Russians marched last month in the city of Yekaterinburg to mark the centennial of the slaughter of the Romanov imperial family by rabid Communists.

Duterte publicly destroys more than A$8 million worth of contraband luxury cars in the Philippines: