“International discourse power”

Bill Bishop weighs in on NBA-gate:

The NBA has leverage in China, if it works as a united front. PRC fans, sponsors, web sites and broadcasters can shun one team, but they can not and will not shun an entire league. Do you really think those fans are going to be satisfied watching CBA games? There would be a social stability cost to banning the NBA in China. I am serious.

This NBA episode may backfire on Beijing here in the US as there is bipartisan outrage. That said, given the DC news cycle Commissioner Silver will likely remain much more worried about CCP Commissars than the US Congress.

The broader context for this crisis is that the CCP has long pushed to increase its “international discourse power 国际话语权“, and as with many things its efforts have intensified under Xi. The idea is that China’s share of international voice is not commensurate with its growing economic, military and cultural power and that the Party should have much more control over the global discussion of all things Chinese, in any language, anywhere.

The Party is taking at least a two-track approach to rectifying this problem. On the one hand it is launching, buying, co-opting and coercing overseas media outlets. On the other it uses the power of the Chinese market to co-opt and coerce global businesses, their executives and other elite voices. The Global Times summed up the second track nicely:

The biggest lesson which can be drawn from the matter is that entities that value commercial interests must make their members speak cautiously. Chinese consumers are not overly sensitive. Wherever it is, touching a raw political nerve is extremely risky. Morey has neither the IQ nor the EQ to talk about political topics. He will become an example of clumsiness on some MBA courses.

I must admit I find the patronizing rhetoric of Chinese state media to be greatly entertaining. “He will become an example of clumsiness on some MBA courses” is a powerful dig.

China’s attempts to police foreign discourse about it have also hit a rough patch in central Europe:

Prague’s decision to end its sister-city agreement with Beijing reflects “tangible anger” in the Czech Republic over the president’s pro-China policies, analysts say.

The Prague city council voted on Monday to pull out of the partnership deal after mayor Zdenek Hrib’s unsuccessful bid to get Beijing to remove a “one China” pledge from the agreement. He argued that the pledge – confirming Beijing’s sovereignty over Taiwan – was a political matter and unsuitable for inclusion in the sister-city deal because it was a cultural arrangement.

The decision, which still needs approval from the city assembly, was understood to have prompted heated exchanges between Chinese diplomats and Czech officials.

One Czech diplomat told the South China Morning Post on Tuesday that they had stressed it was a city-level decision.

It’s almost as if angrily demanding pledges of loyalty from everyone in the world is a suboptimal strategy for winning friends and influencing people. The Czechs are starting to wake up, apparently, and so are Americans.

Hurting their feelings

Imagine my shock that Joe Tsai, the Taiwanese-Canadian co-founder of Alibaba and owner of the Brooklyn Nets, is gravely displeased by a tweet posted (and quickly deleted) by Houston Rockets general manager Daryl Morey:

Open letter to all NBA fans:

When I bought controlling interest in the Brooklyn Nets in September, I didn’t expect my first public communication with our fans would be to comment on something as politically charged and grossly misunderstood as the way hundreds of millions of Chinese NBA fans feel about what just happened.

By now you have heard that Chinese fans have reacted extremely negatively to a tweet put out by Houston Rockets GM Daryl Morey in support of protests in Hong Kong.

The Rockets, who by far had been the favorite team in China, are now effectively shut out of the Chinese market as fans abandon their love for the team, broadcasters refuse to air their games and Chinese corporates pull sponsorships in droves.

Fans in China are calling for an explanation – if they are not getting it from the Houston Rockets, then it is natural that they ask others associated with the NBA to express a view.

The NBA is a fan-first league. When hundreds of millions of fans are furious over an issue, the league, and anyone associated with the NBA, will have to pay attention. As a Governor of one of the 30 NBA teams, and a Chinese having spent a good part of my professional life in China, I need to speak up.

What is the problem with people freely expressing their opinion? This freedom is an inherent American value and the NBA has been very progressive in allowing players and other constituents a platform to speak out on issues.

The problem is, there are certain topics that are third-rail issues in certain countries, societies and communities.

Supporting a separatist movement in a Chinese territory is one of those third-rail issues, not only for the Chinese government, but also for all citizens in China.

The one thing that is terribly misunderstood, and often ignored, by the western press and those critical of China is that 1.4 billion Chinese citizens stand united when it comes to the territorial integrity of China and the country’s sovereignty over her homeland. This issue is non-negotiable.

A bit of historical perspective is important. In the mid-19thcentury, China fought two Opium Wars with the British, aided by the French, who forced through illegal trade of opium to China. A very weak Qing Dynasty government lost the wars and the result was the ceding of Hong Kong to the British as a colony.

The invasion of Chinese territories by foreign forces continued against a weak and defenseless Qing government, which precipitated in the Boxer Rebellion by Chinese peasants at the turn of the 20th century. In response, the Eight Nations Alliance – comprised of Japan, Russia, Britain, France, United States, Germany, Italy and Austria-Hungary – dispatched their forces to occupy Chinese territories in the name of humanitarian intervention. The foreign forces marched into the Chinese capital Peking (now called Beijing), defeated the peasant rebels and proceeded to loot and pillage the capital city.

In 1937, Japan invaded China by capturing Beijing, Shanghai and the then-Chinese capital Nanjing. Imperial Japanese troops committed mass murder and rape against the residents of Nanjing, resulting in several hundred thousand civilian deaths. The war of resistance by the Chinese against Japan ended after tens of millions of Chinese casualties, and only after America joined the war against Japan post-Pearl Harbor.

I am going into all of this because a student of history will understand that the Chinese psyche has heavy baggage when it comes to any threat, foreign or domestic, to carve up Chinese territories.

When the topic of any separatist movement comes up, Chinese people feel a strong sense of shame and anger because of this history of foreign occupation.

By now I hope you can begin to understand why the Daryl Morey tweet is so damaging to the relationship with our fans in China. I don’t know Daryl personally. I am sure he’s a fine NBA general manager, and I will take at face value his subsequent apology that he was not as well informed as he should have been. But the hurt that this incident has caused will take a long time to repair.

I hope to help the League to move on from this incident. I will continue to be an outspoken NBA Governor on issues that are important to China. I ask that our Chinese fans keep the faith in what the NBA and basketball can do to unite people from all over the world.

Sincerely,
Joe Tsai

Those of us who are familiar with China have received this history lesson before. Many times. And in a sense, the reaction of the fans is understandable. For other examples of this type of thing, see here, here, here and here.

Quote from the second link:

The Marriott International hotel chain has apologised and condemned “separatists” in China after the Beijing government shut down its website over an online questionnaire that suggested some Chinese regions were separate countries.

China’s Cyberspace Administration, the internet watchdog, said the hotelier had “seriously violated national laws and hurt the feelings of the Chinese people” after a customer survey listed Tibet, Taiwan, Hong Kong and Macau as separate countries. The regulator ordered Marriott’s website and booking applications to close for a week.

Note that phrase, “hurt the feelings of the Chinese people”—another formulation that China watchers will be very familiar with—and compare to Tsai’s version:

When the topic of any separatist movement comes up, Chinese people feel a strong sense of shame and anger because of this history of foreign occupation. […] the hurt that this incident has caused will take a long time to repair.

Shame. Anger. Hurt feelings. Separatism. Opium Wars. This is what American companies must now deal with because, well, 1.4 billion customers. (China is the NBA’s largest international market.)

Here we see the clash between two different, utterly incompatible value systems, each with its own virtues and flaws, which are now mutually entangled in a way that never before would have been possible due to globalization. The increasing preposterousness of the situation suggests that a great Untangling is coming, and soon.

A failure of optics

I have no issue with China celebrating the 70th anniversary of the founding of the PRC with a huge military parade. From what I can observe, the patriotic feelings generated by this event seem to be totally sincere. What I do have an issue with, is New York City joining in celebrating the founding of a Communist state by lighting up one of its iconic towers in the colors of the Chinese flag. Seriously, New York?

In the meantime, China’s flag was raised at Boston City Hall, much to the irritation of John Robb. (More details here.)

The Canadians and Australians are beginning to push back against official or quasi-official displays of the Chinese flag. In Toronto:

Dozens came out to support the 70th anniversary of the People’s Republic of China at a flag raising at Toronto city hall, but it was a ceremony that the mayor opted to skip.

Don Peat, a spokesperson for John Tory, told Global News a number of issues between Canada and China were a great enough concern that Tory decided not to attend.

Peat did not elaborate on what Tory’s issues were specifically, but he said Tory “believes in democracy and the rule of law.”

In Melbourne:

Residents in Melbourne are outraged after a police station held a flag raising ceremony to commemorate the 70th anniversary of Communist rule in China.

A large crowd gathered at Box Hill station on Tuesday to remember how revolutionary leader Mao Zedong founded the People’s Republic of China on October 1, 1949.

Anger has been stirred at the celebration marking China’s annual National Day public holiday, in light of Beijing’s crackdown on pro-democracy protesters in Hong Kong.

The station in Melbourne’s east is also in rookie Liberal MP Gladys Liu’s federal electorate of Chisholm, which has a higher-than-average Chinese population.

The Hong Kong-born backbencher’s ties to groups linked to the Chinese Communist Party have already sparked an Australian Security Intelligence Organisation investigation.

This sort of thing will be banned across the West before long.

A failure to understand

A disturbing article by David Goldman highlights the American establishment’s failure to correctly ascertain the contours of China’s grand strategy, and the unfolding and soon-to-be highly unpleasant (for the US) consequences of said failure:

Not only the Chinese, but South Korean, Japanese, British and other teams are building the capability to embed quantum communications in the new 5G networks. Not only will China go dark to U.S. signals intelligence; the rest of the world will, too, and in short order. Huawei’s 5G systems will wipe out America’s longstanding advantage in electronic eavesdropping. The U.S. intelligence community spends $80 billion a year, mostly on SIGINT, and the whole investment is at risk. […]

Huawei owns 40 percent of the patents related to fifth-generation broadband, largely because it spent twice as much on research and development as its two largest rivals (Ericsson and Nokia) combined. The strategic challenge to the United States comes not from Chinese technology theft, obnoxious as that is, but from Chinese innovation backed by state resources. The American intelligence community realized too late that China had gained the upper hand, and convinced the Trump administration to try to postpone the 5G rollout until it could work out what to do next. The failure is of such catastrophic proportions that no one in a position of responsibility dare acknowledge it for fear of taking the blame.

Domination of E-Commerce and E-Finance

Huawei’s vision of a global broadband market under its domination is hardly a secret. This is a case where China has advertised its intentions while the United States ignored the issue. Since 2011, the company’s website has promulgated an “eco-system” enabled by broadband networks that in turn would bring in Chinese e-commerce, e-finance, logistics, and marketing—in short, the whole array of business and financial services that will integrate the labor of billions of people into the greater Chinese model.

The world will become a Chinese company store: Chinese banks will lend the money, Huawei will build the broadband network and sell the handsets, Alibaba and JD.Com will market the products, Ant Financial will make micro-loans, and Chinese companies will build airports and railroads and ports. […] Among other things, Huawei is building most of Mexico’s new national broadband network, including 5G capability, in a consortium with Nokia financed by a group led by Morgan Stanley and the International Finance Corporation. Huawei also dominates telecommunications infrastructure in Brazil and other Latin American countries. China’s tech dominance in America’s neighborhood, remarkably, has occasioned no official comment from Washington.

In my view, this is far more alarming than what Gertz envisions. He writes, “China will control all deals and win any business arrangements it seeks by dominating the information domain and thus learning the positions of bidders and buyers. All Chinese companies will be given advantages in the marketplace.”

That simply isn’t the way things work. China will lock whole countries into Chinese hardware through state-financed national broadband networks, including Brazil and Mexico, where construction is underway. It understands the network effect that made Amazon and Facebook dominant players in the U.S. market, and will use its financial and technological head start to establish the same sort of virtual monopoly for Chinese companies throughout the Global South.

China envisions a virtual empire, with military deployments to protect key trade routes, starting with oil from the Persian Gulf. China’s navy established its first overseas base in Djibouti last year. Meanwhile China has invested heavily in high-tech weaponry, including satellite killers. During the first minutes of war, the United States and China would destroy each other’s communications and reconnaissance satellites. But China has a network of thousands of high-altitude balloons around its coasts, too many for U.S. forces to destroy.

And the money quote:

As we examine the details, the picture of a Soviet-style communist regime bent on world domination falls apart. China’s concept of world domination is so different from what we imagine that it has halfway come to fruition before we noticed it.

Quite.

Luttwak attack

For your amusement and edification, a link dump of interviews with, and an essay by, the great strategist Edward Luttwak, aka the Machiavelli of Maryland.

First, an interview with Japanese newspaper Sankei Shimbun in four parts: part 1, part 2, part 3, and part 4.

The interview addresses the emerging US-China Cold War and the role Japan will/can play in it. Excerpt:

Maybe China is trying to make allies and friends through One Belt One Road Initiative?

Good luck to them. Good luck to them because that will not help them with Malaysia — Malaysia has caused them a bit of a problem — nor with Indonesia, nor with the Philippines, nor with Japan.

The only country which the Chinese can get is Korea — South Korea. The South Koreans do not like being independent. They were under Chinese rule, then they were under Japanese rule, then they were under American rule, and they don’t like to be independent. They just don’t.

Not everybody likes to be independent. They are too divided themselves. They are more comfortable having somebody else. So, the South Koreans are willing to go under the Chinese rule.

The only reason they don’t do it is because of North Korea. North Korea is the protector of Korean independence, not South Korea.

If the South Koreans were interested in being an independent power, they would not be quarreling with Japan, given the fact that their security depends on Japan 100%. The Americans could do nothing in Korea without Japanese cooperation. So, the fact that they are anti-Japanese means that they are not interested in real foreign policy, they are not interested in being independent, and so they can afford to shout about comfort women and this and that because they are not serious. They are not serious about it.

One of our problems in Korea is that we don’t like North Korean nuclear weapons, but North Korean nuclear weapons guarantee the independence of North Korea and therefore guarantee that Chinese influence cannot extend over the Korean Peninsula. Because if it were up to South Korea, it would [allow Chinese influence].

You know, the South Koreans are not interested in resisting Chinese domination because they are not interested in being independent. The Vietnamese are determined to be independent of China and they are quite confident that they can defeat any Chinese action against them. The South Koreans are not confident, but also they are not interested in defending. They are really not interested in being independent. Otherwise, they wouldn’t behave the way they do.

Right. That might not be not good news for the United States and Japan. The common perception is that, in order to deal with the North Korean nuclear issue, we need some kind of trilateral cooperation including South Korea.

Listen, South Korea faces immediate military dangers from North Korea. For example, their rockets — there are cheap rockets aimed at the Seoul area. Today, there are anti-rocket systems that are not expensive and work very well. South Korea doesn’t buy them. Today, you can buy anti-rocket interceptors.

Like Iron Dome?

Like Iron Dome. You can go and buy it, okay? You can go to Lawson’s and you buy it.

Why don’t they buy it? Because they are not really interested in self-defense.

When they have money, they do something like build a helicopter carrier and call it “Dokdo.” Do they need a helicopter carrier against North Korea? No.

So, in other words, their actions are not the actions of people who either want to defend themselves or to be independent. They don’t.

They just want to transition profitably from being protected by the United States to being protected by China. That is the only thing that they are interested in.

Not everybody wants to be independent. In that sense, the North Koreans are. Because of the politics of the Kim family, they want to be independent.

But South Korea does nothing.

Luttwak’s intriguing conclusion: a divided Korean peninsula with North Korea in possession of nukes may be the best possible scenario for the US.

Next, a review of the book Japan in the American Century in the London Review of Books:

With [Prime Minister Shinzo Abe] that means much more than phrase-making, as Pyle explains in detail: his Japan now accepts real responsibilities, e.g. to repel any attempt by China to act on its fanciful claim to the Senkaku Islands in the East China Sea instead of begging the Americans to do so, e.g. preserving a dialogue with Putin in order to give him a reason for limiting Russia’s support for China (at one point Obama called Abe to try to persuade him to cancel an upcoming meeting, but he didn’t budge). It was not just a question of asserting personal leadership. To change long-settled habits of passivity, Abe established a National Security Council that is not just a gathering place for representatives of the foreign, defence and intelligence bureaucracies, as in most other countries, but an actual policy-making body operated by its own staff, the National Security Secretariat. It has been remarkably effective from the start, formulating Japan’s first post-1945 national security strategy and leading successful negotiations with the Chinese.

Finally, a lengthy interview on China and the logic of strategy in War on the Rocks. Excerpt:

Brad: So you’re the National Security Advisor to the new president, we see what China has done over the time that Xi has been in power, what should the U.S. policy toward China be?

Edward: Well it has to be engagement, but of a new kind. It’s an engagement in which United States simply becomes extremely positive on everything positive, and extremely harsh on anything negative. The famous, or perhaps not-so-famous Micron case in Taiwan, where a Fujian regional authority invests money to build a copy of a Micron plant, a shadow plant. And then they go and hire, offer triple salaries to any Micron employee who comes over to them carrying a laptop or server, or memory stick or whatever it is with Micron information. They get caught by doing all …

That should have led to a drastic response while at the same time trying to be positive when anything can be positive. In other words, one has to have a duality.

Brad: What would a drastic response look like?

Edward: Well a drastic response is very simple. To this day, the People’s Republic of China, with its many accomplishments, cannot produce an integrated circuit that is even remotely competitive. No Chinese intellectual property, integrated circuit or chip … as you know super computers, laptops, phones, all of what we call electronics, anything you’re going to build artificial intelligence on, does rest on integrated circuits or microprocessors or chips or whatever you call them. Those things, in order to be competitive, not just commercially but functional, for things like don’t generate so much heat that they melt down your battery kind of thing, those things, the Chinese are not able to do without using foreign intellectual capital and they can’t manufacture them. They have to be manufactured by Taiwan Semiconductor Corporation or the other people who can work on what’s called 7 nm, which is seven nanometers, which is seven billionths of a meter, right? They can’t do it.

Running the numbers

Professor Balding does the math on US/China tariffs and finds that there may be somewhat less to the “trade war” than meets the eye:

Playing with some numbers here. YTD US exports to China are down 19% and imports from China are down 12%. To the horror of sky is falling people, these are borderline irrelevant numbers set against the US and global economies. Let’s have some perspective. For instance, 1/n

If US exports to China rose by an unprecedented amount of 19% rather than falling 19%, this would raise US GDP 0.1%. Just for illustration, imports and exports rising by those amounts rather than falling are equal to only 0.4% of US GDP. As a percentage of world GDP this 2/n

Amounts to 0.1% of world GDP. Put another way. This might be having a small impact on US and Chinese economies, it is irrelevant to the global economy. To put this number in perspective for China. If Chinese exports rose by 12% instead of falling by that amount you the US, 3/n

The Chinese economy would have grown by $63 billion. This would have added 0.45% to their economy. However this is a tiny number compared they reliance on credit. By comparison, China has added more $3 trillion in new credit since this time last year. In other words, 4/n

The marginal difference in trade is equal to 2% of rapidly expanding credit flows. Whatever your thoughts on the state of affairs a wee bit of reality is needed when blaming all nature of phenomenon on the not a trade war trade war. Done.

Meanwhile, in Thailand:

Thai officials glimpse a silver lining in the U.S.-China trade war as companies such as Sony Corp. move production to Southeast Asia’s second-largest economy.

At least 10 firms are in the process of relocating some production to Thailand from China, according to the National Economic & Social Development Council. More than a dozen others could potentially choose Thailand, it said in a statement.

“We may not see the impact on the economy now, but in the second half of 2019, it could become a positive factor for growth,” the agency’s Deputy Secretary-General Wichayayuth Boonchit said Monday.

Manufacturers are trying to escape US tariffs on imports from China.

The 10 firms moving some manufacturing to Thailand include Sony, Sharp Corp., Harley-Davidson Inc. and Delta Electronics Inc. Most have finalized locations near Bangkok or in the so-called Eastern Economic Corridor development zone, according to the economic and social development agency.

The coming scramble for Greenland

Now that the status of Greenland is a live political issue, I wonder if China will make its own play to acquire the world’s largest island before the US does:

It’s not just America who acknowledges the strategic importance of Greenland, either. Look no further than China, which has repeatedly attempted to gain infrastructure on the island.

In 2016, a Chinese company attempted to buy a former U.S. military base in Greenland, and the government in Denmark stepped in, vetoing the deal. At the time, Danish officials were quoted anonymously in the press, saying they had resisted the deal as a favor to its longtime American ally.

Then in 2018, a Chinese government-owned firm was announced as a likely winner for a contract to build a new airport. The 3.6 billion Danish krone (U.S. $560 million) contract would have given China major economic power over the local government, and decision makers in both Washington and Copenhagen worried it could lead to the U.S. being pushed out of Thule – or give Beijing a ready-made airport that could accommodate Chinese military planes in case of a conflict.

Eventually Copenhagen and Nuuk reached an agreement, with generous financial support from Denmark’s coffers, to pick a different contractor. But it is likely that China will continue to push for entry into Greenland, underlining its strategic importance once again.

I can only guess that the US put considerable pressure on the Danes to squash these Chinese attempts at gaining a foothold in Greenland.

More from Reuters:

The Arctic region sits at a geopolitical intersection of renewed rivalry between world powers China, Russia and the United States, and – with its melting ice cap – is a major symbol of the growing impact of climate change.

Russia has been raising its profile in the Arctic, creating or reopening six military bases shut after the Cold War ended in 1990, modernizing its Northern Fleet, including 21 new vessels and two nuclear submarines, and staging frequent naval exercises in the Arctic.

Russia also hopes that as the polar ice cap retreats, a shipping lane north of Russia will develop as an alternative route for goods from Asia to Europe.

The Trump administration last year began re-establishing the U.S. Second Fleet, responsible for the northern Atlantic, to counter a more assertive Russia. […]

China has also shown interest in Greenland after Beijing laid out its ambitions to form a “Polar Silk Road” by developing shipping lanes opened up by global warming and encouraging enterprises to build infrastructure in the Arctic.

Greenland, which plans to open a representative office in Beijing later this year to boost trade ties, has courted Chinese investors and construction firms to help expand three airports to allow direct flights from Europe and North America.

Greenland, which is three times the size of Texas, has vast mineral reserves including uranium and rare earths, as well as 50 billion barrels of still-untapped offshore oil and gas reserves, according to the article.

Strategic real estate?

Why the hell would the US want to own Greenland? The semi-autonomous Danish territory is already home to the US military’s northernmost installation, Thule Air Base, which hosts a vital space monitoring system as well as a deep-water seaport and airfield. What would be the advantage in actually owning 836,300 square miles of empty, mostly ice-covered land?

I’m thinking there could be a strategic advantage, and it has something to do with this:

In 2016, a Chinese company attempted to buy a former U.S. military base in Greenland, and the government in Denmark stepped in, vetoing the deal. At the time, Danish officials were quoted anonymously in the press, saying they had resisted the deal as a favor to its longtime American ally.

Then in 2018, a Chinese government-owned firm was announced as a likely winner for a contract to build a new airport. The 3.6 billion Danish krone (U.S. $560 million) contract would have given China major economic power over the local government, and decision makers in both Washington and Copenhagen worried it could lead to the U.S. being pushed out of Thule – or give Beijing a ready-made airport that could accommodate Chinese military planes in case of a conflict.

Eventually Copenhagen and Nuuk reached an agreement, with generous financial support from Denmark’s coffers, to pick a different contractor. But it is likely that China will continue to push for entry into Greenland, underlining its strategic importance once again.

See also my previous post. If the US owned Greenland, it could put the kibosh on any attempted Chinese (or Russian) projects in the territory, no questions asked. That could throw a serious wrench in the “Arctic strategies” of America’s principal rivals in the decades ahead.

Besides, we’d have Canada surrounded.